What does 2023 have in store for natural assets?

The influx of investors looking for ways to gain exposure to natural capital assets continued apace this year but the Russia-Ukraine war will remain the biggest influencer of trends and markets.

At the end of last year, we asked the question: Will 2022 be the year natural capital takes flight?

Here we are 12-months later and you could certainly make the case that it some ways, yes, natural capital really did take flight in 2022.

The main reason for this observation can be boiled down to one word – carbon. It seems that no matter who the LP or GP in question is, as long natural assets are being discussed, carbon emissions, credits and their contributions to return targets and net-zero commitments are all anyone has been able to talk about this year.

The sheer scale of activity from the likes of big hitters such as TPG and AXA, through to timberland veterans such as Stafford Capital Partners and New Forests, or those trying to push the needle on natural capital as an asset class, such as Climate Asset Management or Nuveen Natural Capital, has been dizzying.

There are also clear signs this wave of interest is influencing ownership models and M&A activity.

For signs of the former, see Manulife Investment Management’s research that indicates timberland ownership models are changing due to the demand for carbon credits. And with regard to impacts on M&A activity, last year’s head turning JPMorgan acquisition of timberland management and investing company Campbell Global, was followed up this year by BNP Paribas’s acquisition of Danish timberland and farmland investment firm International Woodland Company.

And following two fractious weeks of negotiations and deadlocks, the COP 15 UN Biodiversity Summit in Montreal delivered a landmark agreement on December 19 to halt and restore biodiversity, which will add further impetus for investors and governments to get behind natural capital initiatives.

But natural capital is of course not the only big story from 2022 to have hugely impacted the asset class – not even close.

Russia’s invasion of Ukraine in February has not only brought pain, suffering and loss to those directly impacted by the conflict, it has upended food and energy markets across the world, which has exacerbated a global inflation surge that can be dated back to the end of 2020.

According to the IMF, “the average global cost of living has risen more in the 18 months since the start of 2021 than it did during the preceding five years combined.”

That’s a difficult picture for anyone to confront and regardless of ag’s defensive characteristics, investors in the sector will not be spared the ongoing pain.

For all that 2023 holds, an end to the Russia-Ukraine war will no doubt be top of everyone’s wish list – Ukraine’s prosperity and that of the world depends on it.

This will be our last Weekly Letter of the year. We will back to our usual programming on January 4. From all of us at Agri Investor, have a happy holiday season.