UK institutional investors increase allocations to natural capital.

Mallowstreet’s latest Natural Capital Report signals a shift: UK institutional investors are preparing to move natural capital from the periphery into core portfolio allocations. Supported by BNP Paribas Asset Management, Foresight Group and Rebalance Earth, the study surveyed 68 institutional asset owners overseeing more than £3 trillion and finds a market approaching a tipping point.

The research shows demand is broadening: roughly two in five non-investors say they plan initial allocations within five years, while established investors are planning to scale holdings materially. Respondents flagged priorities clearly — project-level accountability and measurable outcomes matter most, with 68% naming robust KPIs as the primary criterion when evaluating natural capital strategies.

Allocation intent is strong across pension, insurance and charitable sectors. The report finds that 94% of local government pension schemes, 75% of defined contribution schemes and insurers, 58% of defined benefit schemes and half of charities expect to hold a natural capital allocation within five years. Importantly, a third of current investors say they expect to allocate more than 3% of assets to natural capital by 2030.

Experience appears to cement confidence. Investors with meaningful exposure are more likely to accept the asset class’ economic rationale: among those targeting allocations above 3%, nine in ten draw a strong link between nature and climate risks, and six in ten strongly endorse the long-term financial case for natural capital. The study also records that 59% of institutional respondents strongly agree that protecting nature is inseparable from tackling climate change.

Industry leaders quoted in the report highlight a conceptual shift. Ally Georgieva, Head of Insight at Mallowstreet, says investor expectations are moving beyond labels: “As experience accumulates, the debate shifts from ‘if’ to ‘how’ — managers must demonstrate cash-flow models, transparency and repeatable delivery.” Rob Gardner, CEO of Rebalance Earth, adds that natural capital is increasingly treated like infrastructure: contracted ecosystem-service revenues such as flood protection and water quality payments are rising in prominence relative to carbon and biodiversity credits, which investors now view more as potential upside than the primary return driver.

For asset managers, the implication is practical: build strategies with clear, project-level KPIs, predictable revenue streams and audited performance data. Robert Guest of Foresight Group says his firm’s natural capital strategies are positioned to support that demand, but the wider market will only scale when proof of returns becomes commonplace. Market observers note that shifting from pilot projects to multi-billion-pound programme-level commitments will require standardised metrics and more case studies that demonstrate resilience and portfolio-level risk reduction.

Overall, the report frames natural capital as an emerging institutional allocation rather than a niche impact play. As UK asset owners grow more comfortable, the onus is on product design, evidence and execution to convert intent into sizeable, permanent capital flows.