Rob Gardner gives us a primer on natural capital investing
Picture two rivers. One’s been straightened into a concrete channel. The other meanders naturally through the landscape.
The straight one looks efficient. But it floods downstream properties, undercuts railway lines, and costs millions in damage every year. The meandering one? It slows water flow, reduces flood risk, improves water quality, and supports biodiversity.
That’s the difference between treating nature as a sideshow and treating it as infrastructure.
At our recent Wednesday Wisdom webinar (see video below), Rob Gardner from Rebalance Earth explained why pension funds are starting to invest in oyster reefs, river restoration, and soil carbon. Not because it’s nice. Because it protects their existing investments.
Companies pay for nature because they want to, not because they’re told to
A quarter of Nestlé’s global profit comes from pet care. Half of that comes from the UK and Europe. And most of that is cat food.
Their entire UK and European cat food business depends on fish stocks in the North Sea. Those fish stocks have collapsed since the 1970s. The oysters that used to support marine biodiversity went from trillions of oysters 200 years ago to almost none.
So Nestlé Purina is paying for a 4 million oyster reef restoration off the UK coast. Not to be green, but to protect a multi-billion dollar revenue line.
“If I took that same oyster reef and put it the other side of Ireland, they wouldn’t pay us a penny for it,” Rob explained. “It has to be where their liability is.”
Network Rail faces the same problem. They have a railway line that crosses the River Evenlode about 20 times. Every time that line floods, it costs them £750,000. The line is being undercut. There’s little they can do to stop that with traditional infrastructure.
Thames Water, SSEN (the electricity network operator), and DEFRA all have similar problems in the same catchment: flooding, water quality, and infrastructure at risk. Here, catchment refers to them all operating in the same drainage basin.
That’s why they’re all paying for river restoration, working with farmers to improve soil health, and re-meandering parts of the river. The project is structured like a commercial property deal with multiple tenants. But, instead of building offices, they’re restoring nature.
Nature solves multiple problems at once
When you restore a river catchment, you don’t just fix one thing.
“The cool thing about nature is that it’s like a Rubik’s Cube,” Rob said. “You get biodiversity, you get water quality, you get water quantity, you get carbon sequestration. You get all of those at the same time.”
The Evenlode catchment project is a £100 million transaction. It includes £25 million in equity and £75 million in debt from NatWest, HSBC, and Lloyds Bank. Those banks also want to buy the soil carbon credits for their own net zero plans.
The interventions are straightforward. Plant trees along riverbanks. Work with farmers to move away from monoculture and heavy pesticide use. Improve soil health so it can store water like a giant sponge. Re-meander parts of the river so it can slow down water flow naturally.
Why pension funds need to care about this now
Most pension funds own shares in Tesco and Sainsbury’s. They lend money to Network Rail and Thames Water. They have exposure to fixed assets that can’t be picked up and moved.
Of the G8 countries, the UK is the most exposed to flooding, by both population and GDP. Accenture and the World Economic Forum estimate there could be $600 billion to $1 trillion in losses to fixed assets per year by 2055.
“The big question is, to what extent do you think your forward-looking capital markets assumptions around equities, private equity, property will be the same as a result of these climate and nature risks?” Rob asked.
Right now, most returns are concentrated in the US stock market. Even more concentrated in tech and AI. Natural capital offers true diversification.
But it’s not just about returns – it’s about portfolio resilience. If you lend money to Network Rail or Thames Water, and their infrastructure keeps getting damaged by flooding, that’s your problem too.
Rob outlined three levels where pension funds can think about this:
- Stewardship and engagement
- Real-world climate investment (like renewables)
- Portfolio resilience
“What role does this play in portfolio resilience?” Rob said. “If you’ve got physical assets, and you have exposure to companies with fixed infrastructure, this matters.”
The starting point for companies paying for these projects is risk and resilience. Reputation comes second. Then regulation. “If I restored a different river, SSEN wouldn’t pay us a penny,” Rob said. “It is entirely dependent on how it impacts their business, their revenues.”
How to get into natural capital
There are 53 catchments like the Evenlode in the UK. They need billions of pounds in funding. Natural capital deals range from forestry (which has the longest track record) to sustainable agriculture to nature-based solutions like the oyster reef.
For pension funds that don’t want to do individual due diligence, HSBC has invested in Fulcrum’s long-term asset fund. Within that, there’s a dedicated allocation for natural capital that you can access on its own. It builds you a portfolio across the spectrum.
Some consultants are developing similar portfolios.
For UK pension funds and long-term investors, this isn’t about creating a new asset class or making large reallocations. It’s about modest, well-structured allocations within existing private-market portfolios that can help reduce risk across the rest of the portfolio over time.
The UK government is actively trying to crowd in private capital like this. Emma Reynolds, the Secretary of State for Environment, Food and Rural Affairs, announced a new flood policy before Christmas that directly supports this approach. A pound of taxpayer money goes a lot further when combined with private investment.
Rob believes there’s an opportunity for the UK to become the fastest nature-restoring country in the world.
The alternative is what we have now. Straightened rivers that flood. Depleted fish stocks. Railway lines that keep getting undercut. Water companies getting fined millions.
Or we could have rivers that meander. Oyster reefs that support marine life. Soil that stores water. Infrastructure that’s protected by nature, not fighting against it.
The question isn’t whether this needs to happen. It’s whether pension funds want to be part of making it happen.
You can download the full report on natural capital investing from Kana Earth’s website.
