Natural capital now a core asset for UK pension funds – Pensions for Purpose
The research found most pension funds are targeting internal rates of return between 8-10% from forestry and sustainable agriculture.
UK pension funds are now treating natural capital like a mainstream asset, with some aiming for returns as high as 20%, according to research from Pensions for Purpose.
The research, commissioned by The Palladium Group, found most pension funds are targeting internal rates of return between 8-10% from forestry and sustainable agriculture.
Higher returns are being sought by more experienced investors in emerging markets due to faster biological growth and lower land costs.
Pension funds pointed to low correlation with equities and bonds and positive links to inflation as main reasons for investing.
More experienced investors were found to be blending developed and emerging market exposures to improve risk-adjusted returns.
Most pension funds investing in natural capital have only started in the past two years, often with small allocations under private markets.
Additionally, the research found that capability and confidence, not returns or risk appetite, are the main barriers to wider adoption.
Pension funds reported limited internal expertise, lack of broad track records outside forestry, and the technical challenge of assessing environmental and financial performance as key constraints.
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