Natural capital comes of age: Part three: How nature markets will mature

Nature markets will become investable when uncertainty is made measurable, revenues become more predictable and environmental outcomes can be verified consistently.

• Aviva Investors identifies five recurring catalysts: regulatory demand, government revenue support, corporate demand, market infrastructure and standardisation, and technological and data improvements.
• Regulation created demand in markets including the EU Emissions Trading System, UK Biodiversity Net Gain, Australian water rights and US Wetland Mitigation Banking by establishing caps, obligations or transferable rights.
• Australian water entitlements evolved over roughly 30 years from farm-linked operational assets into transferable rights with brokers, valuation methods and transaction data, allowing institutional investors to underwrite future cash flows.
• UK Contracts for Difference reduced offshore-wind investors’ exposure to power prices, while similar government-backed revenue-stabilisation models are being developed for UK carbon capture, utilisation and storage.
• Microsoft and the Frontier coalition have provided advance demand for engineered and nature-based carbon removals, but the article argues that corporate commitments are most useful when combined with long-term contracts, credible counterparties and regulatory support.
• Registries, independent verification, transparent ownership records, pricing data, satellite imagery, LiDAR, environmental DNA and automated monitoring can reduce information asymmetry and delivery risk in biodiversity, water-quality and natural flood-management markets.

Takeaway: Investors should assess nature markets by the strength of their demand signals, revenue support, infrastructure and measurement systems rather than by environmental potential alone, because markets can mature, stall or regress if these foundations weaken.