Gabi Slemer, Investment Director at Octopus Investments, writes on theinextricable link between nature and the economy.
The natural world and the global economy are deeply interconnected.
Recent hurricanes in Florida highlight this link, with climate-driven storms causing USD50 billion in damages, half due to increased storm intensity. The frequency of severe weather events has quadrupled since 1970, creating expensive disruptions worldwide.
In fact, in 2023 alone, the world experienced 66 extreme weather events, each costing over a billion dollars, with rising temperatures making these incidents more common and severe.
In its 2024 Client Trends Report, Aon identified weather as one of four big trends shaping the next few years.
“Changing weather is forcing organisations to manage climate risk in an increasingly holistic way – from closing the protection gap and ensuring the health and safety of workers in the face of extreme weather, to understanding regulatory changes and leveraging emerging green technologies.”
Craig Campbell, UK Head of Responsible Investment at Aon
Furthermore, Aon estimated that the direct economic cost of the physical impact of natural disasters totalled USD368 billion in 2024 – 14 per cent above the 21st-century average, according to Aon’s 2025 Climate and Catastrophe Insight. In summary and in line with the report, most, if not all, insured risks are directly or indirectly exposed to the physical or transition risks of climate change.
Recognising nature’s economic role
Since the first farms were established, nature has been a cornerstone of human progress. Today, over half of global GDP – roughly GDP44 trillion – depends on natural systems.
In the UK, 60 per cent of prime agricultural land is at high risk of flooding, and, globally, climate-related displacement could affect up to three billion people by the end of the century.
Today, asset owners invest in land primarily for what it can provide: oil, gas, minerals, timber, or food. But as climate change and nature loss accelerate, they increasingly threaten the supply of these resources and pose risks to economic stability and communities.
Aligning investment with natural resilience
This rising frequency of climate-driven disruptions signals the need for investment strategies that preserve natural resources and strengthen ecosystems. For investors, this shift offers a chance to mitigate risks while tapping into a burgeoning market with the potential for attractive returns and climate resilience.
Natural capital, as a long-term asset class, reshapes how we think about land and nature’s intrinsic value – not only as a resource but also as a foundation for economic stability. By managing land strategically, asset owners can create opportunities supporting environmental preservation and financial growth.
“The cost of climate change is substantial, yet our natural defences are at risk. By recognising the value of protecting natural assets and channelling investment toward them, we can help achieve climate targets while mitigating long-term risks.”
Tim Currell, Partner at Aon
The three pillars of natural capital – carbon, biodiversity, and water
In the past, nature’s economic role has often been undervalued by being relegated to philanthropy and charity. However, addressing environmental challenges requires significant capital directed towards innovative solutions.
Accountability from customers, shareholders, and employees is driving companies to meet net zero targets. Most companies on the journey to net zero are reducing emissions through decarbonisation. However, residual emissions will always be difficult, if not impossible, to eliminate entirely. This is where natural solutions come in, offsetting the final portion that can’t be decarbonised.
Carbon removal credits play a key role here by economically enabling natural capital projects that actively remove carbon from the atmosphere – such as afforestation and soil carbon capture. As companies increasingly acknowledge that carbon removal credits are needed for hard-to-abate emissions, demand for these credits will create unique investment opportunities.
While carbon reduction is often the focus of net zero targets, carbon credits cannot be viewed in isolation. It is only one of three pillars of natural capital, which considers how systems within our environment work together to stabilise ecosystems.
The other two pillars are biodiversity and water. Biodiversity enhances resilience, making ecosystems better able to withstand climate impacts. And healthy water systems sustain life and support agriculture.
By addressing all three pillars, natural capital investments can build long-term environmental and economic resilience.
Bringing natural capital to life
While natural capital’s potential is clear, it’s the practical application that truly brings it to life. Alongside prioritising land restoration and preservation that in turn generates carbon credits, there are alternative revenue streams that can be explored on the land.
“Delivering environmental and societal impact is essential to achieving a just transition to a low carbon economy, in line with the goals of the Paris Agreement. Pairing impact with sustainable land management creates potential investment opportunities for asset owners while contributing to environmental resilience and long-term financial stability. However, this is a nascent area, and asset owners should think carefully about how to capitalise on these opportunities within their wider investment strategies, objectives, and constraints, such as their investment time horizon and appetite for illiquidity.”
Craig Campbell, UK Head of Responsible Investment at Aon
When purchased, an estate may generate modest income through traditional farming and property rentals. While well understood, these sources alone often fall short from both a financial and environmental perspective. Instead, the following could be implemented:
- Nature-based solutions: Afforestation projects generate carbon credits and tree sponsorship programmes, enhancing biodiversity and delivering measurable climate benefits.
- Property restoration: Run-down or unused property on the land can be restored and repurposed for sustainable developments, such as eco-tourism lodges or energy-efficient housing. These new assets introduce additional revenue streams while maintaining the land’s ecological balance.
- Renewable energy integration: Unused portions of land can be leased to renewable developers so that solar farms or wind turbines could be installed, contributing to climate goals and adding steady income.
- Regenerative agriculture: Over time and where appropriate, it is possible to transition conventional farming practices to regenerative models that are kinder to the environment, sequester carbon, and improve the overall quality of the soil.
- Forestry: Where land can be used to plant, conserve or repair forests. This helps to support habitats for wildlife, provides a source of sustainable timber and helps to capture carbon.
This multi-layered approach enhances financial stability, delivers environmental resilience, and generates long-term returns for investors.
Building a sustainable future through natural capital investment
Natural capital investment offers a unique opportunity to align financial returns with environmental stewardship. By diversifying revenue streams and integrating land restoration, investors can hedge against risks while contributing to a sustainable future.
Now is the time to reaffirm the relationship between nature and the economy, recognising that sustainable growth depends on preserving our natural assets.
