Nature-Based Solutions: The Next Infrastructure Asset Class?
From Conservation to Contracted Cashflows
Nature-based solutions ("NbS")—interventions that protect, restore, or sustainably manage natural ecosystems to deliver measurable environmental and societal outcomes—have historically struggled to attract institutional capital at scale. Developers of NbS have tended to rely on government grants, philanthropic capital, and corporate ESG budgets. While these funding pools remain important, they can result in small project sizes, unpredictable revenue streams, and long development cycles. That is changing. Driven by mandatory regulatory regimes, the maturation of environmental markets, and growing recognition that "green" infrastructure is needed to deliver climate and biodiversity targets sustainably, NbS are increasingly being structured and financed in ways that bear closer comparison to conventional infrastructure, drawing the attention of institutional capital into the sector.
The Case for Institutional Capital
A well-structured NbS project can exhibit many of the features that institutional investors prize in conventional infrastructure. The introduction of mandatory frameworks such as the UK's biodiversity net gain ("BNG") regime under the Environment Act 2021 creates durable, regulation-backed demand and cashflows underpinned by statutory obligations. Where the off-taker is a creditworthy counterparty, such as a regulated water utility procuring natural flood management or a corporate buyer of biodiversity net gain credits to offset development projects, the resulting payment profile is economically comparable to availability-based infrastructure. Add to this high barriers to entry, inflation linkage, tangible underlying assets, and strong ESG credentials, and the parallels to core and core plus infrastructure become clear.
NbS can also act as a hedge against nature-related portfolio risk for infrastructure asset managers. Existing portfolio assets such as water and wastewater networks and transport infrastructure are exposed to nature-related risks, including biodiversity loss causing ecosystem degradation, water scarcity, and soil instability. These risks are no longer abstract: emerging disclosure frameworks such as the Taskforce on Nature-related Financial Disclosures ("TNFD") and mandatory obligations such as BNG in the UK are translating ecological exposure into quantifiable financial and regulatory risk. Investing in NbS, whether directly in NbS developers or indirectly by partnering with NbS providers to develop NbS projects, can allow asset managers to build direct hedges into their portfolios through various mechanisms:
- Holding habitat banks that can supply biodiversity units to portfolio companies subject to BNG obligations.
- Holding high-integrity carbon sequestration projects that can help offset emissions generated by other portfolio companies.
- Investing in catchment-based natural flood management schemes such as peatland and wetland restoration that protect the operational resilience of downstream infrastructure.
In this way, NbS function not merely as a new capital allocation but as an active risk-management tool across the infrastructure portfolio.
Outlook
As regulatory frameworks and mandatory markets deepen, the structural parallels between NbS and core / core plus infrastructure will become more firmly established. We expect this to bring increased focus from institutional investors on how they can participate in this emerging infrastructure asset class through direct investment in the developers of NbS, capitalizing on the platforms, expertise, and pipeline those developers have built, and indirect investment through the co-development of NbS projects alongside those developers, enabling investors to shape project goals and integrate NbS outcomes directly into their existing portfolio strategies.
For infrastructure asset managers seeking to align long-term capital deployment with climate and biodiversity objectives while actively managing nature-related portfolio risk, NbS present a compelling and increasingly investable opportunity.
