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Insurance Insights
Why natural capital now?
Insurance investors are increasingly turning to natural capital investments for inflation protection, diversification benefits, stable returns, and solutions to global environmental commitments.
Over the past year, impacts related to the COVID-19 pandemic and the war in Ukraine have produced major supply chain disruptions contributing to market volatility, historically high inflation rates and aggressive monetary policies. Traditional asset classes, such as public equities and fixed income, have been heavily impacted by inflation-induced volatility, falling by 15% and 10% year-over-year, respectively.1 Over the same period, timberland and farmland indexes were up 12% and 10%, respectively,1 highlighting the importance of diversified portfolios to preserve investment value.
Beyond these portfolio-level benefits, natural capital investments can generate quantifiable climate benefits and contribute positively to global sustainability goals.
We examine the financial and environmental benefits of natural capital investments, specifically timberland and farmland, that make them ideal assets to meet the needs of today's insurance portfolios.
Topics covered:
- How natural capital investments might enhance financial performance and sustainability needs of investment portfolios
- Investment characteristics of natural capital investments that offer the potential for protection in times of economic turmoil
- Global trends and market fundamentals supporting positive long-term outlook for natural capital investments
- How natural capital benefits help meet growing demand for scalable climate and nature-positive solutions
- Key investment considerations for U.S. insurance companies
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The earth’s natural capital can be thought of as a stock of assets—air, lands and waters and their biodiversity— that yields a flow of benefits or ecosystem services over time. The flow of these benefits includes provisioning services such as food, fiber and timber as well as a broad range of regulating, supporting and cultural ecosystem services that drive the global economy and human wellbeing.
Climate mitigation benefits can be realized by investing in nature-based climate solutions (NCS) and offer investors in land-based assets the potential to generate verified carbon credits from their investments.
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1Sources: Bloomberg; NCREIF; Federal Reserve Bank of St. Louis; NNC Research
