The previous post in this series made the financial case for natural assets as a distinct real-asset class. If that case holds, a question immediately follows: where is the capital?
Global institutional investors manage in excess of $100 trillion. Nature finance remains a fraction of what is needed. The gap is not explained by ignorance. Sheikh et al. (2025) and Löfqvist et al. (2023) put it precisely: nature finance sits at the frontier of bankability, a zone where the investment case is credible but the conditions required for capital to flow at scale have not been assembled. The barriers are not ideological. They are structural, and they are well documented. This post works through five of them.
Barrier 1: Classification and Accounting
Before an investor can allocate to an asset class, that class needs to exist in a form the institution can recognise. For natural assets, that problem is unresolved. There is no unified taxonomy that allows investors to classify, compare, and aggregate exposure across deals. Forest investments in British Columbia, mangrove restoration in Southeast Asia, and soil improvement in the American Midwest involve different biological systems, legal regimes, and revenue structures. Without a common framework, they cannot be compared, and they cannot be aggregated into a position that a risk committee can interrogate.
Hein et al. (2016) and Leach et al. (2019) provide a working framework for natural capital accounting, distinguishing ecosystem assets from ecosystem services and anchoring both in observable physical units. Zhu et al. (2021) extend this to balance sheet treatment. But the gap between these academic frameworks and the classification schemas used in institutional portfolio management remains wide. As Birch and Ward (2022) argue, assetising a productive biological system requires not just measurement frameworks but institutional infrastructure: accounting standards, legal definitions, regulatory recognition. For natural assets, none of that infrastructure exists at the scale it exists for real estate or private equity. Without it, a portfolio manager cannot describe their natural asset exposure to a trustee in terms that mean anything.
Barrier 2: Valuation and Metrics
Natural assets generate revenue from two sources: sustainable commodity harvesting and ecosystem services. The commodity side is tractable. The ecosystem service side, covering carbon sequestration, biodiversity credits, water regulation, and flood protection, is substantially harder to value. Most service markets are nascent or politically contingent, and the methodologies that exist were developed for planning contexts, not investment due diligence.
Van Oijstaeijen et al. (2020) review valuation toolkits for green infrastructure and find that existing frameworks were designed for planning decision-making rather than capital allocation. Toxopeus and Polzin (2021) identify the core constraints as the need to adjust valuation and accounting methods to capture the full range of asset benefits, and the challenge of coordinating across public and private financiers with different return expectations. The deeper problem is ecological. Two forests with identical timber volumes may have radically different long-run revenue profiles depending on their biological health. Current investment-grade reporting has no systematic way of capturing that difference.
Barrier 3: Structuring and Access
Most institutional mandates require scale that individual natural asset projects cannot supply. A pension fund needs positions of meaningful size; single forest holdings rarely meet the threshold. Aggregation is the logical solution, but aggregating across geographically dispersed, biologically heterogeneous, legally complex assets managed by a fragmented operator ecosystem is genuinely hard.
Chudy and Cubbage (2020) document how TIMOs and timber REITs emerged to solve an earlier version of this problem, providing pooled access, professional management, and standardised reporting. Both structures expanded the investor base for forest assets. But each involves trade-offs: REITs introduce equity market correlation that erodes the diversification properties that make the asset class interesting; TIMOs typically require commitments in the hundreds of millions, excluding smaller allocators; and both are optimised for timber yield, not for capturing the ecosystem service dimension that makes natural assets structurally distinct. The vehicle that provides institutional-scale access to both revenue streams, fits within standard custodial infrastructure, and can be monitored at arm's length by a trustee board does not yet exist.
Barrier 4: Mandate and Fiduciary Fit
Even economically attractive natural asset investments can be excluded by mandate constraints that have nothing to do with their financial merits. Sheikh et al. (2025) document how fiduciary duty obligations limit pension fund and insurer allocations to assets with uncertain or delayed returns, while short payback expectations and performance review cycles are misaligned with biological systems that compound value over decades. Geography adds a second constraint. Löfqvist et al. (2023) find that private finance systematically biases toward restoration in low-risk areas, and that asset managers view the Global South as too difficult an operating environment given weak institutions and uncertain tenure. Ecological priority and financial feasibility are, in effect, inversely correlated.
Regulatory frameworks compound the problem. Solvency II and equivalent pension regimes impose capital charges on non-traditional asset classes and require reporting treatments that do not map onto natural assets. These constraints do not reflect a judgment that natural assets are unattractive. They reflect the path dependency of investment governance: the rules were written when natural assets were not on the agenda, and they have not been updated since.
Barrier 5: Governance and Supervision
A forest is not like a toll road. A toll road has a clear legal framework, a contractual revenue stream, and standard audit processes. A forest sits within overlapping systems of land law, Indigenous rights, environmental regulation, and political economy. Its productive capacity depends on governments, communities, NGOs, and adjacent landowners whose interests may not align with those of a foreign institutional investor. Zhang et al. (2025) find that effective natural resource supervision requires frameworks integrating legal, economic, and ecological attributes simultaneously. Most existing regimes address only one dimension at a time, and integrating all three at the granularity that institutional risk management demands remains unsolved.
Aysan et al. (2023) document how weak governance generates political and legal risk that systematically destabilises investment cases at medium-to-long horizons. The problem is not just that individual assets may be poorly governed, but that the infrastructure needed to evaluate and monitor them is itself underdeveloped in many jurisdictions where the assets are located. Venables (2016) made the same point about natural resource development more broadly: the institutional conditions required to convert physical assets into sustained income streams are difficult to assemble and easy to erode.
What Institutional-Grade Looks Like in Principle
The five barriers interact. A valuation solution not connected to a governance solution will not survive due diligence. A structuring solution that ignores mandate constraints will not clear compliance. Taken together, the academic literature points to what an institutional-grade natural asset investment would require: standardised classification anchored to auditable ecosystem accounting (Hein et al., 2016; Leach et al., 2019); valuation methods that integrate ecological condition into cash flow projections transparently enough to defend to an investment committee; supervisory frameworks robust enough to be monitored at arm's length across jurisdictions; a vehicle structure that captures both revenue streams and fits standard reporting systems; and a governance layer durable enough to hold through a multi-decade holding period.
Infrastructure investing faced a structurally similar set of barriers twenty years ago. They were resolved through specialist operators, regulatory development, and structural innovation. Natural assets are harder, because biological systems operating across political jurisdictions impose governance and time-horizon requirements that infrastructure does not. But the direction of travel is clear: TNFD (2023) is standardising disclosure, ecosystem accounting frameworks are maturing, and specialist operators are building the legal, ecological, and reporting infrastructure the asset class requires. The barriers are structural. They are not permanent.
From Principle to Practice
An in-principle solution is only persuasive when you can point at one in practice. The next post in this series does exactly that: a single forest holding in New Brunswick, examined honestly against each of the five barriers described here, and assessed for what has been solved, what remains in progress, and what it tells us about the distance between framework and forest.
References and Further Reading
- Aysan, A., Bakkar, Y., Ul-Durar, S., & Kayani, U. (2023). Natural resources governance and conflicts: Retrospective analysis. Resources Policy.
- Birch, K., & Ward, C. (2022). Assetization and the 'new asset geographies'. Dialogues in Human Geography, 14, 9–29.
- Chudy, R., & Cubbage, F. (2020). Research trends: Forest investments as a financial asset class. Forest Policy and Economics, 119, 102273.
- Hein, L., Bagstad, K., Edens, B., Obst, C., De Jong, R., & Lesschen, J. (2016). Defining Ecosystem Assets for Natural Capital Accounting. PLoS ONE, 11.
- Leach, K., Grigg, A., O'Connor, B., Brown, C., et al. (2019). A common framework of natural capital assets for use in public and private sector decision making. Ecosystem Services.
- Löfqvist, S., Garrett, R., & Ghazoul, J. (2023). Incentives and barriers to private finance for forest and landscape restoration. Nature Ecology & Evolution, 7, 707–715.
- Sheikh, H., Narain, D., Bartlett, C., & Christiaen, C. (2025). Unlocking private finance for nature: Addressing barriers and reframing risk-return dynamics. iScience, 28.
- Taskforce on Nature-related Financial Disclosures (2023). TNFD Recommendations.
- Toxopeus, H., & Polzin, F. (2021). Reviewing financing barriers and strategies for urban nature-based solutions. Journal of Environmental Management, 289, 112371.
- Van Oijstaeijen, W., Van Passel, S., & Cools, J. (2020). Urban green infrastructure: A review on valuation toolkits from an urban planning perspective. Journal of Environmental Management, 267, 110603.
- Venables, A. (2016). Using Natural Resources for Development: Why Has it Proven so Difficult? Journal of Economic Perspectives, 30, 161–184.
- Zhang, W., Jiang, Z., & Zhou, X. (2025). Theoretical Justification, International Comparison, and System Optimization for Comprehensive Supervision of Natural Resource Assets in China. Sustainability.
- Zhu, D., Duan, W., Zhang, H., & Du, T. (2021). Natural resource balance sheet compilation: a land resource asset accounting case. Journal of Chinese Governance, 6, 515–536.