The UK’s Environment Agency Pension Fund (EAPF) now counts natural capital as a standalone asset class in its portfolios, with a 4% strategic asset allocation., Natural Capital is intrinsically linked with its net zero and climate change policies. In EAPF’s view, reducing carbon emissions, building resilience to a warming climate and protecting and enhancing nature and biodiversity are inter-linked and one cannot be tackled without the other.

The strategic objective of the natural capital portfolio is to be net-nature positive and deforestation free. EAPF already has commitments in nature-based solutions that meet this aim in the form of investments that reduce carbon in the atmosphere, protect and enhance biodiversity, consider the needs of local communities and deliver the financial return it needs to meet its liabilities.

EAPF’s approach is based on good governance and science. Its trustees have already received the appropriate training and the team employs specialists with scientific backgrounds to ensure that its approach is evidence-based and that its managers are aligned with it. EAPF expects all its natural capital managers to commit to assessing their deforestation risk across direct operations as well as supply chains and to report on it accordingly. Furthermore, it is asking all its asset managers across its other asset classes to demonstrate how they are considering nature and what they are doing to protect and enhance it in the areas they work, with the aim of this becoming mainstream.

To support the evolution of its natural capital approach, EAPF analyses its existing investments in sustainable forestry and agriculture and the standards that it sets for asset managers. This enables the fund to identify examples of best practice. For example, one of its asset managers in South America places beehives in its orchards during avocado and cherry blossoming seasons, allowing bees to feed and sustain their hives from native vegetation after that period, supporting hundreds of millions of bees. Moreover, EAPF now questions potential new asset managers in more detail on their approach to and understanding of biodiversity.

Another example is an investment in a natural regeneration initiative in Paraguay to convert degraded grazing land into a sustainably managed forest. This involves planting approximately 60 million trees, which is expected to lead to the sequestration of some 18 million tonnes of carbon dioxide. The project is already monitoring and protecting 27 endangered, threatened and protected species including the Greater Rhea and Puma and has created and retained more than 570 jobs, with a further 3,000 direct and 30,000 indirect jobs to come.

EAPF has also joined engagement initiatives as part of its natural capital strategy, including Global Canopy, which has developed guidance for pension funds on being deforestation free, Ceres Valuing Water Finance Initiative and the Taskforce for Nature-Related Financial Disclosures (TNFD).