Nuveen Natural Capital, the world's largest farmland asset manager, is rolling out its Nature Positive Farming initiative. James Little explains how it will deliver impact.
Environmental Finance: Nuveen is a well-known name among sustainable investors, but Nuveen Natural Capital (NNC) perhaps less so. Can you introduce the venture and its investment strategy?
James Little: Nuveen Natural Capital is Nuveen's land-based asset management company, focusing on farmland and timberland investments. We are the largest farmland asset manager in the world, with $12.4 billion in assets under management, and a global footprint covering 3 million acres, 10 different countries, and 46 different crop/species types.
Our investment strategy relies heavily on diversification, quality assets, and a focus on sustainability. Diversification is essential to mitigate risks that are inherent to land-based investments, such as weather, commodity pricing, and government intervention. Our platform allows us to build diversified portfolios by geography, crop type, and operating strategy.
EF: In 2023, the platform launched its Nature Positive Farming (NPF) Initiative in Poland, which has won the Innovation/invention of the year award. What does it involve?
JL: The initiative involves providing our farming tenants with a longer-term lease contract in return for the tenants implementing a range of farming practices that will positively impact the four pillars of the initiative: soil, water, carbon emissions, and biodiversity. Our lease contracts in Poland are typically for a five-year term; under NPF, tenants are offered a 10-year lease contract with a fixed rent profile.
The four pillars of NPF are then embedded into a farm plan, implemented by the tenant with support from NNC. Actions might include: introducing cover crops, four-crop rotation, and appropriate tillage to improve soil health; variable-rate fertiliser applications, buffer strips around water courses, and rainwater harvesting on buildings to improve water management; use of the Cool Farm Alliance's Cool Farm Tool to measure baseline carbon emissions, followed by an emissions reduction strategy based on actions such as planting cover crops and reducing tillage; undertaking a baseline biodiversity survey, then developing a biodiversity enhancement strategy that could involve tree planting, enhanced meadow management, bird boxes, and bee-friendly measures.
EF: How do your tenants benefit from the initiative?
JL: There are four major benefits. First, the longer lease. This allows tenants to plan their business from the perspective of capital, people, crop rotation, and mechanisation. Second, the fixed rent profile allows them to financially plan with improved accuracy. Third, NPF should ultimately make the farming business more resilient climatically, environmentally, and socially. Fourth, the implementation of NPF aims to help make our tenants' businesses more financially sustainable, through improving productivity and reduced inputs.
EF: On the other side of the ledger, what is the appeal to investors?
JL: When we developed NPF, we came at it from both the perspective of the investor and the user of the land – in other words, the landlord and the tenant. In owning farmland, an investor has to ask themselves, "what should I as a landowner care about, and where can I have impact?" We had to find a matrix of actions and impacts that would appeal to both the tenant and landlord. The four pillars of NPF fit well in terms of the actions that a farmer can take and the issues that a farmland-owning investor should care about.
The appeal therefore to the investors is that under NPF their land will be managed in a way that has a positive impact on soil, water, carbon emissions, and biodiversity, without negatively impacting the financial returns from farmland ownership.
EF: Measuring and reporting impact from natural capital initiatives can be a complex – and expensive – undertaking. How is NNC approaching the challenge?
JL: NPF is based on the tenant implementing practices with support from the landlord and, in due course, outcomes will be measured. The focus for now is on the measurement of baselines for soil health, water status, carbon emissions, and biodiversity. Each tenant signing up to the initiative will have baseline measurements undertaken across the four pillars as they enter into the programme.
We are currently using the best 'old school' technology, such as soil testing for soil organic matter/carbon and physical biodiversity inventories, while at the same time assessing and trialling a range of new technologies which will allow us to undertake baseline assessments and measure outcomes more quickly and over a broader area. There is a lot of exciting new technology coming through, but not all of it will make the grade, so we have to be rigorous in our assessment of which tools we can benefit from. We are also working on tying the initiative to existing global frameworks, allowing our investors and stakeholders to assess the impact of the initiative against recognised standards.
EF: The initiative is, thus far, focused on Poland. Do you have plans to extend it to other jurisdictions?
JL: Yes, we are currently focused on implementing the initiative across our Polish portfolio. However, the four pillars of the initiative are applicable to all geographies, crop types, and operating strategies.
EF: More broadly, are there regulatory or legislative reforms you would like to see that would encourage farmers to embrace this kind of initiative?
JL: Anything to help and support farmers in the challenges they face would be welcomed. However, they must have significant engagement with farmers in order to be successful. There are too many organisations on the sidelines telling farmers what they have to do and how they have to change, but very few that actually want to roll up their sleeves and work with farmers to make the changes happen, let alone reward them for making positive changes that benefit us all.
At NNC, we have a 35-year track record of partnering with our farmers, with NPF just the latest innovation in our long track record of sustainable farmland management.
EF: What are the next steps for NNC with regards to Nature Positive Farming?
JL: After setting up the pilot farm in 2023, our focus will be on signing up more of our tenant partners to the initiative. Continuous improvement of practices and further development of outcomes and metrics, in addition to aligning with best practices at an international level, will form the backbone of our workstream in 2024.
James Little is an asset manager at Nuveen Natural Capital, based in Gdańsk, Poland.
For more information, see www.nuveen.com/global/about-us/our-people/investment-specialists/natural-capital
As an asset class, agricultural investments are less developed, more illiquid, and less transparent compared to traditional asset classes. Agricultural investments will be subject to risks generally associated with the ownership of real estate-related assets, including changes in economic conditions, environmental risks, the cost of and ability to obtain insurance, and risks related to leasing of properties.
Nuveen, LLC provides investment solutions through its investment specialists