Global investor says climate's changing our reasons to buy farmland

In fact, on-farm biodiversity initiatives will need to go hand in hand with productivity goals to help the world meet its food security challenges as global temperatures rise, says Asia-Pacific head of giant farmland and forestry business, Nuveen Natural Capital.

Kristina Hermanson noted how, from an institutional investment perspective, Australian farmland was not just a good tool to hedge against inflation and generate more innovative food and fibre production, it was a hotbed of biodiversity potential.

Biodiversity and nature repair goals had swiftly become serious investment priorities across the investment sector.

They were particularly attractive to institutions and pension funds who invested money into assets such as Nuveen's 60-plus Australian farmland holdings worth more than $2 billion.

US-based Nuveen is the world's biggest farmland manager, having initially started investing in forestry land in the 1980s.

It has a diverse array of agricultural and other real estate assets held on behalf of its parent, the Teachers Insurance and Annuity Association of America (TIAA) and about 50 other global investors.

TIAA, a Fortune 100 finance company, ranks as one of the world's largest institutional insurance and retirement fund investment groups.

"Relative to other nations we compete with in agricultural trade, Australia is already off the charts from a biodiversity perspective - in terms of uniqueness and the type of biodiversity we have to preserve and protect," Ms Hermanson said.

While farmland was already emerging as an important player in the new carbon economy as landholders adopted options to store carbon in soil and vegetation, she said the nature-based biodiversity market was the next frontier.

In fact, Australia has been on the front foot, preparing to launch an official nature repair market platform similar to the Clean Energy Regulator's official carbon credit auction and regulated carbon trading agenda.

Nuveen had already explored its own biodiversity initiatives, including mapping its Australian aggregations to identify natural capital assets and their expansion potential, and even planting multiple tree species on less productive West Australian farmland alongside its cropping country.

In fact, the name Nuveen Natural Capital emerged in 2022 as a nod to the amount of investment attention being paid to its natural resource assets.

Until then the farmland group was well known as Westchester.

Westchester made its first non-American agricultural acquisitions in Australia in 2007 and then grew to acquire farm and forestry assets - often leased back to farmers and forestry companies - in South America, New Zealand and Europe.

"Institutional investors like the very strong and risk-adjusted return from diversified farmland portfolios," Ms Hermanson told last month's ABARES Outlook 2024 conference.

"We have a very positive outlook on farmland investing."

Australian farmland had delivered a strong historical return relative to government bonds, debt and equity, Australian share market investments and even US farmland.

"Farmland is a strong addition to any diversified investment portfolio, and the natural capital benefits of the asset class are additive and a unique bonus," Ms Hermanson said.

"Looking at climate change, as a global investor, we see Australia in a really special position to be able to think more holistically around the value of the natural environment and the need for climate resilience."

She said nearly half of Australia's total gross domestic product - about $900b - already relied on maintaining a healthy natural environment.

Nature-based solutions in farming, including low greenhouse gas output strategies, renewable energy investments, carbon credits and biodiversity-rich landscapes which protected native species habitats, provided a balance to food, fibre and forestry productivity goals.

"Ultimately agriculture has to be part of a nature and climate productivity solution," she said.

"It's about doing the right thing on-farm and creating some resilience in our investing and revenue streams.

"Farming and nature based solutions provide the opportunity to look at practices which are more regenerative, and then use technology to promote biodiversity and carbon management strategies across the landscape."

However, Ms Hermanson said nature-based farming initiatives also had to be transparent, authentic, and aligned with the global standards demanded by institutional investors

Transparency would be crucial to unlocking new investment and markets for Australian agriculture.