In the third of four articles, we explore the catalysts that can accelerate the process by which nature markets mature, drawing on examples from renewable energy, water rights, carbon markets and forestry.
Read this article to understand:
- How measuring uncertainty around an asset allows investors to price it, making the asset investable
- The importance of regulatory and revenue support, corporate demand, market infrastructure and technology
- Why markets can mature, but also stall or even regress if the necessary foundations are shaken
As discussed in part two, the most important implication of the investment readiness level (IRL) framework is that investor readiness is not fixed. Many of today’s most established asset classes began as niche opportunities. Timber, renewable energy and carbon markets all went through periods where investors questioned whether revenues would materialise, buyers would emerge and projects could be delivered at scale. Over time, however, these markets matured, evidence accumulated, risks became better understood and financing structures developed.
Importantly, increasing investor readiness does not require all risks to be eliminated. Investors routinely allocate capital to markets with uncertainty. The key requirement is that uncertainty becomes sufficiently quantifiable and can be underwritten. Understanding how this happens is just as important as assessing where nature markets sit today.
Investment readiness is rarely created through a single intervention. Markets mature when evidence accumulates, revenues become more predictable and outcomes are delivered consistently (see “Natural capital comes of age: Part two – Why not all natural capital revenue streams are created equal”). A key question is what conditions accelerate these developments.
Although each market evolves differently, five catalysts recur consistently across the development of successful environmental markets (See Figure 1).
Figure 1: The five key drivers of market maturation
| Catalyst | Impact on market depth | Impact on contractability | Impact on delivery certainty |
|---|---|---|---|
| Regulatory-driven demand | High | High | Medium |
| Government revenue support | Medium | Very high | High |
| Corporate voluntary demand | High | High | Medium |
| Market infrastructure and standardisation | Very high | Medium | Medium |
| Technological and data improvements | Medium | Low | Very high |
Source: Aviva Investors, October 2026.
These catalysts rarely operate in isolation but reinforce one another over time. Regulation can create demand. Revenue support mechanisms can reduce the cost of capital during the early stages of market development. Corporate procurement can provide an initial customer base. Market infrastructure creates transparency and trust, while advances in technology and measurement improve confidence that environmental outcomes are being delivered as promised.
Taken together, these catalysts also explain why some environmental markets mature faster than others. They also provide a useful roadmap to understand how emerging nature markets might evolve over the coming decades.
Regulatory demand and legal frameworks: The foundation of most successful environmental markets
If one theme links almost every mature environmental market, it is regulatory support. This isn’t surprising. Forests may generate carbon reductions, biodiversity gains and flood mitigation, but unless markets allow those benefits to be recognised and rewarded, investors are often unable to monetise them. This means many environmental markets struggle to emerge organically, regardless of how valuable the underlying outcome may be.
Regulation plays a critical role in addressing this challenge, and the evolution of environmental markets over the past decades has demonstrated this repeatedly (see Figure 2).
Figure 2: How regulation has created markets over time
| Market | Regulatory trigger |
|---|---|
| EU Emissions Trading System¹ | Mandatory emissions caps |
| UK Biodiversity Net Gain² | Mandatory biodiversity net gain requirement under the Environment Act |
| Australian water rights³ | Creation of secure, transferable water entitlements under the National Water Initiative |
| US Wetland Mitigation Banking⁴ | Compensatory mitigation requirements under the Clean Water Act |
Source: Aviva Investors, October 2026.
The specifics differ, but the underlying sequence is remarkably similar. By creating property rights, compliance obligations or purchasing requirements, policymakers can convert environmental benefits into economic demand, creating transactions and, progressively, market evidence. What regulation changes is not the underlying environmental benefit – which already exists – but the policy framework that enables those benefits to be recognised, priced and traded.
Markets do not reach institutional scale because investors suddenly become more optimistic; they often reach scale because regulation provides the demand required for investors to allocate capital with confidence. With those demand signals, market formation can accelerate, creating the conditions for institutional capital to participate at scale.
Policy design also matters. Markets need enough certainty to attract capital, but also enough integrity to avoid undermining confidence in the outcomes being financed.
Example: The evolution of Australian water rights
Thirty years ago, water entitlements in Australia were primarily viewed as operational assets attached to farms and agricultural businesses. Over time, regulatory reforms created transferable rights that could be bought and sold independently of land ownership.
As trading volumes rose, independent valuation methodologies emerged. Brokers entered the market and transaction data became increasingly available, even though the underlying asset had not changed. Water remained water, but the quantity and quality of information available to investors developed. This accumulation of evidence enabled institutional investors to underwrite future values and cash flows with confidence.
Revenue support and contracts: Converting uncertainty into investable cash flows
In the early stages of market development, institutional investors are often less concerned with whether demand will eventually exist than with whether revenues can be relied upon while markets mature. Indeed, uncertainty is not necessarily a barrier. Infrastructure investors routinely accept construction risk, operating risk and technology risk. The challenge arises when future cash flows are uncertain.
Revenue support mechanisms create this necessary certainty around future income streams. They effectively bridge the period between market creation and market maturity, allowing capital to flow before deep liquidity, price transparency and long operating histories have fully developed. Their practical effect is often profound, lowering financing costs, broadening the pool of available capital and accelerating deployment.
Revenue support mechanisms include Contracts for Difference (CfDs), feed-in tariffs, renewable obligation certificates and corporate power purchase agreements. The specific mechanism is not the point; the point is that they create revenue certainty before a fully mature market exists.
Renewable energy: From policy concept to institutional asset class
The enabling technology behind offshore wind was established prior to the renewables market properly scaling up. Large-scale deployment required investors to underwrite substantial construction, operating and power-price risks. For many institutional investors, long-term merchant-price exposure was a particularly significant barrier.
With Contracts for Difference (CfDs), the UK effectively created a mechanism that said: If power prices fall below a certain level, developers receive support. If prices rise above that level, they return value.
This improved projects’ bankability, as investors no longer needed conviction on long-term energy prices.5 Instead, they needed conviction on project delivery, which was easier to assess and price. It resulted in a broad pool of institutional capital being able to invest in the sector.
UK CCUS: Applying the same logic to carbon management
A similar approach is being adopted to develop the UK market for Carbon Capture, Utilisation and Storage (CCUS).
Like many emerging nature markets, CCUS faces uncertainty around commodity prices and evolving demand signals. Rather than expecting investors to underwrite these risks entirely, the UK government is applying similar revenue-stabilisation principles to CCUS through government-backed business models intended to reduce exposure to uncertain future cash flows.
What could this look like in nature markets?
Potential future mechanisms include:
- Contracts for Difference for nature-based carbon credits
- Government procurement for a portion of carbon removals
- Water company outcome purchase agreements
- Guaranteed biodiversity auctions
- Long-term ecosystem service procurement programmes
These mechanisms could mean nature-based markets don’t need deep and liquid secondary markets before they become investable, which could materially accelerate the development of investable revenue streams.
Corporate demand: Building commercial traction alongside compliance demand
While regulation has historically been the most powerful driver of environmental market creation, it is not the only route to investor readiness. In some cases, corporate demand can provide early revenue signals and commercial confidence before formal policy frameworks are fully developed.
The market for engineered and nature-based carbon removals provides perhaps the clearest contemporary example. Investment has accelerated rapidly over recent years as large corporate buyers have made long-term purchasing commitments for environmental outcomes.
Companies such as Microsoft and coalitions like Frontier have effectively acted as anchor customers for the sector.⁶,⁷ By providing bilateral commitments to purchase outcomes and collective demand mechanisms such as advance market commitments, these organisations have helped developers finance projects, build their operating experience and demonstrate commercial viability. In turn, this has created evidence that future investors can analyse and underwrite.
Corporate demand can provide an important bridge towards market maturity
However, corporate demand should be treated with discipline. It is most valuable when supported by long-term contracts, credible counterparties, robust claims guidance and high-integrity environmental outcomes. Publicly announced long-term targets and ambitions can provide additional indications of market depth.
Corporate demand can provide an important bridge towards market maturity, but it is rarely a complete substitute for durable policy support. The most investable environmental markets often combine corporate procurement, market infrastructure and regulatory backing, creating multiple sources of demand and reinforcing confidence in future cash flows.
Market infrastructure: The invisible foundation of mature markets
One of the most overlooked drivers of investor readiness is the development of market infrastructure. When discussing emerging environmental markets, attention is often focused on demand, regulation or project economics. Yet many markets fail to scale not because demand is absent, but because transactions remain too difficult, bespoke or uncertain for institutional capital to engage efficiently.
Mature markets depend on clear methodologies, independent verification, recognised registries, transparent ownership records, market intermediaries, reliable pricing data and consistent reporting standards. These systems create trust, reduce information asymmetry and allow investors to compare projects, benchmark prices and develop repeatable underwriting frameworks.
Pools of institutional capital are unlikely to scale into markets where pricing is opaque
A similar evolution is likely to be required across emerging biodiversity, water-quality and natural flood management markets. Larger pools of institutional capital are unlikely to scale into markets where pricing is opaque, claims are inconsistent or ownership rights are unclear.
But standardisation does not require ecological outcomes to become homogeneous. The objective is to establish sufficiently consistent rules, disclosures and verification processes to enable comparison while preserving relevant differences between ecosystems, locations and project types.
Technology and data: Reducing delivery risk
Investors need confidence that the environmental outcomes will also be delivered
The final catalyst is often less visible than regulation, contracts or market structure yet may prove just as important. It’s driven by the fact that, alongside demonstrable revenue streams, investors need confidence that the environmental outcomes will also be delivered.
Advances in satellite imagery, remote sensing, LiDAR, environmental DNA, digital monitoring, as well as automated measurement, reporting and verification platforms are making natural assets more observable. Better data can support the quantification and verification of carbon removals, assess biodiversity indicators, track land-use change and monitor habitat condition over time.
For institutional investors, this matters because better information reduces uncertainty, lowers transaction costs and supports more consistent valuations. Technology will not eliminate delivery risk, or the need for robust baselines, methodologies and independent verification. But it can make delivery risk more measurable, comparable and easier to price. But it can make delivery risk more measurable, comparable and easier to price.
The common thread
The path from environmental outcome to investable market is rarely automatic. It requires institutions, incentives, standards and evidence. The history of renewable energy, carbon markets and water rights demonstrates that successful environmental markets are typically created through deliberate processes of market design and policy support rather than emerging spontaneously.
For investors, the key implication is that environmental or societal importance alone does not determine investability. Nature markets become financeable when demand is durable, revenues can be underwritten, outcomes can be measured and commercial delivery can be repeated. Different markets will reach that point through various combinations of regulation, long-term contracting, corporate procurement, market infrastructure and better data.
This creates opportunities across the readiness spectrum
This creates opportunities across the readiness spectrum. Mature markets may offer greater revenue visibility, while earlier-stage markets may offer growth potential where investors are appropriately compensated for market-creation, policy and delivery risk. The task is therefore not to predict that every nature market will mature, but to identify where the conditions for maturation are already developing, and to structure exposure accordingly.
Look out for Natural capital comes of age: part four
Allocating to natural capital with discipline.
