Asian investors should view nature investments favourably despite volatility in returns and longer investment horizons, as they offer diversification benefits and tackle climate change, according to an asset manager.

There is an "early mover advantage" for investors in nature assets before it becomes mainstream, said Ben O'Donnell, chief investment officer of Climate Asset Management (CAM). The London-based fund manager is a joint venture formed in 2020 between HSBC Asset Management and climate change investment and advisory firm Pollination.

"There will be a first-mover advantage for people who put capital in this space, particularly when regulations come in forcing people to put more capital into investments that enhance climate and environment outcomes," O'Donnell said. "Nature capital investment is underpinned by the megatrend of population growth and finite natural resources."

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Nature capital refers to natural resources such as forests, soil and water that make human life possible and are essential to a sustainable economy. Their productivity and benefits are endangered by more frequent extreme climate events, pollution and over-exploitation, which are gradually being tackled through conservation regulations and incentives to reverse damages.

Although nature investments, such as afforestation and regenerative agriculture, can generate "high single to low double-digit" percentage annual returns, comparable with stocks, property and infrastructure, investors - particularly from Asia - are underinvested, O'Donnell said.

Globally, nature investments accounted for 0.1 to 0.2 per cent of professionally managed capital, compared with 60 per cent in equities, 30 to 35 per cent in fixed income and 5 to 10 per cent in alternative investments, he added.

At the same time, the contribution of the agriculture, forestry and fishery industries to global economic output is 4 per cent according to World Bank estimates, O'Donnell said.

"There is a huge scope from an underlying value perspective for investment in the sector to increase," he said. "We anticipate that to happen gradually."

While some Hong Kong and Japanese investors have invested in CAM's funds for diversification, many institutional investors are averse, including a Hong Kong-based insurer, citing volatile returns, long investment durations and lack of liquidity, he said.