---
title: the risks a sovereign wealth fund cannot sell
canonical_url: https://ensurance.app/guide/sovereign-wealth-fund-risks
markdown_url: https://ensurance.app/guide/sovereign-wealth-fund-risks.md
subtitle: "eight risks on every sovereign fund's register. many of them run through the same living ground, and no line in the portfolio pays for it."
category: nature-finance
---

# the risks a sovereign wealth fund cannot sell

*eight risks on every sovereign fund's register. many of them run through the same living ground, and no line in the portfolio pays for it.*

Sovereign wealth funds passed $15 trillion in assets for the first time at the end of 2025, according to Global SWF. Counting public pensions and central banks, state-owned investors hold about $60 trillion. Few investors are as large or hold as long. And the risks that keep their investment committees up at night have one thing in common that rarely makes it onto the risk register.

Look under the oil price, the farmland deal, the stress test and the drawdown rule and you keep finding the same thing: an aquifer, a catchment, a coast, a wheat belt's topsoil. These places do work for every economy a fund owns a slice of. They do it whether or not anyone holds a unit of them, and right now almost nobody does.

:::johnson
**a sovereign wealth fund can own a slice of every economy on earth. it cannot sell the ground they all stand on.**

[read the universal owner problem →](/guide/the-universal-owner-cannot-sell-the-ground?from=guide)
:::

## what sovereign wealth fund risks actually are

**Sovereign wealth fund risks** are the threats to a state-owned investment fund's two jobs: preserving national wealth for future generations and, for many funds, smoothing or financing the state budget today. Some risks are financial (market drawdowns, liquidity). Some are political (capture, shifting mandates, foreign screening). A growing set are physical: the condition of the land, water and living systems underneath the economies the fund holds.

Most funds manage the first two kinds well. The third kind is harder, because it does not fit the instruments a fund can buy. Public equities, bonds, real estate and private deals are all claims on economic activity. Almost none of them is a claim on, or a payment to, the living condition that activity depends on.

## eight risks, one ground

The table below is the map for this series. Each row is a risk that funds, their boards and their critics already discuss in public. The third column is the part that usually goes unsaid.

| Risk | What it looks like now | What runs under it | Post |
|---|---|---|---|
| **commodity dependence and drawdowns** | Many of the largest funds were built from oil and gas revenue. Norway's 2026 budget draws about 2.8% of its fund, under the 3% rule. PIF ordered spending cuts of at least 20% in 2025 and scaled back giga-projects. | The fund turns a depleting natural asset into financial claims. The renewable half of national wealth, its living land and water, stays off the balance sheet. | [the heritage fund that grows back](/guide/the-heritage-fund-that-grows-back?from=guide) |
| **whole-market physical and nature risk** | Carbon Tracker reports that, by NBIM's own assessments, nearly a quarter of the Norwegian fund's equities face severe physical climate risk. | A universal owner cannot diversify away from droughts, floods and failing catchments that hit every holding at once. | [the universal owner cannot sell the ground](/guide/the-universal-owner-cannot-sell-the-ground?from=guide) |
| **engagement and divestment hitting their limits** | The 2026 IFSWF–OPSWF survey found engagement with portfolio companies fell from 59% to 36% in a year. Norway's parliament paused ethics-based divestment in November 2025 while a review, due in October 2026, is under way. | Influence over third parties is shrinking. A fund needs a lever it controls directly. | [the universal owner cannot sell the ground](/guide/the-universal-owner-cannot-sell-the-ground?from=guide) |
| **food and water security** | GCC states import up to about 85% of their food. PIF-owned SALIC took 80% of Olam Agri in April 2026. | Food security is a dependency on soil and water somewhere else, usually in someone else's country. | [food security without the land grab](/guide/food-security-without-the-land-grab?from=guide) |
| **host-country screening and legitimacy** | Arizona cancelled a Saudi-linked alfalfa farm's state land lease in 2023, its governor citing unchecked groundwater pumping while the farm was in default; the company said it would appeal. US states keep passing foreign-ownership limits on farmland. | Owning the deed abroad can become a political liability. The water was always the asset. | [food security without the land grab](/guide/food-security-without-the-land-grab?from=guide) |
| **no investable nature at sovereign scale** | UNEP counts about $30 of finance flowing to nature-negative activity for every $1 to nature-based solutions. Only about $23bn a year of the latter is private (2023 data). | The fund does not lack appetite. It lacks an object the size of its cheque, with a mark it can defend. | [why a sovereign fund cannot buy nature at scale](/guide/why-a-sovereign-fund-cannot-buy-nature-at-scale?from=guide) |
| **governance and transparency** | In the 1MDB case, Malaysia's former prime minister was convicted on all 25 charges in December 2025; an appeal is pending. The Santiago Principles remain voluntary. | Public wealth is easiest to misuse when nobody can see where it went. | [a public account for the public wealth](/guide/a-public-account-for-the-public-wealth?from=guide) |
| **development mandates at home** | The UK's National Wealth Fund (about £27.7bn) is funded by tax and borrowing. The US has taken deal-by-deal equity stakes rather than legislate a fund. | Governments want funds to build at home. The watersheds already doing that work are rarely on the fund's books. | [what a national wealth fund could hold at home](/guide/what-a-national-wealth-fund-could-hold-at-home?from=guide) |

Not every sovereign risk runs through nature. Interest rates, currency pegs and the next equity bear market do not. But read down the third column and the pattern holds. Many of the hardest risks on this list share a physical base that no line in the portfolio pays for.

## what funds are already doing

Sovereign funds are not asleep on this, and it would be unfair to write as if they were. NBIM published consolidated nature expectations in 2026, covering water, oceans and biodiversity. Companies that ignore engagement can become candidates for risk-based divestment. The IFSWF and the One Planet Sovereign Wealth Fund network publish climate surveys and work in the open. Temasek's GenZero puts capital into nature-based and climate solutions and reports realised impact. More than 800 organisations have committed to report against the TNFD framework, which gives nature risk a common language.

The same survey also shows where this work stops. Seventy-four per cent of respondents now cite long-term returns as their main climate driver, ahead of risk management, for the first time. Climate clauses in external manager agreements rose from 12% in 2022 to 42%. But only 11 to 16% of funds have divested on climate grounds, and the authors found limited evidence of reallocation at portfolio level. Disclosure maps the exposure. [A disclosure is not a transaction](/guide/a-disclosure-is-not-a-transaction?from=guide). The map does not come with a trade.

## the missing line item

Here is the structural gap in one sentence: a sovereign fund can hold a claim on almost every economy on earth, and almost no account for the living ground under any of them.

That is not a failure of judgement. It is the shape of what is for sale. An equity is a claim on a company's profits. A bond is a claim on a borrower. Farmland is a deed, and timberland is a deed plus a harvest. Carbon credits are claims on tonnes someone has counted. None of them is a standing payment to the condition of a named catchment, coast or soil, routed to the people who keep it, with the value it delivers shown beside what it costs.

That missing object is what ensurance builds.

## how ensurance answers

[Ensurance](/guide/what-is-ensurance?from=guide) is a system of accounts and instruments for natural assets. A public ledger and a service, plainly. Its parts map onto the gap above:

- **An account for the place.** Each natural asset, whether a parcel, a watershed or a species' range, has an agent with its own account. Money sent to the place lands at an address named for the place, not in a general fund.
- **A record of the hold.** A [certificate](/specific?from=guide) is a record of a hold on one named agent, one to one, priced on the cost of protecting it. A line certificate carries no title, so a fund can pay for a place's condition without owning its land.
- **A mark beside the price.** RealValue, our natural capital accounting engine, values the living work: ecosystem service value per acre per year times condition, across 15 stocks and 19 flows. Cost and value sit side by side, and the gap between them is visible.
- **A stage order.** A place moves from unensured to ensured to entrust. Ensured money pays the real asset's capital cost (acquisition, debt retirement, restoration) until the place is debt-free and claim-free. Entrust money then pays ongoing stewardship, because the land's cost is out of the picture.
- **Two payors.** Real-asset investors finance the cost. Dependency investors fund the value, because they rely on the flow or lose when it fails. A sovereign fund may be among the largest dependency investors there is. The cost-side position for large real-asset capital is designed, with counsel first.
- **Proceeds that go to the place first.** Money routes to the natural asset first, then to the people who steward it. Where that place is abroad, it is the host community's and Indigenous stewards' tenure that governs, and no deed needs to move.

This does not yet offer a home for a sovereign-size cheque. It scales one parcel, one agent and one account at a time, and groups and pools aggregate many places. None of it replaces what a fund already does. It adds the one line item the portfolio lacks: funded condition at a named place, which a fund can count, verify and explain to its own public.

## how to read this series

Each post takes one row of the table. It gives the fund's problem in the fund's own terms, says what is already working, and then shows the answer at the parcel.

## next steps

If you sit in a fund, a finance ministry or a host-country agency and one of these rows is your problem, start with that post. If you want to see the instruments, [browse the natural assets](/natural-assets?from=guide) and [the certificates](/specific?from=guide) that exist today. For the investor view, see [solutions for investors](/solutions/investors?from=guide&topic=sovereign-wealth). For the public-sector view, see [solutions for governments](/solutions/governments?from=guide&topic=sovereign-wealth). To talk it through, [get in touch](/contact?from=guide&topic=sovereign-wealth).

For an earlier take on why the largest funds are looking at natural capital, see [why the world's largest funds are quietly betting on natural capital](/guide/why-sovereign-wealth-funds-betting-natural-capital?from=guide). For the portfolio argument in general, see [portfolio ensurance](/guide/portfolio-ensurance?from=guide).

## sources

[Global SWF 2026 Annual Report](https://globalswf.beehiiv.com/p/global-swf-2026-annual-report) — SWF assets passed $15tn; ~$60tn for all state-owned investors (1 Jan 2026)
[IFSWF–OPSWF, Hidden Currents: Climate Change Report 2026](https://ifswf.org/hidden-currents-ifswf-opswf-climate-change-report-2026) — returns vs risk, manager clauses, engagement, divestment, reallocation (23 Apr 2026)
[NBIM, Nature expectations 2026](https://www.nbim.no/en/responsible-investment/our-expectations/climate-and-nature/nature/) — consolidated nature expectations for portfolio companies
[ESG Today on NBIM's nature expectations](https://www.esgtoday.com/norways-2-trillion-wealth-fund-sets-expectations-for-portfolio-companies-to-assess-report-manage-nature-risks/) — risk-based divestment for non-responsive companies
[Carbon Tracker, Ambition Under Pressure (June 2026)](https://carbontracker.org/reports/ambition-under-pressure-analytical-leadership-vs-strategic-hesitation/) — nearly a quarter of NBIM equities exposed to severe physical climate risk, per NBIM's own assessments
[FDD, Norway pauses ethical divestment (5 Nov 2025)](https://www.fdd.org/analysis/norway-pauses-ethical-divestment-by-sovereign-wealth-fund-amid-u-s-scrutiny/) — parliament vote of 4 Nov 2025
[Government of Norway, Meld. St. 1 (2025–2026)](https://www.regjeringen.no/en/documents/meld.-st.-1-2025-2026/id3126584/?ch=3) — 2026 fund withdrawal under the 3% rule
[AGBI, PIF spending cuts (Mar 2025)](https://www.agbi.com/giga-projects/2025/03/pif-spending-cuts-slow-giga-projects-and-trigger-layoffs) — spending cuts of at least 20%
[Olam Group, Olam Agri sale completion (27 Apr 2026)](https://www.olamgroup.com/content/dam/olamgroup/news-press-releases/press-release-pdfs/27apr2026-olam-agri-sale-news-release.pdf) — SALIC to 80.01%
[AP via KSAT, Arizona cancels Fondomonte lease (3 Oct 2023)](https://www.ksat.com/news/national/2023/10/03/arizona-to-cancel-leases-allowing-saudi-owned-farm-access-to-states-groundwater/) — groundwater and state land leases
[UNEP State of Finance for Nature 2026, summary](https://altiorem.org/research/state-of-finance-for-nature-2026-nature-in-the-red-powering-the-trillion-dollar-nature-transition-economy/) — $7.3tn nature-negative vs ~$220bn NbS (2023 data)
[Bernama on the Najib 1MDB verdict (Dec 2025)](https://www.bernama.com/en/news.php?id=2440072) — conviction on all 25 charges
[City AM on the UK National Wealth Fund](https://www.cityam.com/reeves-28-billion-pound-wealth-fund-under-fresh-scrutiny/) — size and scrutiny
[OMFIF, a de facto US sovereign wealth fund (Aug 2025)](https://www.omfif.org/2025/08/how-chips-factor-into-a-de-facto-us-sovereign-wealth-fund/) — deal-by-deal federal stakes
[TNFD](https://tnfd.global/) — adopters and the ISSB nature standard work

## the series

- [the risks a sovereign wealth fund cannot sell](/guide/sovereign-wealth-fund-risks?from=guide)
- [the universal owner cannot sell the ground](/guide/the-universal-owner-cannot-sell-the-ground?from=guide)
- [the heritage fund that grows back](/guide/the-heritage-fund-that-grows-back?from=guide)
- [food security without the land grab](/guide/food-security-without-the-land-grab?from=guide)
- [why a sovereign fund cannot buy nature at scale](/guide/why-a-sovereign-fund-cannot-buy-nature-at-scale?from=guide)
- [a public account for the public wealth](/guide/a-public-account-for-the-public-wealth?from=guide)
- [what a national wealth fund could hold at home](/guide/what-a-national-wealth-fund-could-hold-at-home?from=guide)