Global assets in open-end funds and ETFs that focus on the biodiversity theme, while still relatively small, have more than doubled in the last three years to US$3.7bn, Morningstar reports.
This is as investors increasingly view biodiversity loss as a risk factor and an opportunity area to consider.
Morningstar Sustainalytics has published a new report, The Landscape of Biodiversity and Natural Capital Funds, which examines the rage of biodiversity-themed funds on offer and the types of companies these funds invest in.
Key insights from the report include:
- Global assets held in biodiversity open-end funds and ETFs more than doubled over the past three years to USD 3.7 billion, boosted by product development. We identified 34 such funds currently on offer, all domiciled in Europe.
- Despite the rapid growth, the size of the biodiversity fund universe is dwarfed by the USD 520 billion climate fund market.
- After four years of inflows, biodiversity funds experienced negative flows in the first nine months of 2024, against a backdrop of reduced appetite for ESG funds.
- Biodiversity funds have underperformed, on average, but showed resilience in the 2022 market downturn.
- While there is growing awareness of the gravity of biodiversity loss and the impact on many businesses, 70% of companies in the most relevant industries still lack a biodiversity protection policy.
Hortense Bioy, head of Sustainable Investing Research at Morningstar Sustainalytics, says: “It’s still early days for biodiversity investments. Strategies to execute on biodiversity objectives have proved difficult to develop, partly due to a lack of reported corporate data and standard metrics and because biodiversity is at the intersection of other more easily investible and better-known themes such as climate change, water, and the environment.
“Nevertheless, biodiversity is an emerging topic that investors can no longer ignore both as a risk factor and as an opportunity, particularly in the face of a changing climate and declining global habitat.”
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