Biodiversity-linked vehicles are being overshadowed by the climate fund market, with momentum having slowed in the first three quarters of this year, according to Morningstar Sustainalytics. Global assets in 34 biodiversity open-ended funds and exchange-traded funds more than doubled over the past three years to US$3.7 billion, but in comparison, the climate fund market stands at US$540 billion. The report split biodiversity funds into three categories: risk-oriented, solutions-focused, and mixed – with only the second type having attracted net new money so far this year. Sustainalytics also deems biodiversity funds to have “underperformed” historically, citing their higher fees as a reason for lagging behind ESG and non-ESG peers. All 34 biodiversity funds identified in the report are domiciled in Europe, with the US and APAC generally lacking such products. “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,” said Hortense Bioy, Head of Sustainable Investing Research at Morningstar Sustainalytics. “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.”
