Billions are needed to deliver the COP15 nature deal, but the funds for biodiversity are tiny

Billions are needed to deliver the COP15 nature deal, but the funds for biodiversity are tiny

Morningstar lists 175 funds that execute environmental investing strategies


calendar icon December 20, 2022

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3 minute read

Climate-conscious investors have funneled billions of dollars into clean energy, but investment flows into protecting and better managing the world’s ecosystems remain small by comparison, Reuters reported.

That could change after negotiators at the UN nature summit in Montreal secured long-awaited official backing on Monday for a global biodiversity framework to protect nature. But plans have yet to be made on how to channel the huge amounts of capital from private and public sector sources that scientists say are needed for conservation.

A growing crowd of investors aiming to manage their money with environmental, social and governance (ESG) considerations are looking to the agreement for guidance on the future shape of new financial instruments and rules to protect investors. forests, swamps, waters and everything in them. Between.

Some managers have already gone ahead. About 74.3 billion euros ($78.8 billion) is already invested in funds aimed at protecting ecologically healthy environments on land, in the air and in the water, according to Morningstar data.

Morningstar lists 175 funds that execute investment strategies intended to invest in companies or securities involved in industries that have a positive impact on the environment. She groups these funds under a theme she calls healthy ecosystems.

The five largest healthy equity ecosystem funds are managed by Pictet, BNP Paribas Asset Management and Amundi and represent €21.6 billion, almost a third of the entire group.

These funds are largely concentrated in the industrials and utilities sectors: six of the top 10 funds are overweight the benchmark industrials weighting in the MSCI ACWI (USD) index while half of the funds are overweight utilities.

BIODIVERSITY FUND

Investment strategies specifically targeting biodiversity are an even more nascent product. Only €907.6 million is invested in Morningstar’s top 10 equity funds with biodiversity in their name.

Limited data collection and reporting and the difficulty of measuring a company’s impact on biodiversity are all seen as major barriers to investment by fund managers.

“We know the global economy and every company that is part of it has a negative impact on biodiversity,” said Tom Atkinson, portfolio manager at AXA Investment Managers, which has an Article 9 biodiversity impact fund. of 117 million euros.

“At the moment, we can only assess the negative impact (on biodiversity) of the companies in our portfolio, which is why there are not more funds for biodiversity and why regulation is probably lagging.

Like the broader group of healthy ecosystem funds, the named biodiversity funds are largely concentrated in industrialists like agricultural equipment maker Deere & Co and US water technology provider Xylem with 30% of holdings. individuals from a universe of 60 stocks directed towards this sector.

Consumption comes second, however, with 27% of assets invested in companies like Nestlé, L’Oreal and Darling Ingredients, a company that transforms edible by-products and food waste into sustainable products and renewable energy.

Three of the six largest biodiversity funds rated by Reuters are overweight industrials relative to the MSCI ACWI (USD) index.

With a global biodiversity framework in place and efforts well underway to create a nature reporting framework for businesses – the Nature-Related Financial Disclosures Task Force – as well as a new tool to measure Positive biodiversity impact expected in early 2023, managers like Atkinson predict investment flows will increase next year.

($1 = 0.9431 euros)


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