Financing Nature: Investment Funds and Biodiversity Risks

Daniel Marcel Kaat and Alexander Raabe
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Daniel Marcel Kaat: University of Groningen
Alexander Raabe: Asian Development Bank

No 847, ADB Economics Working Paper Series from Asian Development Bank

Abstract: How do international investors adjust portfolios in response to biodiversity risk? Using monthly data on investment fund portfolios, we show that the 2021 Kunming Declaration led fund managers to reallocate portfolios from high-biodiversity risk countries to less risky ones, while ultimate fund investors remained unresponsive. Fund managers reduced exposures to extremely high biodiversity risk without seizing low biodiversity risk as an opportunity for profit, characterizing biodiversity as downside risk factor. Investment funds drive cross-country spillovers as the reallocation triggers significant capital flows benefiting countries in the same geographic region, but outside of a fund’s hitherto established portfolio. Using a novel measure of legal action to protect nature, we demonstrate that countries adopting more legal acts are partially shielded from funds reducing their exposure to high-biodiversity risk countries.

Keywords: biodiversity; risk; portfolio reallocation; cross-border capital flows; spillovers; investment fund; Kunming Declaration (search for similar items in EconPapers)
JEL-codes: F30 G10 G20 Q50 (search for similar items in EconPapers)
Pages: 45
Date: 2026-05-27
New Economics Papers: this item is included in nep-ifn
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