The global market of biodiversity-linked bonds is still not at a scale that can consistently attract institutional investors, according to Tom Eveson, vice president of corporate solutions at financial services firm Morningstar Sustainalytics.
Eveson made the comments at a media briefing in London, which looked to examine biodiversity’s importance within sustainable investing ahead of the COP16 biodiversity conference, to be hosted later this month in Colombia.
“The challenges (in biodiversity) are scaling. Large asset managers have shown themselves willing to invest in the wider green bond market. However, the bond size needs to be a minimum of $300 million, and to have a pure play focused biodiversity program that needs $300 million in debt to fund are going to be few and far between,” Eveson said.
Eveson cited the so-called “Rhino Bond,” a five-year, $150 million sustainable development bond launched in 2022 by the World Bank, which looks to protect and increase black rhino populations in two protected areas in South Africa, as an example of a biodiversity-related bond.
Another example given was a $200 million KPI-linked Arizona municipal bond, launched in 2022 and dedicated to supporting sustainable forestry practices.
“We're only talking one or two examples, but a few years ago there were no examples. This area is just emerging, and if it can be scaled (biodiversity-linked bonds) will be quite exciting,” Eveson said.
As well as conversation around the upcoming COP16 biodiversity conference, there was discussion on the COP29 climate conference, due to be held next month in Baku, Azerbaijan. Earlier this year, Hortense Bioy, head of sustainable investing research at Morningstar, referred to COP29 as “less of a big deal” than previous such summits, claiming that attention was already being shifted to the 2025 event due to take place in Brazil.
“COP26 (in Glasgow) was only three years ago, but it feels like 30," Lindsey Stewart, director of investment stewardship research at Morningstar, said at the briefing. "Going into COP29, the high ambition on climate action that we saw from the finance community in 2021 appears to have subsided. But now, the world needs that ambition more than ever.”
Morningstar completed the acquisition of green ratings firm Sustainalytics in 2020.
