Dive Brief:
- Goldman Sachs Asset Management announced the creation of a new biodiversity bond fund last week, which it called “one of the first fixed income funds” to allow investors to seek portfolio exposure to biodiversity conservation and remediation.
- The European Union-listed fund will give investors the opportunity to invest in bonds where the proceeds go toward biodiversity-related projects and activities, as well as “bonds issued by companies with revenues supporting biodiversity conservation and remediation,” according to a Feb. 27 release shared with ESG Dive.
- Goldman Sachs said in the release that the fund will support the United Nations’ Sustainable Development Goals related to ensuring available and sustainable management of water and sanitation; sustainable consumption and production patterns; conserving and sustainably using natural water resources; and protecting and restoring the earth’s ecosystems, halting and reversing biodiversity loss.
Dive Insight:
The fund will make disclosures in line with the European Union’s Sustainable Finance Disclosure Regulation’s article 9, last week’s release said. Funds classified under SFDR’s article 9 must aim to achieve sustainable investment objectives and disclose detailed information about how they plan to achieve these goals. Goldman said at least 90% of the fund’s investments will be sustainable, with only 10% or less going to investments that don’t qualify, according to the firm’s Feb. 26 disclosures for the fund.
There were at least 24 biodiversity funds — or funds with biodiversity listed in their names or investment strategies — active globally as of September, with more than $1.6 billion in assets under management, according to an October analysis by financial services company MSCI. While that represented a 50% increase in the year up to that point, MSCI found that investors were limited to equity funds, “mostly through large caps listed in developed markets.”
“In recent years, there has been a growing focus amongst investors to consider not just pure climate targets but also maintaining and improving biodiversity.” GSAM Global Head of Green, Social and Impact Bonds Bram Bos said in the release. “This fund seeks to provide fixed income investors with exposure to issuers that are having a positive impact on biodiversity.”
The firm’s asset management arm will select the fund’s bonds using GSAM’s proprietary sustainable investing framework. The fund’s disclosures said it does not commit to aligning its sustainable investments definition with the EU’s taxonomy at this time, which is being amended as part of the European Commission’s omnibus package proposal to simplify corporate sustainability rules. That omnibus has been sent to the European Parliament and European Council for further consideration and adoption.
“Whilst this Sub-Fund intends to make sustainable investments, it does not take into account the EU criteria for environmentally sustainable economic activities within the meaning of the EU Taxonomy and therefore its portfolio alignment with such EU Taxonomy is 0%,” the disclosures noted. “However, the position will be kept under review as the underlying rules are finalised and the availability of reliable data increases over time.”
While the fund does not commit to aligning with the EU Taxonomy at this time, the Biodiversity Bond Assessment Methodology leans on the taxonomy, as well as a variety of other green bond frameworks, third-party data, industry initiatives and its own internal biodiversity data, the firm said. The fund will also integrate ESG into its approach by identifying material risks and opportunities and assess them using various ESG ratings, then integrate that analysis into the screening and selection process, according to the disclosures.
Goldman Sachs’ biodiversity fund will not invest in companies that generate more than 1% of their revenues from “hard coal and lignite exploration, mining, extraction, distribution or refining;” more than 10% of their revenues from “oil fuel exploration, extraction, distribution or refining;” or more than half of their revenues from exploring, extracting manufacturing or distributing “gaseous fuels” or from generating electricity with over a certain greenhouse gas intensity. The fund will also restrict investments from companies involved in “certain controversial activities” including the extraction and production of fossil fuels like thermal coal and arctic oil and gas, and more.
The fund will be monitored on an ongoing basis with quarterly updates to the underlying data, and any investment that falls out of the “sustainable investment” category will be removed, the disclosures said. The biodiversity fund becomes the firm’s fifth green bond fund, the Feb. 27 release said.
The fund is domiciled in Luxembourg and currently listed on EU markets, as are the 24 other biodiversity funds that MSCI identified. MSCI said only four biodiversity funds are currently available outside of Europe, which suggests “investor demand for pure-play biodiversity funds has yet to develop globally.”
