Goldman Sachs Launches Biodiversity Bond Fund

Goldman Sachs Asset Management (GSAM) is debuting its first biodiversity-themed bond fund to give fixed-income investors a new way to contribute to nature conservation. The fund, which aims to collect $300 million to $500 million in assets in the next three to five years, will make investments in corporate bonds tied to biodiversity-related activities. This is a milestone in the development of sustainable finance products, with most current biodiversity and nature-based solutions funds centering on equity or private equity investments. GSAM's global head of green, social, and impact bonds, Bram Bos, said that the company was looking to give investors the opportunity to contribute positively to biodiversity via liquid fixed income instruments.

The Goldman Sachs Biodiversity Bond Fund will invest in 40 to 70 investment-grade corporate bonds from both developed and emerging economies. The fund's portfolio will have about 20% of bonds that are specifically designated for biodiversity-related purposes, including forest restoration. The rest will be made up of general-purpose bonds issued by companies that are dedicated to nature conservation, including those in the waste management industry. Significantly, the fund will be registered under Article 9 of the European Union's Sustainable Finance Disclosure Regulation (SFDR), the strictest category within the EU's sustainability guidelines. GSAM seeks the fund to track the performance of the Bloomberg Global Corporate Index, establishing a clear benchmark for its financial returns.

Interest in biodiversity finance is increasing, with private investors especially showing interest, and there is a high demand in Europe, Bos says. He added that clients are keenly interested in taking part in biodiversity investments. Europe has recorded the strongest growth here, but Bos recognized that the U.S. market is a challenging place for biodiversity finance due to the changes in sustainability policy. Nonetheless, GSAM believes that other parts of the world, like the Middle East and Asia, still have positive momentum. The company expects U.S. policy shifts to slow issuances of green bonds, but predicts the gap in supply in the U.S. will be bridged by positive trends elsewhere, where interest in biodiversity is gathering pace.

The introduction of the biodiversity bond fund coincides with increased international focus on biodiversity. In Rome, diplomats from 150 countries are negotiating plans to raise $200 billion a year for nature conservation by 2030, reflecting the sense of urgency around preventing biodiversity loss. Yet, as Jameson McLennan, a BloombergNEF research analyst, points out, monitoring the effect of investments aimed at addressing biodiversity is still a major hurdle. Although sustainable bond issuances that have the potential to finance biodiversity totaled $235 billion as of last August, McLennan emphasized that most of these issuances were from governments. This is because the nature of biodiversity projects is mostly not revenue-generating and hence hard for non-government parties to finance.

Against such challenges, GSAM's latest biodiversity bond fund is seeking to be a flagship in the increasingly expanding biodiversity finance space. An anchor investor already has been placed for the fund, although figures have not yet been released. The fund would be managed out of GSAM's fixed income division, where it manages assets worth $1.75 trillion, allowing for investors to spread their investments among several currencies like the dollar, euro, and pound sterling.

As investor demand for sustainable investments grows increasingly, especially in the area of biodiversity, GSAM's new product seeks to place this significant issue at the forefront of the mainstream fixed-income markets. Growth in biodiversity finance, especially in liquid fixed-income vehicles such as bonds, may have a significant role to play in channeling capital into nature conservation efforts and meeting one of the most pressing environmental issues of our time. With worldwide enthusiasm for protecting biodiversity heating up, the bond fund at GSAM aims to take advantage of the situation by providing investors with an option to help protect nature while, at the same time, obtaining competitive financial results.