The Price of Scaling Biodiversity Funds: When Impact Investing Becomes Impactless

Abstract

With wildlife populations declining by 73%, 85% of wetlands lost, and wild mammals now making up just 4% of total mammalian biomass, humanity has shifted from being a part of nature to being apart from it (Dasgupta, 2021; IPBES, 2019; World Wildlife Fund, 2024). As the scale of the implications associated with biodiversity loss becomes more visible, it is no longer merely an ecological tragedy but increasingly a financial risk, threatening the stability of entire markets and economies. The continued underfunding of biodiversity efforts, often termed the biodiversity finance gap, has increasingly directed attention toward private capital as a key mechanism for reversing this trajectory. Among private financial actors, the asset management industry holds the largest concentration of capital and is thereby uniquely positioned to direct investments toward biodiversity-positive outcomes. While other biodiversity-themed financial instruments have attracted growing academic attention (bonds, offsets, credit swaps), funds have not received the same academic scrutiny, despite emerging as the primary vehicle for private capital allocation. Using a mixed-methods approach, this thesis sets out to answer the question: How do asset managers, through biodiversity-labeled funds, address the issue of biodiversity loss, and to what extent do these efforts translate into measurable ecological impact? Through a combination of qualitative interviews with fund managers, data providers, and supporting organizations and quantitative fund-level analysis, this thesis examines how asset managers frame and structure biodiversity as a financial asset within biodiversity-labeled funds in order to render it investable. The findings reveal that while these funds aim to drive ecological impact by assetizing biodiversity as a financial risk, this very process undermines additionality, exposing a core paradox: the more scalable and financially legible the funds become, the less ecologically impactful they are.This thesis’ contribution to the growing field of biodiversity finance is twofold. For theorists, it advances the academic literature by exposing the structural tensions between dominant financial theories and the ecological realities of biodiversity loss. It critically examines how portfolio theory’s core principle of diversification, based on statistical correlation, fails to account for ecological covariance, where firms across sectors may be simultaneously exposed to the degradation of shared natural systems. In doing so, it challenges the adequacy of mean-variance optimization through diversification in contexts of biodiversity-related risks. Similarly, the study discusses the logic of impact investing, particularly the conventional requirement of investor-level additionality, which proves increasingly unworkable in the context of slow, cumulative, and system-wide ecological change. By reframing additionality as a system-level dynamic, emerging from the collective influence of capital flows, the thesis offers a conceptual shift that aligns more closely with the distributed nature of biodiversity outcomes. Across both theoretical domains, the thesis highlights the epistemological and temporal misalignments between financial abstraction and ecological complexity.For practitioners, this thesis provides a nuanced assessment of the operational, strategic, and epistemic limits of biodiversity-labeled equity funds. It highlights that while these funds offer alignment with biodiversity goals, they often struggle to achieve direct ecological impact due to their reliance on secondary markets, inconsistent data, and traditional interpretations of fiduciary duty. The study clarifies the trade-off between impact and scalability, showing that strategies that are additional tend not to scale, while those that scale often lose their claim to additionality. The findings also urge practitioners to reconsider how biodiversity risk is priced and diversified in portfolio construction, advocating for the inclusion of ecological covariance as a material risk factor. Moreover, the thesis draws attention to the institutional role of asset managers not only as capital allocators but also as agenda-setters, capable of shaping market norms, corporate behavior, and disclosure expectations, even within the constraints of public markets.