Why Investment Funds Are Fleeing Biodiversity Hotspots—And How to Stop Them

The 2021 Kunming Declaration was a landmark in the fight to reverse biodiversity loss. More than 100 countries committed to protect 30% of ecosystems and increase annual biodiversity finance to $200 billion by 2030. But it also made fund managers acutely aware of biodiversity risks. Investments funds began pulling money out of countries where biodiversity is under threat, but legal protections are weak. Asia and the Pacific—home to 17 of the world’s 36 biodiversity hotspots—saw capital reallocate based on a brutal calculation: high biodiversity loss plus weak laws equals financial risk.

Funds managing trillions of dollars in stocks and bonds reduced their holdings in countries with a high share of endangered species. Weak regulatory frameworks protecting nature worsened the outflow. Nations with degraded ecosystems are treated as financial hazards and thus starved of the funds they need to restore nature. The outflows also jeopardize the financial stability needed for nature-positive investments.

Wildlife populations across Asia and the Pacific have declined 60% since 1970, according to WWF’s Living Planet Report, and thousands of species are threatened with extinction. The Coral Triangle—home to 76% of all known coral species—is at risk from overfishing, pollution, and rising temperatures. Yet the region faces a massive shortfall in funds needed to protect and restore its ecosystems. 

The declaration signaled that biodiversity losses had become material to investment decisions. Fund managers demanded additional compensation—a risk premium—for biodiversity exposure. But the premium wasn’t enough. Instead of accepting higher returns, they repositioned their portfolios entirely. Even funds focused on sustainability participated. 

Over half of foreign capital flowing into Asia and the Pacific comes from stock and bond investments plus international bank lending. Pristine rainforests and coral reefs—assets that should attract patient capital—instead trigger portfolio exits when fund managers perceive biodiversity threats, amplified by regulatory gaps. 

However, our research found that countries taking more legal action to protect nature are partially shielded from fund withdrawals in response to biodiversity risks.

That finding points toward solutions. Start with what works: legislation designed to protect habitats, species, and ecosystems. Not climate policies. Not general macroeconomic improvements. The research shows legal frameworks to protect nature provide measurable insurance against reallocation away from high-biodiversity risk countries—the only intervention that does.

“Can you make protecting a watershed more financially attractive than degrading it?”

A pilot in Sichuan Province, People’s Republic of China, shows one path forward. The $150 million loan creates tradable credits for ecosystem services, establishing market value for conservation outcomes rather than treating biodiversity purely as downside risk. It’s a test case: can you make protecting a watershed more financially attractive than degrading it?

The Coral Triangle needs this approach at scale. More than 100 million people depend on those reefs for livelihoods. A pioneering Biodiversity and Nature Bond raised A$150 million (about $110 million) in 2024. It proved investor appetite exists, but the scale is nowhere near big enough.

De-risking mechanisms matter here. The World Bank’s Wildlife Conservation Bond—the “Rhino Bond”—uses a $150 million bond structure where performance-based payments to investors, funded by a Global Environment Facility grant, are tied to measurable increases in black rhino populations. This isn’t charity. It’s financial engineering that aligns profit with biodiversity outcomes, transforming biodiversity into an opportunity to be captured.

Measurement is advancing faster than you’d expect. Asia and the Pacific leads adoption of the Taskforce on Nature-related Financial Disclosures framework—86% of regional companies are using or plan to use these standards. The Partnership for Biodiversity Accounting Financials has brought together 76 financial institutions from 22 countries to standardize how they measure biodiversity impact across loans and investments. Fund managers can’t price risks they can’t see. Now they can see them. 

Natural capital accounting offers another tool. By incorporating the economic value of ecosystems into national accounting systems, governments can measure the economic contribution of mangroves or the cost of losing coral reefs. Several countries are piloting natural capital accounts to show that protecting ecosystems generates measurable returns.

Regional cooperation becomes critical when financial shocks cross borders. Harmonized disclosure standards. Coordinated surveillance. Shared early-warning systems when ecosystem collapse threatens economic stability. The biodiversity loss happening in the Mekong—where a fifth of assessed fish species are heading toward extinction—doesn’t respect national boundaries. Neither should the financial response.

The same capital flows that are fleeing biodiversity hotspots can be retained if the risk-return equation changes. Investors within the region now hold more of each other’s bonds and shares, with debt holdings reaching $1.2 trillion in 2024 and equity $1.6 trillion. Part of that capital could fund transboundary conservation—migratory corridors, shared watersheds, marine protected areas spanning exclusive economic zones—if innovative nature-finance products, supported by pro-nature regulatory frameworks, attract investors.

The question isn’t whether financial flows will reshape around nature-related risks. They already are. The question is whether Asia and the Pacific will build legal frameworks, financial instruments, measurement systems, and regional cooperation mechanisms to direct that capital toward conservation.