Kunming-Montreal agreements: a bond perspective

17 minute read

Biodiversity exposures in investment portfolios are becoming increasingly important across the fixed income space. We analyse the potential of government bond portfolios aligning with the Kunming-Montreal (KM) Global Biodiversity Framework (GBF).

The GBF - adopted in December 2022 - includes four goals and 23 targets to be reached by 2030, addressing biodiversity loss and natural ecosystems restoration.

The landmark goal of this agreement is the “30x30” target that aims to protect 30% of the world’s land, inland water, coastal areas and oceans by 2030.

The GBF has the potential to attain the same investment relevance as the 2015 Paris Agreement that acted as a wake-up call for the financial community to start aligning portfolios and investments with a 1.5-2°C target.

Similarly, it would be strategic for portfolios to position in readiness for such secular trends. Biodiversity has robustly documented correlations with credit risk. In the context of sovereign bonds, it is estimated that many countries including the USA and Canada could be facing credit downgrades due to biodiversity loss.

How will the flow trend and credit risk argument drive portfolio re-allocations in light of the KM framework? We analyse one of the largest global DM ETFs, the Xtrackers II Global Government Bond UCITS ETF (“DBZB”), as an indicator of how government bonds’ portfolios can align with the GBF’s target of protecting 30% of world’s land by 2030.