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Authored by Rishi Basak (Advisory Board Member, Lester Asset Management), with contributions from Hamish Stewart (Senior Advisor, Nature & Ocean Finance, Nature Investment Hub)
February 2026
As the Hub team reflected on the state of the nature finance market globally from January 2025 to January 2026, a clear pattern emerged in the public equities space. Several high-profile asset managers stepped back from equity-based biodiversity funds. Fidelity International acknowledged that its biodiversity strategy may have been “pretty early.” Federated Hermes closed its fund after its largest stakeholder pulled out. AXA Investment Managers also shuttered its biodiversity-themed equity fund, citing low assets under management.
At first glance, these closures risk telling a troubling story: that biodiversity lacks investability for public markets investors, and that nature as an institutional investment theme is too diffuse or too complex to absorb large scale capital on a commercial basis.
This interpretation misses the deeper signal. At the Hub, we are optimistic about what is possible in Canada. UNEP-FI expects the need for investment in nature-based solutions to grow 2.5 times to over CAD $700 billion per year by 2030. These investments are required to preserve and support the recovery of biodiversity and other natural assets that underpin human prosperity. The opportunities for new capital deployment across Canada into nature based solutions is enormous.
So we reached out to Rishi Basak, who advised on Canada’s first dedicated biodiversity equity strategy, the Lynx Global Biodiversity Fund managed by Lester Asset Management. Rishi has also served as a trusted advisor to the Hub at various points over the past two years. We asked him for his perspective on what these market shifts really mean.
Read on.
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Rishi Basak:
When a biodiversity fund closes, it is tempting to treat it as a verdict on biodiversity investing itself. That is the wrong lesson to take from recent events.
Recent reporting that AXA Investment Managers will close one of its biodiversity vehicles after a sharp drop in assets is better understood as a case study in product resilience, fund distribution challenges, and expectation management in a still maturing market. According to reporting, one vehicle’s assets fell by more than €200 million since late October, and another was down by more than $300 million over the same period. The same news coverage points to the practical reason for closure: the fund had reportedly fallen below a level where it could be managed cost-efficiently. Asset managers need to have a certain volume of funds, which they take fees on, in order to cover administration costs and to pay themselves. An additional point worth making is on the impatience of many investors. If recently launched funds are not performing over a short period, and investors identify what they consider to be better opportunities elsewhere, they will move their money.
If diagnoses shared in the finance industry press are broadly correct, the implication is not “nature data and thematic strategies do not belong in investment portfolios.” It is that nature-linked investment strategies, when packaged as standalone fund products, have to be built to survive three headwinds at once:
What can fund managers learn from all this, and what is the path forward if we want fewer closures like this?
1) Start with the economics of survivability
Biodiversity strategies often require more infrastructure than conventional fund products: specialized data, analytical frameworks, engagement programs, and reporting that can withstand scrutiny. Those costs do not shrink in proportion to assets under management. When a fund is small and experiences outflows, the unit economics can deteriorate rapidly. This is a universal challenge in the active investment management sector and is not particular to thematic biodiversity funds.
The first step for those running biodiversity funds, therefore, is to design for a “survivable minimum scale” and to be transparent about what that implies for seeding, distribution, management fees, and time horizon. In practice, that means not relying on a slow drip of opportunistic asset inflows to carry a strategy that has non-trivial fixed costs. Start big.
2) Build anchored capital and predictable fund distribution channels
Many thematic funds live or die on flow volatility rather than on the quality of the underlying investment thesis. That is not unique to thematic biodiversity or nature funds. But these risks are amplified in the biodiversity fund space. This reflects investors’ continuing efforts to understand how their portfolio companies identify, leverage, and manage nature-related risks and opportunities. Recent fund launches have struggled to survive because the category has not yet settled into standard model portfolio allocations the way other asset classes have. There is work afoot to educate the investment industry on ‘nature as an asset class’ but much work remains to be done on the investor education front.
A practical response to recent events is to build more durable foundations for capital deployment into biodiversity and nature-based solutions. That can mean cornerstone investors with longer holding horizons, clearer articulation of the role a biodiversity allocation plays in portfolio diversification strategy, and a fund distribution plan that is designed to prioritize persistence rather than launch-day excitement. These criteria are intended to reduce the probability that a short period of underperformance or market rotation triggers a fund redemption spiral that forces permanent closure.
3) Raise expectations on clear biodiversity impact measurement and reporting
Biodiversity impacts are harder to quantify than carbon accounting for structural reasons: it can be local, multi-dimensional, and shaped by complex ecological interactions. The market is improving rapidly in their approach to biodiversity impact assessment and reporting, but the data remains uneven, and methodologies are evolving.
The right move is not to overclaim on impact. It is to adopt “measurement discipline” and communicate it clearly to investors in these funds: what is measured, what is proxied, what is uncertain, and how the framework will be updated as standards mature over time. Approaches that explicitly acknowledge data imperfections while still using decision-useful tools. For example, the Taskforce on Nature-related Financial Disclosures (TNFD) sector risk considerations and credible biodiversity footprint datasets are more defensible than approaches that imply false precision.
4) Treat claims as product architecture guidelines, not just marketing copy
Nature strategies are increasingly marketed with strong language: “nature-positive,” “impact,” “net gain.” That language can be appropriate, but it carries obligations for those who are marketing these funds. If a product is framed as delivering specific outcomes, then the governance, documentation, and reporting need to be engineered so that those claims can be defended. This matters from a reputational and legal perspective. The Canadian market may also benefit from regulator scrutiny, as we can observe in the UK with the Sustainability Disclosure Requirements (SDR) and investment labels policy there.
5) Compete on stewardship and judgment, not just negative investment screens
In nature investing, the edge often comes from governance: how investors interpret imperfect signals, prioritize engagements with portfolio companies, and influence real-economy practices across supply chains. A credible stewardship program can be a differentiator because it connects the portfolio to real-world changes, even when the metrics are still catching up.
The market tends to focus on what can be easily scored and reported on. But what will matter in the long run is the quality of investment judgment and the seriousness of investor engagement with companies on biodiversity impact themes.
6) Reset performance expectations and educate clients
One underappreciated driver of fund closures is a mismatch between the time horizon of the investment thesis, return expectations and the time horizon of investors and their varying levels of patience with short-term underperformance against their benchmarks. Biodiversity strategies are exposed to market regimes where returns are dominated by narrow themes, and where the financial performance of diversified portfolios can lag the wider market for extended periods.
Portfolio managers and asset owners should be clear in their dialogues with clients that nature strategies are not designed to “win every quarter.” They are designed to price long-term ecological constraints, regulatory transitions, real-economy adaptations, and capture the upsides of companies enabling healthy ecosystems and biodiversity recovery. If we want patient capital to flow into these opportunities, we need to have patient and clear communication.
7) Markets cannot always price what policy refuses to constrain
There is a deeper lesson to be drawn from the recent volatility in nature strategies: markets are excellent at profit-maximizing within the established rules of the game. Governments and policymakers set these rules. If destroying nature is cheap or not priced in at all, legally permitted, and rarely penalized, it should not surprise anyone when “biodiversity protection” struggles to look like a consistently winning investment thesis.
This is not an argument against efficient markets. But it is an argument for governments to set clearer constraints and guardrails so that private capital can do what it does best: allocate capital efficiently within those constraints. Practical examples include stronger disclosure requirements on nature-related dependencies and impacts, credible enforcement against illegal deforestation and harmful land-use change, meaningful penalties for environmental contamination and pollution, and government procurement and subsidy regimes that stop rewarding practices that degrade ecosystems.
In other words: if we want scalable biodiversity finance, we need a policy environment where nature loss is no longer an unpriced externality. When the rules shift and the costs of destroying nature appear in companies’ accounts, investment signals follow.
The $10 trillion dollar bottom line
A biodiversity fund closure is not proof that biodiversity investing has failed. It is a reminder that this category requires stronger product engineering: survivable economics, anchored distribution strategies, honest impact measurement, defensible claims, serious stewardship, and clear expectation-setting by all stakeholders. It is also a reminder that markets optimize for profit within the rules they are given. If nature loss remains under-priced, permitted, or weakly enforced by regulators, we should not expect biodiversity protection to reliably show up as a “winning” investment theme. Durable biodiversity finance needs both: well-designed strategies and clearer public rules that stop treating ecosystem damage and destruction as a free externality.
All of this matters as the shift to nature restorative business models, production practices and consumption have the potential to drive enormous business opportunities, employment, and investor returns. Investments in a sustainable transition of food, land, and ocean use; infrastructure; and energy have the potential to create $10.1 trillion in annual business opportunities by 2030. Investors need to stay the course to realize these opportunities.
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We’re grateful to Rishi for sharing his perspective. As Canada’s nature finance market evolves, conversations like these – grounded in both optimism and pragmatism – are essential to ensuring nature finance shifts from a niche allocation strategy to part of the mainstream investment system, accessible to all investors.
