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GBF Prompts Multiple “Material Impacts” for Investors

Nature-focused policy developments will drive significant changes in investment risks and opportunities across multiple sectors, says IPR.  

To help investors navigate future risks caused by dual climate and nature crises, the Inevitable Policy Response (IPR) has developed a new policy scenario that incorporates nature-related policy trends alongside climate for the first time. 

“The evolution in nature policy momentum that we’ve seen requires a deeper understanding of [nature-related] impacts from investors,” according to Jason Eis, Executive Director of Vivid Economics, speaking at a webinar launching the first report outlining the new scenario. 

Expanding on the climate forecasting consortium’s 1.8°C Forecast Policy Scenario (FPS), FPS + Nature has identified “forceful” policy responses globally to both climate change and nature loss and their projected impacts by 2030 and 2050, outlining future investment opportunities and transition risks for investors.  

This first iteration focuses on climate and nature policy areas that will have an effect on land use specifically: carbon pricing, bioenergy, diets, deforestation, sustainable agriculture, and food waste.  

Eis said: “Through the Global Biodiversity Framework (GBF) alone, there’s a lot of potential material impact for financial institutions, such as targets to increase public and private sources of funding to restore and protect our natural ecosystems.” 

Beyond the GBF, the scenario accounts for the UK Environment Act, Australia’s ambitions to introduce legislation supporting a market for biodiversity, and China and Saudi Arabia’s commitments to plant billions of trees. This is alongside the anticipated widespread adoption of nature-related disclosure standards developed by the Task Force on Nature-related Financial Disclosure (TNFD), due to be finalised in September. 

Current trends suggest 20% of total global land area could be protected by 2030, the report said, adding that governments “may consider significantly increasing efforts to restore degraded ecosystems through national programmes, supplemented by private sector action”, restoring 4% of global land areas by 2030. The final text for the GBF calls for the protection of 30% of the world’s terrestrial and marine habitats by 2030.  

IPR has also developed the FPS + Nature Value Drivers Database, which will serve as an open access resource outlining over 80 land use value drivers that can inform investors’ investment decisions. 

Identifying opportunities 

These land use-focused policies are having a knock-on effect across food, energy, nature-related goods, service and assets, supply chains, and the global environment, the report said.  

Investors in the food sector will be impacted by the price of deforestation-linked commodities likely increasing, whereas the development of alternative proteins could “bend the demand curve for ruminant meat, with production peaking by 2035, also influencing production of animal feed”.  

Other areas of growth lie in the development of sustainable technologies, according to IPR, such as sustainable crop production tech, food waste reduction tech and improvements to supply chain traceability. 

Most notably, the scenario forecasts a strong future for nature markets and nature-based solutions (NbS), estimating that biodiversity credits could generate US$18 billion in annual revenue by 2050, and NbS could reach US$22 billion a year by 2030 and US$204 billion by 2050.  

For the latter, private investors currently only contribute 17% of investment flows, according to the United Nations State of Finance for Nature report 

The FPS + Nature scenario follows the IPR’s October 2022 quarterly assessment of climate-related policies across its 1.5°C and 1.8°C temperature scenarios. Although progress was identified, the quarterly update warned that there is a growing gap between OECD and non-OECD countries’ progress in the climate transition.  

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