NETs labelled “next investment frontier”, offering trillion-dollar upside for investors.
A new Principles for Responsible Investment (PRI) report highlights the importance of responsible land use on the path to net-zero emissions, and the role of investors in the transition to negative emission technologies (NETs), including nature-based solutions (NBS).
The report calls for investors and companies to back NBSs to address in the deforestation crisis, the development of which could “generate US$1.2 trillion”. The PRI claims this would surpass the current market capitalisation of oil and gas majors, thus proving to be a lucrative emerging market for investors.
“The emerging NBS market provides a unique opportunity for investors to shape its design for their needs while driving its impact,” the report stated.
New financing mechanisms are also required to develop the NBS market, says the report, including distressed asset and stewardship models, green bonds, forest insurance provision and carbon off-taker guarantees.
A surge in corporate climate action has “boosted the voluntary offset market”, an upward trend which the PRI expects to continue. In 2018, the value of forestry and land-use-related credits traded in the voluntary offset market had tripled to US$172 million since 2015. As of 2019, the voluntary offset market represented 65% of the total number of annual carbon credits issued– a fourfold increase on 2015 (17%).
Citing a responsibility to proactively reshape the market, the PRI report asks investors to continue pressuring companies to commit to climate action, as well as actively investing in NBS and establishing deforestation-free supply chains.
Tech behemoth Amazon has pledged US$10 million in the fight against illegal deforestation, EasyJet around £30 million and Shell is committing to planting five million trees in the Netherlands.
The number of global companies committing to net zero has jumped from 500 to 1,541 in less than a year, including companies from high-emitting sectors such as oil and gas, steel, cement and food. The PRI argued more companies will commit to net zero in response to investors further ramping up the pressure.
“Investors could also engage with policymakers to promote a global standard for NBS projects which could help to create a global market and unlock the global finance that is crucial for a rapid scale-up,” the report added.
“An entire new industry may emerge that values carbon stored in vegetation and soil, unlocking new business models and investment opportunities for avoided deforestation, reforestation and afforestation and land restoration.”
Technical solutions such as direct air carbon capture (DACCS) and bioenergy with carbon capture and storage (BECCS) are ones to watch longer term, and with the right research and development could generate an additional annual revenue of US$625 billion by 2050.