The Inevitable Policy Response (IPR), a policy forecasting body commissioned by the Principles for Responsible Investment, has said that investors and companies around the world risk being blindsided by the ambition and rapid pace of policymaking on nature and land use.
IPR, which is one of few scenario providers to explicitly integrate the energy and land system, regularly compares policy development on these fronts with its forecast.
It does not always publicise this analysis but did so time because of a sense that investors and others tend to focus on the energy policy dimension “and this quarter we were really struck by the fact that the [nature and land use] policies we’re tracking doubled”, said Jakob Thomä, IPR project director.
IPR found that the rate of relevant policy announcement on land and nature transition doubled over the last 12 months compared with the previous year, with a significant uptick in momentum following recent UN summits.
“That by itself is a huge signal to markets,” said Thomä. “Nature has become an emerging topic but it feels more like ‘this is the next nice to have, it’s the right thing to do’, but it’s not just the right thing to do, it’s now increasingly a policy risk for corporates and by extension for financial institutions and also an investment opportunity.”
IPR said its analysis pointed to there being a significant shift in economies such as China, the EU and Brazil, for example with the adoption of the EU’s regulation on deforestation-free products and Chinese plans to tackle emissions from livestock.
Earlier this year, the Anthropocene Fixed Income Institute, a think tank, launched an open-access product intended to draw attention to the deforestation risk it suggests is latent in liquid credit portfolios.
IPR forecasts that half of global emission reductions by 2035 are set to come from the land use sector through a combination of policies to end deforestation, lower agricultural emissions, reduce food waste, restore degraded natural ecosystems, and scale nature-based solutions.
In its forecast last year it said land use would become “the crucial battleground” for reaching climate goals over the next decades.
Nature-based solutions opportunity
The forecasting body said its new policy tracking analysis showed investors need to appreciate that there is an increasing acceleration in policies on nature and land use, or risk being blindsided.
At the same time, IPR said investors should also be alert to the outlook for nature-based solutions to become even more of an investible opportunity.
“Accelerating policy will unlock even more value in the coming years, with overall land area utilised for nature-based solutions set to increase almost 10-fold from 2021 to 2035, nearly equal to 10% of global agricultural land today,” said IPR.
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