IPR Forecast Policy Scenario + Nature

The IPR FPS + Nature is the first integrated nature and climate scenario for use by investors. It fills a crucial gap in risk assessments and provides financial institutions with an exploratory forward-looking view on how policy, technological and social trends could impact key land use and energy-related value drivers. It represents a ‘beta version’ scenario of what might happen when nature-related policy is incorporated into a climate-related scenario.

The decline of nature is beginning to lead to policy action, which could impact investors and financial institutions

Government action on nature is increasing and a range of policies and regulations are being introduced to accompany action on climate. Over 190 countries agreed to adopt a global biodiversity framework at the COP 15 summit in Montreal in December 2022. Policy action to achieve these commitments may create new risks but lead to new opportunities for companies and investors.

Companies and investors are being asked to understand their impacts on nature and disclose these. Emerging frameworks, such as the Taskforce on Nature-related Financial Disclosures (TNFD), will encourage investors to take a forward-looking view on nature-related risks and report on how they are exposed to nature and biodiversity

The natural world has been impacted to levels unprecedented in human history. Global extinction rates are 1,000 times higher than under natural conditions, with three quarters of Earth’s land ecosystems significantly altered

Land use change is the primary cause of nature loss due to conversion of land to agriculture, with 90% of tropical deforestation driven by expansion of agriculture

Nature loss could pose material threats to the economy and to the financial sector, with an estimated global GDP loss of USD 3 trillion annually by 2030 if ecosystem tipping points are crossed

The IPR FPS + Nature incorporates key additional policy levers that support the nature transition - land protection, land restoration and nature markets

Included in FPS

Energy-related policy levers

Carbon taxes and emission trading systems, along with border carbon adjustments

Regulations prohibiting coal, emissions performance standards, and electricity market reforms

Targets for 100% clean power, along with renewables capacity auctions and other support policies

Emissions performance standards for industrial plant, along with subsidies for new or retrofit clean industrial processes

Laws prohibiting fossil fuel heating, subsidizing low-carbon heating and requiring thermal efficiency; for appliances, minimum energy performance standards

ZEV consumer subsidies along with legislation requiring 100% zero emission vehicle (ZEV) sales and implementing manufacturer ZEV obligations

Land-related policy levers

Incentives for reforestation and afforestation, along with penalties for deforestation, supported by consumer pressure

Subsidies for low-emissions practices and technologies; emissions regulation incl. via tax or cap-and-trade systems; farmer education and technical assistance programmes

Included in FPS + Nature

Nature-related policy levers

Policies to protect biodiversity hotspots and additional habitats, along with regulation mandating restoration of degraded land

Emerging legislation and targets for biodiversity outcomes that support the development of voluntary biodiversity credit markets

In FPS + Nature, key nature-related policy trends are related to four areas

Protected areas – Governments could act to safeguard nature by strengthening regulation to protect land. Current trends suggest 20% of total global land area could be protected by 2030, with international goals established at the CBD’s COP 15 to protect 30% of land and sea by 2030 taking longer to implement
Land restoration – Governments may consider significantly increasing efforts to restore degraded ecosystems through national programmes, supplemented by private sector action. This could involve restoration on 4% of global land area by 2030
Nature markets – Formalisation of nature-related targets, creation of market infrastructure and corporate demand could support emergence of voluntary biodiversity credit markets initially at the local and regional scale, developing both independently and integrated with NBS-based carbon markets, with more focus on nature outcomes also having the potential to increase the “quality” of nature-based carbon credits
Climate drivers – The scenario also covers six other policy areas at the nexus of land use, climate and nature (carbon pricing, bioenergy, diets, deforestation, sustainable agriculture and food waste) and produces value drivers for investors to consider

Key findings from IPR FPS + Nature

Food – The price of deforestation-linked commodities increases, with sustainable yield improvements potentially keeping prices for staple crops stable over time. Policy action and the development of alternative proteins could bend the demand curve for ruminant meat, with production peaking by 2035, also influencing production of animal feed
Energy – Transition to low-carbon energy together with nature-related goals supports a shift to second-generation bioenergy that changes the countries and specific locations of biomass production. Increased demand for metals and minerals and some infrastructure expansion may need to be reconciled with increased land protection
Nature-related goods, services and assets – emerge as a new source of economic and financial value, driving the expansion of certified products, nature-based solutions and the emergence of new markets for biodiversity-rich land. New technologies designed to eliminate waste, reduce negative nature impacts and foster sustainability also emerge in tandem with the deepening of nature polices
Supply chains – Deforestation policies impact the production of tropical soft commodities as reputational, market access and liability risks could be passed down the value chain
Global environment – Planned policy action by governments would halt and reverse global biodiversity loss, potentially achieving 2000 levels of biodiversity intactness by 2045. Climate-related policies alone would be unlikely to improve biodiversity at a global scale and may only stabilise existing biodiversity loss