The Inevitable Policy Response (IPR)

The Inevitable Policy Response (IPR), commissioned by the Principles for Responsible Investment (PRI), is designed to help investors address the challenges and opportunities posed by climate and nature transitions. The initiative integrates insights from leading academic and industry experts to model realistic policy-driven scenarios. These scenarios fill critical gaps in financial tools, providing forward-looking perspectives. The latest addition, FPS + Nature, combines climate and nature policies, highlighting the intersection of land use, biodiversity, and sustainable finance.

Nature and its impact on investors

Nature degradation poses significant risks to the financial sector. Global extinction rates are 1,000 times higher than natural levels, with 75% of land ecosystems heavily altered. Land degradation has reduced productivity in 23% of terrestrial areas, creating risks of up to $3 trillion in global GDP losses annually by 2030. Biodiversity loss threatens industries reliant on ecosystem services such as pollination, fisheries, and forests. At the same time, regulatory frameworks like the Taskforce on Nature-related Financial Disclosures (TNFD) are pushing investors to disclose and manage nature-related risks in their portfolios.

New release: FPS + Nature

FPS + Nature integrates climate and nature-related policies into a unified scenario to help investors understand and manage emerging risks and opportunities. Key focus areas include protecting 20% of global biodiverse land by 2030, restoring 4% of degraded land to enhance biodiversity, and developing voluntary biodiversity credit markets. These markets are expected to complement nature-based carbon credits and add value to sustainable investments.

Approach

The model employs comprehensive policy tracking and market analysis to estimate impacts on land use, emissions, and commodity prices under varying regulatory scenarios. Regional differences in governance, historical trends, and policy development are considered to ensure realistic projections. The assessment accounts for both climate and nature policies, reflecting their interdependence.

Assessed policies and trends

Key global trends assessed include emissions regulation, a transition to second-generation bioenergy crops, and significant shifts in consumer diets away from ruminant meat toward alternative proteins. Policies targeting food waste reduction and the formalisation of biodiversity credit markets are also critical. Efforts to integrate biodiversity targets with existing frameworks such as carbon credits are expected to shape future investment opportunities.

Implications for investors

Investors face potential disruptions in supply chains as stricter regulations on deforestation and biodiversity impact commodity production. Tropical commodities may experience cost increases due to land conservation measures. Emerging markets for alternative proteins and biodiversity credits offer new growth avenues, with protein alternatives projected to grow fiftyfold by 2050. The quality of nature-based solutions (NBS) carbon credits is also expected to improve, with increasing focus on biodiversity benefits, potentially driving cumulative investments of over $1.1 trillion by 2050.

Environmental outcomes

FPS + Nature projects a halt to global biodiversity loss by 2045, driven by robust policy action on land conservation and restoration. Key initiatives include ending net deforestation by 2030, improving sustainable agriculture practices, and promoting emissions regulation. These efforts aim to reverse ecosystem degradation and restore global biodiversity levels to 2000 standards.