The Principles for Responsible Investment (PRI) has added biodiversity into its global climate policy forecast to create what it claims is the world’s first scenario analysis to combine the two themes for investors.

Through the Inevitable Policy Response (IPR) project, which it runs with consultancy firm McKinsey, the PRI has begun to model the investment risks and opportunities it expects to arise from nature-related policy interventions over coming decades.

The new scenario, known as FSP+N, assesses the likelihood of “forceful responses” by rulemakers seeking to address climate change and biodiversity loss out to 2030 and 2050.

“FPS+N incorporates additional policy levers that support the nature transition, land protection/restoration, and nature markets to help investors understand how the effects of both nature and climate policies could shape the future of land use.”

As well as exploring the financial implications of such policies on investment portfolios – via changes in carbon pricing, bioenergy, diets, deforestation, sustainable agriculture and food waste – the new analysis looks at the development of “nature markets”.

These include voluntary biodiversity credit markets, which IPR predicts could generate $18bn by 2050. A paper released alongside today’s announcement assesses the potential for six types of nature-based solution, including mangrove restoration.

IPR story

With corporates and governments desperately searching for the cheapest way to mitigate their carbon emissions in line with their net-zero commitments, these nature-based solutions could reach $22bn in annual revenues by the end of the decade and $204bn in annual revenues by 2050, according to the analysis.

Investor interest in biodiversity and nature loss has turbocharged over the past 12 months, driven in part by anticipated regulatory and political interventions across the globe. In December, more than 200 governments gathered at COP15 in Canada to establish the Kunming-Montreal Global Biodiversity Framework, committing signatories to restore at least 30% of degraded ecosystems and conserve 30% of land, sea and freshwater areas by 2030.

There are multiple rules currently being debated or passed in the EU, UK and US to address the contribution of the private sector to the degradation of natural resources – some of which could hold investors accountable for environmental damage conducted by companies in their investment portfolios.

BlackRock, BNP Asset Management, Fitch Ratings and Goldman Sachs Asset Management are among IPR’s strategic partners. The modelling was undertaken by organisations including Energy Transition Advisors, McKinsey’s Vivid Economics, the London School of Economics, Carbon Tracker and the Climate Bonds Initiative.

The latest digital edition of IPE’s magazine is now available