Technologies to remove carbon from the atmosphere – negative emission technologies (NETs) – could create trillion-dollar upside opportunities for investors, a new study commissioned by the UN-supported Principles of Responsible Investment (PRI) has found.
Within NETs, nature-based solutions focused on reforestation and afforestation could generate $800bn in annual revenues by 2050 with assets valued well over $1.2trn, according to the latest report, An Investor Guide To Negative Emission Technologies And The Importance Of Land Use, in the PRI’s Inevitable Policy Response.
“This is not a new narrative, people have been speaking on ending deforestation since the 80s, 90s or even earlier than that,” said Thomas Kansy, one of the lead economists on the report.
“The biggest difference now is there’s money behind it – all the net zero commitments by countries and by companies to be able to fulfil this they will need to buy nature-based solutions so they have an inner demand of paying for avoiding deforestation and reforestation.”
Since late 2019, the number of companies committed to net zero increased by three-fold, from 500 recorded in 2019 to 1,541 in 2020, while the increase for cities was eightfold, from 100 recorded in 2019 to 823 more in 2020.
The use of NETs will be key to achieving these targets. The report found of 42 companies announcing net-zero targets in 2019-20, 26 plan to use NETs, including big tech and oil companies. For example, Shell is planting five million trees in the Netherlands and regenerating an 800 ha forest in Australia, and Apple is protecting a 11,000 ha mangrove forest in Colombia.
There are six NETs that are widely cited and have potential to deliver significant negative emissions by 2050, the report said. These are bio-energy with carbon capture and storage (Beccs), direct air capture with carbon storage (Daccs), re/afforestation, soil carbon sequestration, biochar, and enhanced weathering.
Forestry-related solutions, Kansy added, are already available at scale and at relatively low cost, whereas the other NETs solutions require more engagement and deployment, and are not without issue. “[Forestry solutions] are ready to put capital in essentially; this is the oven-ready deal [UK Prime Minister] Boris Johnson has promised,” he said.
“The things you need to go more into the deployment is anything that requires carbon capture, so you have bioenergy with carbon capture, that one is already deployed to some extent but requires more deployment to bring down the cost and then in particular direct air carbon capture and storage.”
So while investors can prioritise nature-based solutions in the short term, they can also engage with companies and monitor development of other NETs in the longer term.
The report gives suggestions on how to do this, which include pressuring companies to commit to climate action; stopping investment in companies with deforestation in their supply chain; promoting sustainability standards for Beccs; monitoring development in the Daccs space; and promoting a global standard for NBS projects.
It also outlines new financing mechanisms that are emerging that could facilitate private investment into forest finance. These include distressed asset and stewardship models, carbon farming agreements, green bonds, forest insurance provision, carbon off-taker guarantees, and sustainable farming agreements.
“Forest finance has historically been small and largely the purview of the public sector,” said Fiona Reynolds, CEO of UN PRI.“But policy and business momentum have now advanced to a critical mass for forests to begin emerging as a new asset class. Investors can act now to unlock investment opportunities and to take an increasingly leading role in financing.”
