3 Climate Policy Trends FLAG Sector Investors and Companies Need to Monitor
Diverse global climate policy trends share a common truth for investors and companies – Policy Climate Transitions are creating a new ‘Normal’ for the FLAG Sector
Government commitments to address climate change have grown more numerous and ambitious over the past few years. Their efforts to preserve carbon sinks within natural ecosystems, incentivize sustainable food production and support expanding carbon markets through new policies creating material impacts on forest, land, and agriculture (FLAG) sectors.
At COP26 in Glasgow in 2021, more than 100 government leaders agreed to end and reverse deforestation by 2030. The next year, in Sharm El Sheikh, several initiatives were launched or enhanced to support sustainability in FLAG sectors. In particular, the COP27 Enhancing Nature-based Solutions for Climate Transformation (ENACT) project deepened stakeholder collaboration on Nature-based Solutions (NbS), while a group of financial institutions committed to playing their part in curbing deforestation and supporting NbS. In 2023 in Dubai at COP28, Brazil proposed forest programs including the Tropical Forest Forever Fund to finance forest conservation, while others like Norway and UAE made significant financial commitments for nature and anti-deforestation programs.
This year at COP29 in Baku, countries reached a final agreement on the rules for carbon trading under Article 6 of the Paris Agreement, opening up significant potential for new investments in nature conservation and restoration that could alter the value proposition of land assets worldwide. Brazil also announced a new national climate target that emphasized ending deforestation and transitioning its powerful agribusiness sector to “sustainable expansion” through the restoration of degraded land and increasing production efficiency.
Land economy emissions and their solutions will take center stage in 2025 ahead of COP30 which will be hosted by Brazil whose actions have made it clear that nature and agriculture will be at the top of the agenda. As the head of the G20 in 2024, Brazil led the development of the first Bioeconomy Principles to support a global, regenerative economy and announced the creation of the Brazil Restoration & Bioeconomy Finance Coalition and its goal to mobilize USD 10 billion to conserve and restore 55.5 million hectares by 2030. With Brazil seeing a potential USD 157 billion opportunity through increased capital investment in Brazil’s sustainable agriculture evolution driven largely by these types of climate policy trends by 2050
This increased focus on land economy climate action isn’t a fad. Governments around the globe are increasingly recognizing the materiality of climate change impacts, leading to policymakers passing new legislation, implementing new regulations and making other efforts to curb land economy emissions climate change. In 2025 we see three climate policy trends that will likely spur significant material risks for businesses and investors across various industries in the land economy derived from the Orbitas State of Climate Transitions report.
3 Climate Policy Trends to Watch in 2025
- Increased implementation of climate-related financial disclosure requirements is expected to force FLAG sector companies and investors operating in relevant markets to publicly disclose material financial impacts from climate change. These disclosures increasingly inform investor decision-making and drive efforts to account for companies’ impact on global warming.
- The growing adoption of supply chain due diligence laws will require FLAG sector companies and investors operating in relevant markets to certify the sustainability of their raw materials and commodities. Extensive monitoring and tracing will be required to ensure products have not been exposed to deforestation or other environmental degradation.
- Increasing government climate targets have led FLAG sector companies and investors to commit to a net-zero emissions transition. Reaching both national and global emissions goals will require incentivizing the adoption of more sustainable practices while discouraging emission-intensive production through carbon taxes, market restrictions and fines for environmental degradation.
These trends are poised to continue to shape company and investor action in the coming years and decades, but it is critical to remember that their risks also bring new opportunities. Amid these new rules and regulations, companies in the FLAG sectors may lose government subsidies and price stabilization; face sanctions and penalties; incur higher costs from supply chain monitoring; experience supply chain disruptions; see increased regulatory pressure and scrutiny; and have limited opportunities to expand.
Climate Transition Opportunities for Competitive Advantages
Yet, legal and policy trends also present multiple opportunities for companies that mitigate these negative impacts.
- Streamlined implementation. Proactively adopting climate-related financial disclosures offers FLAG sector companies and investors a strategic advantage. By integrating these disclosures early, companies can reduce implementation costs, refine processes and address key risks before mandatory regulations take effect, positioning themselves as sustainability leaders and potentially lowering future compliance costs.
- Access to public funding. Government-backed funding and loans for sustainable practices can reduce financial barriers for FLAG sector companies focusing on low-emission production. Public funding initiatives can make capital more accessible and affordable, encouraging investment in sustainable innovations and helping companies meet evolving regulatory standards.
- Market differentiation. FLAG sector companies that adopt more sustainable practices and integrate robust supply chain due diligence can earn a competitive advantage against their peers. For instance, Brazilian cattle producers that can prove their products are deforestation-free and low-emission could see prices rise 19 percent compared to 2020 levels by 2050. By implementing comprehensive commodity tracing and monitoring systems before regulatory mandates, companies can enhance their market differentiation, attracting environmentally conscious consumers and commanding price premiums for sustainable products.
Looking Ahead to COP30
Governments are expected to continue to increase ambition to curb emissions in the FLAG sectors, putting more pressure on companies and investors. There is a high likelihood that these climate policy trends could accelerate in the lead-up to and in the aftermath of COP30 in Brazil. With Brazil showcasing its strengthening commitment to attract more climate finance for sustainable agriculture and NbS other nations may likely follow in its footsteps with their own policies.
Investors and corporate leaders are no strangers to assessing and managing policy changes. Still, the multitude of domestic and international policy efforts to drive climate action over the past few years is unprecedented. To mitigate the risks of climate policy change and related legal actions as the global economy transitions away from emissions-intensive practices new approaches are needed.
For investors and companies that want to learn about ways to mitigate these risks and to capitalize on new opportunities, the Orbitas State of Climate Transitions report shares guidance on how to get started, and utilizing climate transition financial analysis that Orbitas has pioneered can help identify where more specific actions within your portfolio need to take place. You can take a sneak peek at some of this work by visiting our Climate Transition analysis tools for Brazil’s cattle and soy sectors.