Countries in the Asia Pacific region are highly vulnerable to nature-related risks, including loss of biodiversity, an increase in pollution, and the non-availability of freshwater, and the failure to address these losses could lead material financial risk for companies and institutional investors, panellists told a webinar Wednesday.

Research conducted by the Asia Investor Group on Climate Change (AIGCC) and consultants PwC has found that 53%, or $18 trillion, of APAC’s Gross Value Added (GVA) is in economic sectors that are “highly” or “moderately” dependent on nature.

“This includes reliance on fertile soils, clean water, pollination, and climate stability, all of which are in serious decline in many parts of the region,” AIGCC said in a statement ahead of the webinar.

The event was organised to preview the forthcoming report “Nature at a Tipping Point”, which is substantiated by case studies from corporates and investors, and further demonstrates how to effectively manage such risks.

Research covers 14 APAC territories including Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Philippines, Singapore, South Korea, Thailand, Taiwan, and Vietnam.

“Crisis in our natural ecosystems is not only an environmental concern but also a major economic threat for the Asia Pacific region … for our people, communities, and businesses,” said Perpetua George, director of APAC sustainability and biodiversity at PwC Malaysia.

“Of all 20 industries analysed by PwC, 100% have exposures to nature risk in their value chains. Asia Pacific businesses such as the agriculture sector already have familiarity with biodiversity concerns, so now is the time for us to take the next bold step, leverage on sustainability, and safeguard the valuable ecosystems that support us all.”

On Tuesday, the International Sustainability Standards Board (ISSB) announced that it will assess existing standards on topics including biodiversity and ecosystems in its disclosures research for the next two years.

The decision was welcomed by the panellists, who said that the announcement effectively meant that taking on the Taskforce on Nature-related Financial Disclosures (TNFD) requirements, nature is going to be the next standard under the ISSB.

Explaining the findings of the report, George said that at 20%, the Asia Pacific rate of “higher” nature dependency sectors is higher than the global rate of 16%.

“This is critical because what it means is that anyone financing or investing within Asia Pacific will have a direct link to nature dependency within the way they are doing business or having capital flow,” she added.

The report further identified that agriculture, construction, food, beverage and tobacco, fisheries, and aquaculture were the sectors having the highest dependency in the region.

While 33%, or $11 trillion, is in sectors with moderate direct exposure, including energy, manufacturing, and services, the remaining 47% is in sectors including real estate, healthcare, IT, and retail.

Another key insight from the report was that 11 out of the 14 stock exchanges in the Asia Pacific have more than 50% of market capitalisation with “higher” or “moderate” direct dependency on nature, with stock exchanges in Taiwan, New Zealand, and Mainland China being the most nature-dependent.

“Global economies are heavily reliant on healthy ecosystems and the APAC region is no exception. Nature-related risk is a risk that can’t be ignored. The Nature at a Tipping Point report will help as a crucial first step for investors to understand how nature loss can impact their portfolios,” Monica Bae, AIGCC director of investor practice, said.

“By acting now and integrating nature-related risks into their investment strategies, APAC investors can ensure they’re positioned to benefit from a sustainable and resilient future.”

INVESTOR CHECKLIST

The report provided some guidance to investors on how to identify and manage nature-related risks:

• Understand expectations and identify relevant information required to assess nature-related risks in their portfolio
• Gain top management and board commitment on nature
• Confirm priorities for action through the assessment of assets and portfolio exposure, taking into account sectors and geographical locations to develop investor’s approach or policy on nature
• Identify relevant industry and market-related initiatives that can be leveraged
• Regularly engage with priority sectors and the key companies that are represented in specific supply chains within investment portfolios
• Adopt the most relevant framework for nature-related reporting and target setting for your investments. AIGCC recommends the Taskforce on Nature-related Financial Disclosures (TNFD) recommendations and the Science-based Targets Network’s (SBTN) targets for nature

EARLY ADOPTERS

Currently, around 375 organisations from over 46 countries have committed to start making nature-related disclosures based on the TNFD recommendations published in September last year.

Some 42% of those countries were in the Asia Pacific region, said Emily McKenzie, technical director of TNFD.

“I’m particularly inspired by the very strong uptake in Japan. It’s a mix of both financial institutions and corporates,” McKenzie told the webinar.

She added that TNFD also has adopters in Australia, Mainland China, Hong Kong, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Sri Lanka, Taiwan, and Thailand.

“The findings of the report … show how a company’s own dependencies on nature manifest into physical risks for the organisation. So all of this means nature is now a strategic risk management issue,” she added.

By Nikita Pandey – nikita@carbon-pulse.com

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