Nearly 20% of Japan’s market capitalisation is highly dependent on nature, with the energy, food, beverage, and tobacco sectors facing the highest risks, a study has found.

The Asia Investor Group on Climate Change (AIGCC) estimated that 18% of the local stock market’s capitalisation, equal to $938 billion, is significantly exposed to nature-related risks, which could hinder the financial stability of Japanese companies and investors.

“Japan’s economy, like others across Asia-Pacific (APAC), is deeply reliant upon healthy ecosystems,” said Monica Bae, director of investor practice at AIGCC.

“Nature loss translates to financial risk, and it’s a threat we can’t afford to ignore,” added Bae.

AIGCC’s research follows various attempts to determine businesses’ exposure to risks associated with biodiversity loss worldwide.

Earlier this week, a separate study found that over 40% of securities held by French financial institutions were issued by companies heavily dependent on at least one ecosystem service.

DISRUPTION RISKS

AIGCC calculated that 12%, or $603 bln, of Japan’s goods and services value, gross value added (GVA) is in economic sectors that are highly dependent on nature and its ecosystem services, compared to 20%, or $6.72 trillion, of the APAC region.

“The differences between Japan and APAC can be attributed to [the country’s] lower exposure to the agricultural sector,” said the study.

Japan is less reliant on the agricultural sector, which accounts for 0.9% of the national GVA, compared to the average of the APAC region.

Conversely, the food, beverage, and tobacco sector contribute a higher amount to the Japanese economy, but they also face significant risks associated with the ecosystem services they depend on.

“Companies in this sector are highly reliant on surface and groundwater as a direct input for the production process,” said the study.

“A loss of these ecosystem services would lead to a critical disruption of production processes.”

DISCLOSING IMPACTS

While acknowledging recent progress in natural capital corporate assessments and disclosures, the AIGCC called for increasing participation in those initiatives seeking to address companies’ impacts on biodiversity, including the Taskforce on Nature-related Financial Disclosures (TNFD) recommendations.

“Investors need to understand companies’ exposures that are material to their operations,” said the AIGCC.

“It is encouraging to see some leading companies and investors opting to be early adopters of TNFD. We hope that investors and companies can be more proactive.”

Japanese firms made up the largest cohort of the TNFD early adopters announced in January, with 80 companies out of 320 committed to embracing the task force’s recommendations.

Japan has also set up a consultation group to bring together private sector organisations to advance the debate on corporate impacts on nature and expedite the adoption of the TNFD framework.

By Sergio Colombo – sergio@carbon-pulse.com

*** Click here to sign up to our twice-weekly biodiversity newsletter ***