Asian investors urge action on nature-related risk

Asia Pacific’s (APAC) economies are particularly vulnerable to nature-related risks, including biodiversity loss, pollution and fresh water availability, according to data recently released by the Asia Investor Group on Climate Change (AIGCC) and PwC. The report found that 53%, or US$18trn, of APAC’s Gross Value Add (GVA) is in economic sectors that are moderately or highly directly 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. The data found that 20%, or US$7trn, of APAC’s GVA is in sectors with higher direct exposure: including agriculture, construction, fishery and aquaculture, food systems, and forestry. This is higher than the global figure of 16%. Further, 33%, or US$11trn, 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, where the nature risk exposure is more likely to be indirect. Public equities are even more exposed, with 58% of regional market capitalisation being moderately or highly directly dependent on nature, found the data. Eleven out of the 14 APAC stock exchanges have more than 50% of market capitalisation, with higher or moderate direct dependency on nature. The Taiwan Stock Exchange (TWSE) (44%), New Zealand Stock Exchange (NZSE) (42%), and Shanghai Stock Exchange (SHSE) (37%) stock exchanges had the highest proportion of market capitalisation, with higher direct nature dependence. AIGCC and PwC have developed a checklist as general guidance for investors to identify and manage nature-related risks. The key points are: 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; and, 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) science-based targets for nature. AIGCC director of investor practice Monica Bae said: “Global economies are heavily reliant on healthy ecosystems, and the APAC region is no exception. Nature-related risk is one 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. “A nature-positive future unlocks significant new opportunities. 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. AIGCC is committed to supporting investors on this journey.” AIGCC Forest and Land Use Working Group Investor Co-Chair Jane Karen Ho added: “Biodiversity loss and ecosystem degradation can disrupt supply chains, erode asset values, and ultimately impact returns. As an institutional investor with a long-term perspective, nature-related risks present significant concern. This new guidance from AIGCC and PwC is useful for steering our investment decisions towards a sustainable future.” PwC Malaysia, Asia Pacific Sustainability, Biodiversity, Director, Perpetua George, said: “Crisis in our natural ecosystems is not only an environmental concern but also a major economic threat for the Asia-Pacific region. The loss of nature presents huge risks to our people, communities and businesses. Of all 20 industries analysed by PwC, 100% have exposures to nature risk in their value chains. APAC 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. Meanwhile, at the end of April, the Taskforce on Nature-related Financial Disclosures (TNFD) welcomed the decision of the International Sustainability Standards Board (ISSB) to commence work on nature-related issues, drawing on the recommendations of the TNFD. It noted that this is a critical next step in developing the global baseline for sustainability reporting following the release of its IFRS S1 and IFRS S2 sustainability reporting standards in 2023. “Following the release of the TNFD recommendations in September 2023, the roll out of the European Sustainability Reports Standards (ESRS) and the recent update to the GRI biodiversity standard (GRI Biodiversity 101), the ISSB announcement is another important step forward for nature-related corporate reporting,” said TFND. “The further incorporation of nature-related issues into the global reporting baseline, drawing on the work of the TNFD, will provide investors and report preparers with a more integrated approach across governance, strategy, risks management and metrics and targets. It will also help to realise the achievement of Target 15 of the Global Biodiversity Framework, which called for nature-related corporate reporting of risks, dependencies and impacts, and was agreed to by more than 190 countries in December 2022,” it added. Over 370 organisations from more than 45 countries, representing in excess of US$15trn in Assets under Management (AUM), have already committed to start making disclosures based on the TNFD recommendations, including 25% of the world systemically important banks. An increasing number of leading asset owners and asset managers are now calling for TNFD-aligned disclosures through their stewardship guidelines and activities with investee companies. David Craig, co-chair of the TNFD, said: “This is another important step forward to realising both the need for an integrated global baseline for sustainability reporting and the aspirations of the Global Biodiversity Framework. The science is clear that climate change and nature loss are accelerating, and market research is increasingly spotlighting how our dependencies and impacts on nature are creating material financial risks and also opportunities for companies across real economy sectors, as well as for financial institutions.

Asian investors urge action on nature-related risk

New report finds 53% of Asian value dependent on nature

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