Your company may be more exposed to nature risk than you think.

Our dependence on nature and its ecosystem should not be underestimated. When wildfires destroyed over 2,000 acres in Lahaina on Hawaii in August 2023, both the agricultural and downtown retail industries were left devastated. In the weeks following, it became clear that the aftermath impacted many more. Industries all over the island, and not just in Lahaina, faced a 75% reduction in visitor numbers, with estimates suggesting the Maui accommodation and hospitality industries were losing as much as US$13 million per day — well over US$4 billion for the year¹.

It’s easy to see business and nature as entirely separate from one another. After all, unless your company is directly linked to natural assets such as agricultural land, forest areas or bodies of water, there is often no obvious connection between the two. But as nature risk and biodiversity increasingly dominate the news cycle, the links between nature and business are becoming inescapable. 

As humans, we understand the concept of nature. We recognise that it needs protection. We know some industries are closely linked to it and that risks to nature are direct risks to their businesses. But for companies with no direct nature impact, such as asset management companies and financial institutions, how do we quantify nature dependency? How can we measure nature risk? And what can be done to fulfil the incoming requirements to minimise that risk?

​​A growing risk for Asia Pacific businesses

More than half of Asia Pacific industries are highly or moderately dependent on nature and this ratio is similar to global, where 55% of the world’s GDP is moderately or highly dependent on nature, as shared by PwC in Managing nature risks: From understanding to action in April 2023.

More than half of Asia Pacific industries are highly or moderately dependent on nature.
 

Despite the high degree of nature dependency, most companies do not have any direct nature assets to impact or protect — forest areas, water bodies, land use areas — and therefore don’t see how nature risk connects to their operations. 

As a result, the tendency has been for most organisations, including financial institutions, to hold off on assessing or reporting nature-related risks and impact. They’ve assumed that because they lack direct exposure to nature risks (unlike industries such as fisheries, construction and agriculture), further assessment is not needed. 

However, while these companies may not be directly exposed to nature-related risks, there is likely significant risk attached to, for example, their investment portfolio or supply chain, and it’s here that companies should begin their nature-based assessments and disclosures.

Incoming regulation spurs companies into action 

It’s important to note that regulation is coming, and it’s coming fast. At the 15th Conference of the Parties (COP15) to the United Nations Convention on Biological Diversity in Montreal in December 2022, the final draft of the Kunming-Montreal Biodiversity Framework Agreement² was released and adopted — a landmark agreement to guide global action on nature through to 2030. This agreement will guide both nature- and biodiversity-related regulation moving forward. 

Among the notable initiatives under the Biodiversity Framework Agreement is Target 15, which requires large and transnational companies and financial institutions to assess, report and manage the risks, dependencies and impacts on biodiversity in their operations, supply chain and portfolios.

At Climate Week New York City on 18 September 2023, the Taskforce on Nature Related Financial Disclosures (TNFD) launched its final version of its nature disclosures framework. It provides guidelines for companies to understand how nature and biodiversity impact their business to preserve and create value for their organisation. TNFD achieves this through integrating nature and biodiversity related issues, alongside climate change, into companies’ strategic planning and reporting.

In addition, the Land Based Science Targets for Science Based Targets Network³ (SBTN) are due in late 2024. The SBTN is a global coalition of more than 80 environmental non-profits that have collectively created the first corporate science-based targets for nature. Ahead of its release and implementation, the expectations for financial institutions to up their nature-reporting game are rapidly increasing. 

In short, now is the time to begin the assessment of and disclosure journey for nature-related impacts.

Use existing frameworks to maximise impact and efficiency

The question that hampers many well-intentioned leaders is how to go about this given their organisations’ separation from direct nature assets. Simply put, we begin by using already existing frameworks. 

Aligned with the TCFD reporting framework for climate risk that many companies are already aware of, TNFD also offers the risk and opportunity assessment approach (called “LEAP” for the steps of Locate, Evaluate, Assess, and Prepare⁴) for companies and financial institutions. This framework offers a starting point for the journey towards nature-related disclosure, particularly for organisations that do not have direct nature assets.

Not only will this framework set organisations on a proactive path, keeping them ahead of upcoming regulations, but it also offers a competitive advantage. A recent report from the National University of Singapore⁵ shows that the assessment and reporting of nature-related risks are not yet mainstream amongst Asia Pacific companies, with only 14% of companies reporting impact of nature-related risks and opportunities to their business, and less than that disclosing specific actions taken to manage identified risks.

Nature-related reporting amongst top Asia Pacific companies

_{Source: National University of Singapore Nature-related Reporting in Asia-Pacific Corporations: State of Readiness⁶}

Similarly, a recent CDP report⁷ showed that only 20% of financial institutions are specifically reporting on nature, while more than 85% are reporting on climate. 

And it’s here, in that 65% gap, that we believe the silver lining and golden opportunities lie.

The clock is ticking

By building on the efforts already being made in climate related disclosure and strategies, companies should be able to incorporate nature relevant information, their impacts and actions, more efficiently, without multiplying costs or duplicating efforts and processes. 

Using existing climate disclosure frameworks for example can help: 

• minimise time, effort and cost,

• set companies apart from competitors, and

• create a strong foundation for meeting (or exceeding) the coming regulations. 

Proactive companies can therefore get ahead of the curve on nature-related reporting, by extending their existing climate-based efforts. Not only will the expectations of increased attention to nature and biodiversity impacts be met, but they will also be met ahead of the coming regulation.

We are all part of the ecosystem

In organisations where day-to-day operations are removed from nature and biodiversity, it can be difficult to grasp the interconnection between business and nature, as well as the invisible risks. This is exactly why the conversation must continue, and why we need to develop and use frameworks that allow those companies without direct nature assets to view themselves as part of the ecosystem. 

Collectively this will empower better decision-making from an ecological perspective but will also allow a deeper understanding of nature and biodiversity risks, and the mitigation of those risks. But we mustn’t delay… now is the time to act.