Nature at a tipping point

How investors in Asia Pacific can manage nature-related risks

Nature at a tipping point
  • Report
  • 14 minute read
  • May 28, 2024

PwC analysis reveals 58% of the combined market capitalisation of Asia Pacific stock exchanges (US$17 trillion) includes companies with higher or moderate dependency on nature1. So, how can investors and investee companies mitigate these risks and integrate them into their strategies? 

Nature is defined as occurring in four realms – land, ocean, freshwater and the atmosphere. Within each realm, there are different types of natural ecosystem or ‘biome’, such as tropical forests, rivers and streams. Ecosystems are natural assets that provide ‘ecosystem services’ on which the world depends, such as fresh water for drinking and irrigation and pollination of crops by insects, birds and other animals2

Right now, nature ​is declining faster than at any point in human history. The Asia Pacific region alone is experiencing alarming levels of nature loss, posing serious challenges to both the environment and the economy. Nature loss threatens business operations, supply chains and productivity. 

PwC analysis shows the undeniable and substantial risk inherent in the decline of nature associated with impact to business and 53% of Asia Pacific economic gross value added (GVA) are moderately or highly dependent on nature, amounting to US$18 trillion3.

In collaboration with the Asia Investor Group on Climate Change (AIGCC), PwC has released “Nature at a Tipping Point”, a guide for investors in the Asia Pacific region on understanding and identifying nature-related risks to achieve a nature-positive future. Through the working relationship, AIGCC and PwC aim to build awareness and encourage action towards the protection and restoration of the region’s natural environment. 

Asia Pacific is home to a diverse natural ecosystem that is essential for sustaining economic development and there’s a rising risk of nature loss in the region. 

  • The World Wide Fund for Nature (WWF) estimates that the region's ecosystem health has declined by 55% since 19704
  • 53% of the region’s industries GVA are highly or moderately dependent on nature5
  • 58% of Asia Pacific stock exchanges’ market capitalisation is moderately or highly dependent on nature6

Globally, 55% of the industries’ gross domestic product (GDP) are highly or moderately dependent on nature and 51% of the listed companies' market capitalisation on 19 of the world’s largest stock exchanges are highly or moderately dependent on nature.7

Increasing pressure to address nature loss

Inaction in preventing nature degradation could lead to significant direct and indirect material economic and financial risks. In recent years, the importance of addressing nature loss has become more apparent.

  1. Target 15 of the Kunming-Montreal Global Biodiversity Framework8 requires governments to ensure large companies and financial institutions monitor, assess, and disclose biodiversity-related risks, dependencies, and impacts by 2030.

  2. The Task Force for Nature-Related Disclosure (TNFD) recommendations, aligned to TCFD, provide a risk management and opportunities disclosure framework for the private sector to identify, assess, respond to and disclose nature-related issues. 

  3. Mandatory regulatory requirements are being introduced that address nature-related risks such as the EU Deforestation Regulation (EUDR), the UK Environmental Act on the due diligence on forest risk commodities and the US Forest Act of 2023.9 10

  4. Government policies that support nature-relevant activities are being introduced, such as Singapore’s carbon tax, Indonesia’s carbon trading scheme for forestry and land use sectors, and Malaysia’s recently announced tax incentives for reforestation and conservation activities.

There is a growing expectation from regulators, shareholders, consumers, and civil society for investors in the Asia Pacific region to take responsibility and ensure that investments are not causing detrimental impacts on nature and to properly assess and manage nature-related risk.

Understanding nature-related risks can also help investors explore opportunities to support nature restoration and regeneration. The reversal of biodiversity loss presents more than US$ 10 trillion of economic value that could potentially be generated through solutions with a positive impact on nature.11  

Sector dependency on nature in Asia Pacific

Almost every sector of the Asia Pacific economy is directly dependent on nature to a varying degree based on the ecosystem services that are being utilised. This dependency on nature and ecosystem services will likely translate into economic and financial risk if nature degradation and the impacts of this on economic actors are overlooked, and not properly considered in strategy, risk management and capital allocation decision making.   

In this report, we analysed 20 individual sectors and found that the economy's higher dependency areas, which include nine sectors, account for 20% of GVA in Asia Pacific. Out of the nine higher dependency sectors, agriculture, construction, and food, beverages and tobacco collectively account for the majority (72%) of the GVA in this segment. The other six sectors are forestry, fishery and aquaculture, water utilities, energy, chemical and materials, and supply chain and transport. 

The top three higher dependency sectors are heavily dependent on direct physical inputs from ecosystem services to maintain their production process, especially the availability of groundwater and surface water. In addition, the agriculture sector heavily relies on ecosystem services that enable production processes including pollination, soil and water quality and the hydrological cycle. Degradation of nature will diminish the capacity of nature to provide ecosystem services crucial to these sectors leading to a potentially significant financial material risk to them. 

Nature at a Tipping Point

How investors in Asia Pacific can manage nature-related risks

Nature & biodiversity

Businesses face new risks from nature loss, and will need to address the emerging regulatory, consumer and investor response. By putting nature positive strategies in place and integrating them into their plans, business leaders can harness new opportunities that create sustainable outcomes for all.

Contact us

Ivy Kuo

Ivy Kuo

PwC Asia Pacific Sustainability Leader, Partner, PwC China

Perpetua George

Perpetua George

Asia Pacific Sustainability, Biodiversity, Director, PwC Malaysia

Lit Ping Low

Lit Ping Low

Asia Pacific Sustainability, Climate Change, Partner, PwC Hong Kong

Tel: +65 8125 0845