TNFD participation remains mixed in the APAC region

The launch of the TNFD offers an opportunity for APAC-based institutions to embed nature-related considerations into investment strategies.

Across the Asia-Pacific region, where diverse ecosystems intertwine with growing economies, governments, investors and civil society groups are beginning to turn their attention to addressing critical threats to nature. This is part of a wider paradigm shift towards heightened environmental awareness in the region and recognition of the importance of adopting sustainable practices.

The Taskforce on Nature-related Financial Disclosures reached a key milestone in September 2023 with the publication of its final recommendations for reporting on nature-related risks, dependencies and impacts. The TNFD’s backers now face a struggle to make nature-related reporting a mainstream practice in the APAC region, with investors already feeling the strain of a diverse range of complexities and challenges.

TNFD as a global force

The TNFD is seen by some as a Western-centric initiative. But Emily McKenzie, TNFD’s technical director, asserts that such criticisms are misplaced. She emphasises that TNFD’s engagement extends beyond the West, citing active involvement in the APAC region.

McKenzie notes the significant contribution of leading companies in APAC to the TNFD’s initiatives. “Around 40 percent of organisations that have registered their intent to begin adopting the TNFD proposals are from APAC, with the majority from Japan,” she tells us.

McKenzie adds that the “TNFD is a framework which we hope will be drawn on by standard setters like the [International Sustainability Standards Board] and [Global Reporting Initiative] as they develop topical reporting standards. And it will then be up to individual jurisdictions in APAC and elsewhere to decide how precisely to embed these in their rules”. The idea is to ensure national regulators are given scope to shape laws to suit their individual circumstances, and McKenzie hopes that the TNFD’s recommendations will provide a common high-level approach.

Adopting nature-positive ventures could also help greatly in boosting APAC economies. A 2022 World Economic Forum report on China stresses that two-thirds of the country’s GDP is at risk of disruption from nature loss. The report claimed that following the ‘ecological civilisation’ pathway and implementing “nature-positive practices, those that add value to nature, could contribute $1.9 trillion to the economy a year and 88 million jobs by 2030”.

Supporting APAC investors

APAC investors face many challenges while attempting to play regulatory catch-up with the Western world and emerge at the forefront of integrating nature-related financial disclosures into their practices.

Zelda Koh, senior associate for business engagement at the World Business Council for Sustainable Development (WBCSD), warns that adoption of the TNFD recommendations will not be an easy process for corporates and financial institutions in APAC. She says some companies are overwhelmed by the complexity of responsible investing initiatives, as “most are still trying to understand TCFD and other frameworks”. Smaller companies, she adds, often “lack the resources to keep up with and invest in understanding new frameworks”. Koh also points out that “companies in ASEAN are in a ‘compliance’ mindset, few are thinking of innovation”.

The many geographically diverse TNFD consultation groups also play a key role in encouraging collaboration and understanding of nature-related issues among investors globally. Koh says that the Association of Southeast Asian Nations TNFD consultation group run by the WBCSD helps “get feedback from ASEAN-based businesses and ecosystem players on the usability of TNFD for the region”.

The organisation is also developing nature positive roadmaps with suggested metrics, as well as plans to host sector guidance webinars for APAC businesses, focusing on the built environment, energy, and food and agriculture. These initiatives aim to provide practical guidance for APAC businesses to align with nature-positive practices.

Meanwhile, as the convenor of the Australia and Aotearoa New Zealand TNFD consultation group, the Responsible Investment Association Australasia (RIAA) is tasked with building support and capacity for TNFD reporting in the region. RIAA also serves as a hub for engagement across diverse sectors, including government, environmental NGOs and First Nations stakeholders.

“Australian and New Zealand investors were the first to grasp the necessity and importance of clear, comparable disclosures on the impacts and dependencies that business activities have on nature,” says Estelle Parker, executive manager of RIAA. Parker says this early understanding has helped in investment decision-making, and that the RIAA’s research shows a big uptick in investor focus on nature and biodiversity. She says that investors are focused on understanding nature-related risks, but many are also looking at opportunities in areas such as green agriculture.

In discussions with APAC stakeholders, McKenzie highlights notable and innovative approaches employed by regional investors to integrate nature-related financial disclosures into their decision-making processes. She provides a specific example from Japanese company Kao, which recognised that one of the targets of the Kunming-Montreal GBF relates to the views of local people being considered in biodiversity-related decision-making.

In another notable development, a formal grievance mechanism for palm oil smallholders in Indonesia was launched in September 2022. In response, McKenzie says “Kao has launched a grievance mechanism in collaboration with a non-profit organisation specialising in business and human rights. It has started with some 50 farms on the Indonesian island of Sumatra and is now broadening the initiative to others”.

Closing the data gap

“Data is the single most common challenge cited by investors and companies in integrating nature-related financial disclosures into their practices”, says Parker. She notes that while data accessibility has been on the rise, the newly instituted Environment Information Australia should help fill this gap in the country.

Furthermore, on a global scale, TNFD is actively addressing the data challenge, and Parker highlights the advancements in technology, including the utilisation of drone technology and advanced data tools, as promising contributors to overcoming data-related barriers.

But according to Parker, the capacity and capability dilemma presents another significant challenge. She says there is “a greater focus on a range of sustainability issues by investors and regulators, and companies need to build their own capacity to respond”. Parker also stresses the need to build capability in areas such as environmental science, and upskilling accountants to undertake nature reporting.

McKenzie emphasises the importance of building on available data and says the TNFD recognises that organisations may resort to proxy data when needed, with a long-term goal of substituting it with primary data. The TNFD published a landscape assessment of nature-related data and found gaps in the location and coverage of nature-related data that need to be addressed. The TNFD is consulting on the needs and role of a public nature-related public data facility to address these gaps globally, including in the APAC region.

Mixed picture for TNFD participation in APAC

Though a good proportion of TNFD Forum members are based in APAC, the majority are from just two countries

Globally, 1,374 organisations are members of the TNFD Forum – a consultation group of institutions that align with the TNFD’s principles. Of these, 463 are headquartered within the APAC region. While this suggests a reasonable level of engagement, around two-thirds of APAC’s TNFD Forum members are based in just two countries, Japan and Australia.