The Asia Pacific region accounted for 42 per cent of the inaugural list of early adopters unveiled by the Taskforce for Nature-related Financial Disclosures (TNFD) on Tuesday (16 Jan), just slightly behind Europe which made up 43 per cent of early adopters.
These 134 Asian companies, led by Japan, Taiwan and Australia, have pledged to begin reporting against the TNFD recommendations by FY2025.
The 320 publicly listed companies – a third of which are financial institutions – from over 46 countries that have signed up to be among the first to make TNFD-aligned disclosures have a total market capitalisation of US$4 trillion, according to the TNFD’s press release.
Some notable Asian companies include Japan’s largest financial group Mitsubishi UFJ Financial Group (MUFG), two of Singapore-headquartered global food and agri-business company Olam Group’s subsidiaries Olam Agri and Olam Food Ingredients and Southeast Asia’s third largest lender, United Overseas Bank (UOB).
“This is a milestone moment for nature finance and for corporate reporting,” said David Craig, co-chair of the TNFD. “We are delighted to see such a strong, diverse and international group of companies and financial institutions step forward only four months after the release of our recommendations.”
The TNFD recommendations were finalised last September after two years of engagement with over 1,200 entities and four draft releases.
The set of recommendations was based off the widely-adopted Taskforce for Climate-related Disclosures (TCFD) framework and was designed to be consistent with existing sustainability standards by the dominant standard setters International Sustainability Standards Board (ISSB) and Global Reporting Initiative (GRI).
TNFD previously stated that it will be tracking voluntary market adoption through an annual status update report, starting this year.
Lack of representation from developing countries
Despite the encouraging headline figures, only 14 per cent of early adopters came from emerging and developing economies, TNFD said.
The huge disparity can be seen within Asia, where Japan – the world’s third largest economy – made up for over half of the region’s early adopters. Other developed economies in the region like Hong Kong, South Korea, Singapore and Taiwan boasted at least five early adopters. Meanwhile, a much poorer uptake was observed in most of Southeast Asia: the Philippines saw three early adopters, Thailand saw two, Malaysia saw one, while Vietnam and Indonesia saw none.
This follows the early adoption trends that were previously observed for climate risk reporting in Asia, which was also driven by regional financial hubs such as Singapore, Hong Kong and Japan, said by Robert Charnock, director of the RSK Centre for Sustainability Excellence, a Singapore-based consultancy launched by the global environmental, engineering and technical services firm RSK Group in 2022.
Lawrence Loh, director, Centre for Governance and Sustainability from the National University of Singapore (NUS) Business School attributed Japan’s dominance on the list of early adopters to the country’s corporate culture.
“They seem to come at it from a more responsible way of doing business, even though nature itself is relatively not as prominent in the Japanese context, unlike countries like Indonesia where nature is really important,” Loh said.
A 2022 NUS Business School study on the state of nature-related reporting among Asia’s largest corporations – which found similar trends in Japan – suggested that the elevated attention on nature reporting could also be the result of them hosting the COP10 biennial United Nations biodiversity summit in Nagoya back in 2010.
Regulations needed, not more disclosures
But making nature-related disclosures may not necessarily mean that businesses see their nature and biodiversity dependencies and impacts as material issues, based on the NUS Business School study.
The study found that while 63 per cent of the largest 650 Asian companies have made nature-related disclosures, only about a third of them highlighted nature and biodiversity in their materiality analysis. In fact, approximately one in three of these companies only made mention of nature and biodiversity to illustrate that they were of lower priority compared to other important issues like climate change, energy and circular economy.
The study also noted that corporations in the industrial and consumer staples sectors tend to regard nature and biodiversity as important issues, since they are heavily dependent on nature for raw materials. On the other hand, the healthcare, communication services and information technology sectors appeared to be the least concerned about biodiversity.
Loh, who led the study, told Eco-Business that corporations currently taking steps to reduce nature and biodiversity loss are driven by self-interest and regulations will be needed to translate corporate disclosures into real action.
“Right now, the emphasis has been on general sustainability and climate change. Most regulators in the region, including Singapore, are on the verge of figuring out how to directly integrate nature into their regulatory requirements,” he said.
However, global environmental groups have raised concerns around conflicts of interest if TNFD becomes mandatory – something the taskforce’s co-chairs have repeatedly pushed for – given that it was written by some of the same corporations that have been acccused of environmental and human rights abuses.
The international non-profit Global Witness has argued that TNFD will not stop deforestation finance as it mainly helps companies identify threats to their profitability, rather than how their businesses harm nature, and is premised on the wrong theory of change, where lack of data has been pinpointed as the problem.
Last March, Global Witness advocated for the United Kingdom – the world’s third-largest investor in deforestation-linked projects, behind China and the United States – to adopt a new amendment that would have required financial institutions to carry out due diligence to ensure they are not funding illegal deforestation. The amendment was ultimately rejected by the UK government.
“The easiest way to move the market on biodiversity is to push for laws that deliver real-world consequences for businesses that are trashing nature. It’s not rocket science,” said Merel van der Mark, coordinator of the Forests and Finance Coalition, a group of non-governmental organisations working to improve transparency and regulations in the financial system.
During a private roundtable held by Eco-Business last September, sustainability executives from corporations and financial institutions in the region similarly raised the need for government policies to guide disclosures, instead of passing the buck to corporates.
“To frame all of this as a risk conversation [for corporates] will not lead to the changes we need to drive the right outcomes,” said one fund manager’s sustainability head at the discussion.
