Valuing natural capital: Asia has the most to lose, and gain

Becoming net-zero is no longer going to be enough; the world needs to also be “nature-positive” - and that means going beyond minimising negative impacts on our ecosystems and working towards enhancing them, global leaders have decided.

This approach has far-reaching implications for the world’s economies and markets. A report just out has also posited that Asia could be at the forefront of such efforts, with the financial services industry playing a critical role.

Being “nature-positive”

The Group of Seven (G7) world leaders have signed a 2030 Nature Compact to commit to a global mission of halting and reversing biodiversity loss by 2030. This means going beyond the damage-limitation approach already in place, and working with political leaders and stakeholders to ensure that economic activities enrich biodiversity, store carbon, purify water and reduce pandemic risk.

It has set a “nature-positive” global goal by 2030, and this will involve - among other things - dramatically increasing investment in nature from all sources, and to ensure nature is accounted for, and mainstreamed, in economic and financial decision-making. 

A “nature-positive” condition occurs when there is a natural capital surplus, or ecological reserve: when the ecological demand or footprint - the quantity of natural resources required to sustain an individual, goods or services, population or economic activity - does not outstrip nature’s ability to replenish these resources.

Conversely, a “nature-negative” or ecological-deficit condition is when the ecological footprint exceeds natural capital supply.

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Investing in nature now is the key, says “Banking on Natural Capital” - a report recently published by global professional services firm, Deloitte, and wildlife advocacy and protection group, WWF-Australia. It looks at how the growing ecological deficit can be addressed by mobilising investment into the conservation, sustainable management and restoration of natural capital assets.

And, presenting natural assets as capital, it says, makes it clearer to see how the environment is made up of finite stocks, which may be invested in to generate value or degraded to deplete value.

Asia can lead

There is strong rationale and opportunity for the global market response to valuing natural capital to be led out of the Asia-Pacific, the report says, with the region being well positioned to act in supply, demand and enablement roles.

“The Asia-Pacific region houses several global financial hubs with the financial muscle to fuel a sustainable market shift in the region,” Guy Williams, Deloitte Asia Pacific & Global Nature lead, told The Business Times.

“As the Asia-Pacific has the most to lose and most likely the most to gain in any global market response to valuing natural capital, the scale of opportunity to shift additional finance (funds that contribute additionally to a nature-positive outcome than what would have happened if they were not invested) from nature-negative to nature-positive is greater than almost anywhere else.”

• Supply

The scale of intact and at-risk biodiversity across Asia provides the natural-capital bank that will fund and fuel any marketplace for nature, Williams points out. 

The region has some of the most significant biological diversity on earth, eg. the rainforests of Southeast Asia and the reefs of the Coral Triangle, but also faces the highest rates of biodiversity loss - 60 per cent of global biodiversity loss comes from 7 countries, 6 of which are in the Asia Pacific.

• Demand

The diversity of activities and the impact of Asian-owned and operated business give them the opportunity to set targets for improving natural capital and investing in this marketplace.

“The decline in Asia-Pacific ecosystems has been largely due to the flows of finance. In the region, lending has put the largest quantities of nature at risk, partly due to relatively weak regulation in the region. In a review of lending policies, banks in the region performed the worst when it came to restricting the negative impact on biodiversity,” Williams says.

• Enablement

Stakeholders such as governments, financial institutions and support services in the region can be enablers for change - and will have much to gain from having such a marketplace housed and headquartered here.

“As an important global financial hub, financial institutions in Asia Pacific must proactively manage flows of capital towards nature-positive outcomes. As nature has underpinned economic growth in the region for decades, ensuring that nature is responsibly managed and restored also presents some attractive opportunities,” Williams said.

For example, Deloitte and WWF-Australia’s report cited a study co-authored by Temasek, which found that investing in just 59 nature-positive business opportunities in the region could generate US$4.3 trillion and 232 million jobs annually by 2030 – equivalent to 14 per cent of the gross domestic product (GDP) of the region.

“We firmly believe this should not just be about divesting away from financing activities that enable a harmful impact on nature, but also about investing deeper into activities that have a positive impact,” said Williams.

This could include nature-themed funds that invest in natural capital projects such as nature-based solutions and agro-forestry, or solutions that reduce negative impact on nature, such as circular production models and alternative proteins, he added. One recent example is Silverstrand Capital’s Biodiversity Accelerator+, supported by Temasek, which aims to support startups offering either nature technology or nature-based solutions.

“There’s a whole lot of untapped opportunity in identifying and supporting the nature-positive businesses of the future,” Williams says.

Shifting the inertia

Despite the region’s potential, however, most natural capital initiatives and platforms, to date, have been designed and led out of Europe, Deloitte’s report noted.

“Relative inaction in the region to date is not primarily caused by a lack of resources, but rather inertia,” Williams says.

Environmental action led out of Asia to date has been driven by government regulations, he notes, with many Asian-based organisations waiting for further clarity from the local and national government on nature-related disclosures and sustainable finance.

“Asia has an opportunity to shift the inertia response, and to create a regional marketplace for natural capital that is open to Europe and other regional markets but aligns with emerging government-led green growth and net-zero commitments and policy.”

There is a host of mechanisms and opportunities available to the private sector to increase investments in nature and enable this shift, as governments play the key role of catalysing and scaling such private-sector investment, both through fiscal and regulatory means.