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[Certified ESG Analyst Insights Sharing]
Alexander Chan, CESGA
With the continued focus on the importance of
biodiversity and natural ecosystem services on which many sectors and economies
depend, one key question is how are nature and climate linked? In this piece we
examine how these two themes intersect with a particular focus on adaptation as
a connecting factor.
Nature
101: Global developments and challenges today
Source: Invesco Asia Pacific
Nature generally
refers to natural world including land, ocean, freshwater and atmosphere that
interacts with societies and economies, whether in providing ecosystem services
to different sectors or being impacted by businesses. Globally, investors and companies
are recognizing nature loss as a source of systemic risk for economies and
financial markets. In September 2023, the Network for Greening the Financial
System (NGFS), a network of over 125 central banks and financial supervisors,
encouraged all central banks to assess and act on financial risks from nature
loss. More than half of world’s GDP is moderately or highly dependent on
nature. However, implementing nature-related considerations in investments can
be complex given challenges relating to:
Localized
data: Importance of
location-specific analysis of nature impact which requires granularity of data
on location and characteristics of location in question.
Lack
of aggregation: Nature-related
metrics tend to be extremely context dependent and unlike climate there is a
lack of singular aggregable metric that can be easily measured like emissions.
Sector
specific: Financially
material dependencies on nature vary by sector which also makes the comparison
across sectors challenging.
Prioritization: State of disclosures on nature by
companies are still in its infancy and with many companies focusing their
attention on transition planning and understanding climate-related risks and
opportunities, there might be a question on resourcing and prioritization
across different sustainability themes.
Given the
challenges laid out, investors need to identify a suitable starting point for
implementing nature-related considerations into the investment process.
Linkages of
climate and nature: highlights on adaptation
We believe a good
starting point for investors looking at nature-related considerations is to
identify the links between climate and nature. We identify 3 key links:
1)
Impact of nature-based solutions on climate change mitigation and emissions
reduction: Nature-based
solutions can provide up to 37% of the climate change mitigation required to
meet the world’s 2030 climate targets. Historically, natural global sinks of
land and ocean absorbed 59% of total emissions between 1850 and 2019.
2)
Nature-based solutions for climate adaptation: Nature-based solutions can help
minimize potential physical risks and climate hazards. Coral and oyster reef
systems can reduce coastal erosion, forests can soak up excess rainwater
minimizing runoff and damage from flooding, and coastal wetlands can stabilize
coastlines by trapping sediment and reducing wave height with dense vegetation.
Overall, nature-based solutions are estimated to reduce the intensity of
climate hazards by 26% which amounts to economic costs of about US $104 billion
by 2030 and $393 billion by 2050.
3)
Nature’s dependencies on climate
include:
Agrifood security: Climate variability could be a driver
of growing global hunger with droughts with the potential to cause more than
80% of total damage and losses to agriculture
Water access and oceans: Heatwaves, flood and storms could
impact freshwater ecosystems and affect water quality and availability. Warming
and acidification also affect sea life and food webs in oceans. Like the
agrifood impact, physical risks could affect the costs of goods, services and
infrastructure. Disruptions to water access and sanitation risks are also tied
to potential health risks and costs for certain populations and regions.
Deforestation and biodiversity: Global energy and climate transition
has led to a growth in electric vehicles (EVs) as a climate solution. However,
the growth of EV supply chains has also resulted in potential deforestation and
biodiversity impacts. The growing demand for green transition materials such as
nickel, cobalt and manganese can cause a corresponding mining impact on
deforestation as well as on habitat loss, soil erosion, and diminishing
biodiversity.
Investment
opportunities and approaches for climate and nature
Source: Invesco Asia Pacific
1] Investing in climate and nature solutions: Identifying
solutions at the intersection of climate and nature. Fixed income is one
effective way of investing into mission-driven businesses that are nature
positive through analyzing the underlying use of proceeds; examples include:
Nature-based
solutions: Restoration
of coastal habitats through mangroves, salt marshes, coral and oyster reefs
that helps with coastal protection and reduction in flood impacts while also
increasing biodiversity as well as food security.
Agrifood: Solutions
that help improve agrifood productivity and security such as cover cropping,
bio-based fertilizers and low tillage
Water:Solutions
like green drainage systems that reduce flooding impact while also increasing
biodiversity
2] Climate and nature risk considerations:Considering
nature-related financially material risks has to start with understanding what
the risks are and the linkages to businesses. The TNFD’s LEAP (Locate,
Evaluate, Assess, Prepare) tool provides a good starting framework for both
corporates and investors, beginning with prioritizing locations where assets
are based, evaluating ecosystem dependencies of these assets, and then
assessing the potential risks and opportunities before formulating plans and
initiatives in response.
3] Engagement and stewardship: Financially-material
nature-related risks can then be fed as discussion items for engagement with
investee holdings. Potential areas where investors can look to understand more
include:
Companies’ approach, policies and governance to identify and
analyze nature-related risks and opportunities including underlying revenue
exposure and supply chain dependencies
Companies’ responses to comply with regulations like the EU
Deforestation Regulation
Companies’ initiatives and progress on addressing identified risks
and opportunities
Investing
at the nexus of nature and climate
As nature grows in importance as a financially
material risk across sectors and financial markets, we believe a good starting
point is to begin by analyzing opportunities at the intersection of climate and
nature. Whether it is investing directly into climate and nature solutions such
as through fixed income or factoring in such risks into broader investments
considerations, the climate and nature nexus is an emerging trendy worthy of
investor attention.
The above is from Invesco Asia Pacific’s piece
on “Nature, climate, adaptation: Investment opportunities and approaches”. For
more information, refer to https://bit.ly/420wCjU.
早在2016年，政府已經推出了首個《生物多樣性策略及行動計劃》，旨在加強保育工作，並支持本港的可持續發展。然而，該計劃主要是為香港整體的生物多樣性保育長遠策略，並未能對應近年北部都會區的急速發展。近年來，全球廣泛推廣自然相關財務披露（Taskforce
on Nature-related Financial Disclosures，簡稱TNFD），為企業提供有關自然環境風險及財務影響的自願性披露框架。
展望未來，政府可借鑑新加坡濱海灣花園（Gardens
by the Bay）的成功經驗，將三寶樹濕地保育公園打造為本港乃至世界性的生態保育地標。筆者建議政府可結合先進的可持續工程技術，例如使用太陽能光伏板供電及水資源循環再利用系統，以減少碳足跡，並展示環境科技的應用價值。此外，政府可吸引國際科研機構進駐，設立濕地生態研究實驗室，專注於濕地修復、碳匯（Carbon
sink）能力及生物多樣性保護的研究。而在旅遊方面，政府可策劃年度性的生態主題活動，如鳥類觀賞節及濕地文化展覽，吸引國際遊客參觀，帶動本地旅遊經濟。更重要的是，政府應採取創新治理模式，定期披露濕地的生態指標及相關數據，與社會各界共同評估保育成效，確保發展與保育的雙贏。
Discover engaging
green finance events this January 2025. Browse the calendar and register for
events that align with your interests through the links below:
