Severe flooding, water scarcity and biodiversity loss are often viewed as environmental issues. Increasingly, however, they are also posing significant challenges for businesses.
Healthy ecosystems regulate water supplies, protect coastlines, support agriculture and provide many of the natural services that businesses and communities depend on. When these ecosystems degrade, the consequences extend beyond the environment, disrupting business operations, supply chains and economic resilience.
This shift is becoming important for financial institutions. Through their lending, investment and underwriting activities, they are exposed to the impacts of ecosystem degradation across the economy.
As sustainable finance evolves in Malaysia, understanding nature-related risks is becoming essential for building resilient portfolios and supporting long-term financial stability.
The urgency is clear. In 2024, six of the nine planetary boundaries that define Earth’s environmental limits had been transgressed, while biodiversity continues to decline at an unprecedented rate.
WWF’s Living Planet Report 2024 found an average 73% decline in monitored wildlife populations since 1970. These environmental changes have economic implications, with more than half of global gross domestic product estimated to be moderately or highly dependent on nature.
Protecting ecosystems is therefore not only an environmental imperative, but also a business and economic one.
Nature–finance nexus
Malaysia has made significant progress in sustainable finance, from pioneering green sukuk issuances to expanding ESG-linked financing.
Climate-related risks are increasingly embedded in financial decision-making, but nature-related risks are only beginning to receive similar attention.
Unlike climate risks, which are typically assessed using global indicators such as emissions pathways and temperature scenarios, nature-related risks are inherently location-specific.
They depend on the condition of ecosystems and where economic activities occur. Two companies operating in the same sector may therefore face very different levels of risk depending on whether their assets are located in areas of high water stress, biodiversity sensitivity or ecosystem degradation.
These risks rarely occur in isolation. Flooding, declining water quality, habitat loss and land use change often interact to disrupt operations, increase costs and reduce asset values.
For financial institutions, these impacts can translate into credit, market, regulatory and reputational risks across their portfolios. The financial relevance of these risks is already evident in Malaysia, where Bank Negara Malaysia estimates that 54% of commercial loans are extended to firms operating in sectors with high or very high dependencies on at least one ecosystem service.
At the same time, integrating nature into financial decision-making presents significant opportunities. The World Economic Forum estimates that a global transition to nature positive pathways could unlock over US$10 trillion (RM40.8 trillion) in annual business opportunities by 2030, with Asia and the Pacific accounting for around US$4 trillion (RM16.3 trillion).
TNFD a practical starting point
Recognising these emerging risks, the Taskforce on Nature-related Financial Disclosures (TNFD) provides organisations with a practical framework to identify, assess and disclose nature-related dependencies, impacts, risks and opportunities.
Modelled on its climate-focused sister initiative – the Taskforce on Climate-related Financial Disclosures (TCFD) – TNFD translates complex nature-related issues into actionable insights for business and finance.
Its LEAP (Locate, Evaluate, Assess and Prepare) approach provides a structured pathway for organisations to understand their relationship with nature and integrate nature-related considerations into enterprise and portfolio risk management processes.
Since its inception in 2023, more than 620 organisations across over 50 countries, representing approximately US$20 trillion (RM81.5 trillion) in assets under management, have committed to begin reporting aligned with the TNFD recommendations, highlighting growing momentum to integrate nature-related considerations into decision-making.
Localising action
To demonstrate how TNFD can be applied locally, WWF-Malaysia partnered with leading Malaysian institutions to undertake one of the country’s first TNFD pilots.
The pilot aimed to deepen understanding of nature-related risks and opportunities while demonstrating the application of the TNFD LEAP approach using practical tools and locally relevant examples.
Using geospatial analysis alongside screening tools such as ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure), IBAT (Integrated Biodiversity Assessment Tool) and the WWF Biodiversity Risk Filter, the pilot assessed how business activities intersect with sensitive ecosystems across Malaysia.
By overlaying asset location data with local environmental datasets, including water stress, biodiversity sensitivity and ecosystem integrity, the findings showed that nature-related risks are often concentrated in specific geographies and high-risk sectors rather than being evenly distributed across portfolios.
Importantly, the pilot also demonstrated that organisations do not need perfect data to begin. Screening tools can provide a practical starting point by moving assessments beyond broad sectoral assumptions towards more location-specific insights, helping organisations identify potential hotspots and prioritise areas for further assessment.
As organisations strengthen internal data and engage more closely with stakeholders over time, these initial assessments can be refined into increasingly robust analyses.
The findings also reflect growing expectations from investors, regulators and stakeholders for organisations to understand and manage their dependencies and impacts on nature.
Early movers will be better positioned to strengthen resilience, improve transparency and unlock opportunities in areas such as biodiversity finance, circular business models and nature-positive infrastructure.
A collective path forward
Nature-related risks are no longer a future consideration - they are becoming a core business issue. For Malaysian financial institutions and businesses, integrating nature into decision-making is increasingly about managing risk, strengthening resilience and creating long-term value.
The WWF-Malaysia TNFD pilot demonstrates that organisations can begin this journey today. By adopting practical frameworks such as TNFD and leveraging available assessment tools, businesses can build internal capability, improve decision-making and better prepare for a rapidly evolving risk landscape.
Achieving a nature-positive future requires collaboration across financial institutions, businesses, policymakers, civil society and communities. WWF-Malaysia remains committed to supporting its partners in adopting nature-related risk assessment approaches through capacity-building, practical guidance, and locally relevant insights.
Protecting nature is not just an environmental imperative, it is an economic one. Together, it is possible.
Established in 1972, WWF-Malaysia is part of WWF, the international conservation organisation. Working to sustain the natural world for the benefit of people and wildlife, WWF Malaysia’s efforts to conserve nature focus on six major goals – forests, oceans, wildlife, food, climate and energy, as well as freshwater – and three key drivers of environmental problems – markets, finance and governance. Its mission is to stop the degradation of the earth’s natural environment and to build a future in which humans live in harmony with nature.
