Nature-related interdependencies: a Japanese case study

A case study based on a real estate company in Japan seeks to unravel the complex interdependencies within the value chain. Takuya Shirashi reports.

This case study examines a leading Japanese real estate company’s collaboration with PwC Sustainability, a member firm of the PwC Japan Group, focusing on a comprehensive assessment of its interactions with nature.

The analysis seeks to unravel the complex interdependencies within the company’s value chain. The primary objective is to illuminate the nature-related risks and opportunities stemming from
the company’s operational activities, thereby providing a holistic perspective to inform strategic decision-making and foster sustainable practices.

Navigating nature: A story of strategic integration

Embarking on this journey, we adopted the LEAP approach recommended by the Taskforce on Nature-related Financial Disclosures (TNFD) framework as a guide to explore the company’s intricate relationship with nature. We started with the Locate phase, identifying crucial points where the company intersects with ecosystems.

We then transitioned to the Evaluate phase, conducting an in-depth examination of priority areas; and then to the Assess phase, where we assessed the interrelated risks and opportunities via quantitative assessments.

In the final Prepare phase we drew up an action plan. This structured methodology ensured that the initiative not only mapped the company’s ecological footprint, but empowered it to adopt sustainable practices while making strategic decisions in harmony with nature.

Allocation of analysis sites by business unit

In agreement with the company, we decided on a structured allocation of sites for analysis across the value chain and a diverse range of business segments, as follows:.

1. Timber and Building Manufacturing: This involved analysing supplier listings, in-house production facilities, and downstream selling partners, while excluding entities not directly aligned with the housing business.

2. Custom-Built Houses and Subdivisions: The focus was on a comprehensive list of suppliers, particularly for housing plots held for sale within the company’s operations.

3. Tree Planting: Largescale environmental greening initiatives were assessed, considering suppliers of materials used in these projects.

4. Construction and Real Estate Business: Here, the focus extended to detached houses available for sale and complex real estate development projects.

5. Resources and Environment Business: The analysis encompassed forests owned
by the company, overseas forest management, and biomass power generation, as well as the timber and building materials supply chain.

This detailed, phased approach ensured a thorough examination of the company’s interactions with the environment, setting the groundwork for informed sustainable decision-making and responsible environmental stewardship.

Prioritising sites and impact evaluation

To identify and evaluate priority areas, tools such as Geographic Information Systems (GIS) were used to uncover specific locations where business operations intersect with the natural environment and to determine where intervention is necessary. Key factors taken into account include the geographical location of the client’s operational sites, biome characteristics within plant communities, biodiversity significance, ecosystem integrity and potential risks of decline, the importance of ecosystem services for indigenous and local populations, and risks connected to water.

More than 30 priority sites were earmarked as strategically important, and classified according to their financial significance and ecological sensitivity. Priority was given to multiple overseas sites for forest management and timber and building materials manufacturing.

‘Opportunities in forest management and biomass energy emerged as significant, driven by consumer awareness and regulatory changes.’

Takuya Shirashi, PwC Japan

For the Resources and Environment Business, we considered the impact on forest-dependent communities and biodiversity, while promoting enhanced ecosystem services through sustainable management practices.

For the Timber and Building Materials Business, we highlighted concerns over habitat fragmentation and pollution, while recognising the benefits in timber supply and erosion prevention.

And for the Housing and Construction Business, we emphasised waste and pollution concerns, but also acknowledged significant advances in sustainable building practices.

The detailed examination of ecological interfaces, guided by GIS and other analytical tools, provided comprehensive insights into where the client’s operations intersect with the natural environment. By identifying key priority areas and diagnosing the nature of impact and dependency, the client was able to make informed decisions that enhance ecological stewardship and sustainability within their operations.

Assessment of nature-related risks and opportunities

Incorporating nature-related risks and opportunities into strategic decision-making has become vital for businesses globally. TNFD provides a framework that categorises these risks into physical, transition, and systemic types, and further classifies business opportunities into two types: business performance and sustainability performance.

Our assessment of multiple sites identified a range of nature-related risks and opportunities. These risks are organised into categories, including acute and chronic physical risks, regulatory and market transition risks, and systemic risks affecting ecosystem and financial stability.

For high-priority risks and opportunities, quantitative assessments were conducted to forecast the financial impact by 2030. This approach integrated extensive internal and external data to explore hypothetical market evolutions and regulatory developments. For example, opportunities in forest management and biomass energy emerged as significant, driven by consumer awareness and international regulatory changes.

Initiatives like smart forestry technologies capitalise on market trends, though challenges such as rising biomass fuel costs highlight resource-dependent energy volatility.

In the housing sector, climate change has amplified risks, affecting insurance premiums and disaster vulnerabilities, especially in developments on sloped terrains. This necessitates resilient construction practices but also presents opportunities to create residential properties that foster sustainable coexistence with nature.

Consumers’ willingness to pay a premium for eco-certified homes reflects this trend, offering financial benefits through efficient construction methods and eco-friendly developments.

Importance of strategic planning

Overall, this global assessment underscores the importance for businesses to integrate nature-related risks and opportunities into their strategic planning. The detailed analysis through qualitative and quantitative lenses demonstrates the intricate connections between ecological sustainability and business resilience. By prioritising these factors, companies can not only mitigate risks, but unlock opportunities that align with shifting market dynamics and regulatory landscapes. This comprehensive approach strengthens businesses against future challenges while promoting sustainable growth and ecological stewardship.

One example of the volatile landscape is the biomass power generation sector, with significant risks posed by rising fuel costs due to competition for resources like wood chips. To counteract these fluctuations, companies should diversify procurement strategies, explore alternative fuels, and secure new supply chains. Long-term contracts can provide stability against unexpected price increases, supporting companies during market uncertainties.

In the manufacturing sector, particularly for timber and building materials, challenges arise from severe flooding events that threaten operations and increase restoration costs. Companies can mitigate these risks by assessing flood conditions during site selection and enhancing disaster preparedness through resilient business continuity plans. These strategies help ensure swift recovery and minimise disruptions.

Opportunities are plentiful, especially with smart forestry technologies such as remote sensing and satellite applications, allowing for a deeper understanding of forest health and resources. Companies can market these innovations to local authorities and major forest owners, thereby unlocking new revenue streams and addressing the growing demand for sustainable management practices.

Likewise, factories and construction sectors can benefit from resource efficiency initiatives, developing products from reused materials to gain a competitive edge and embed circular models within business operations.

Biodiversity credits

Pilot projects centred on biodiversity credits represent forward-thinking approaches to forest management. These initiatives explore the viability of biodiversity credits and contribute to rulemaking, positioning companies as pioneers in this field while enhancing ecological preservation and market leadership. In parallel, the demand for nature-based housing highlights shifting consumer preferences towards eco-friendly spaces.

By conducting market research and building certified model homes, companies can align product offerings with environmental values, fostering credibility and consumer appeal.

The focus on circular business initiatives within the value chain identifies regulatory trends that promote sustainability. By engaging in feasibility studies and partnerships, companies can align their business models with industry trends, supporting decarbonisation strategies and fostering long-term economic resilience. Moreover, developing payment programmes for forest public benefits through collaboration with municipalities showcases proactive measures that leverage ecological assets, thus enhancing both business and ecological landscapes.

In summary, these strategic initiatives produce actionable insights and comprehensive reports that equip companies to navigate environmental complexities and showcase ecological stewardship. This preparedness reinforces business resilience and positions companies for success in an era where environmental considerations drive innovative and sustainable development.

The strategic path forward: building corporate value

In pursuit of sustainability and enhanced corporate value, businesses must integrate ecological objectives within their strategic frameworks. By balancing decarbonisation with ecological preservation and addressing both climate and nature-related risks, companies can unlock substantial value through nature-positive initiatives.

The forest industry faces changing consumer demands requiring shifts in management practices, particularly in ecologically sensitive areas. Although these shifts may have cost implications, opportunities abound in smart forestry technology sales, Payment for Ecosystem Services (PES) programmes, and biodiversity credits.

The timber sector is vulnerable to severe flooding, affecting sales and increasing restoration costs, yet new product developments offer significant growth potential. Construction faces climate risks, leading to higher insurance premiums, but natural housing developments offer promising opportunities. In alternative energy, rising biomass fuel costs challenge profitability, but utilising incinerated ash supports a circular bioeconomy.

To implement changes, businesses should incorporate assessment indicators into both business segment and sustainability targets. Business targets need to translate detailed opportunity analyses into actionable strategies, whereas sustainability targets should include risk management indicators, aligned with frameworks like TNFD and the Science Based Targets Network. Exploiting opportunities and minimising risks enhances medium and long-term corporate value via nature-related business initiatives.

Ultimately, aligning business strategies with ecological goals allows companies to mitigate risks while fostering nature-based opportunities, securing a balanced improvement from both a corporate and an environmental standpoint.

Takuya Shirashi is sustainability and nature manager at PwC Japan