Sustainability-linked finance: bridging nature disclosure gaps in Southeast Asia

Global economic stability faces growing threats from nature-related risks, including deforestation, biodiversity loss and water scarcity, with potentially substantial economic costs. The tropical rainforests and freshwater systems of Southsea Asia especially harbour immense biodiversity, meaning any ecosystem collapse there would be disproportionately costly, yet they are under acute pressure from land-use change and water stress. Innovative financial tools, such as sustainability-linked finance (SLF), which ties borrowing costs to sustainability performance targets (SPTs) — for example, reducing interest rates for companies that restore critical habitats — offer promising solutions to mobilise corporate finance for nature. This study provides the first comprehensive analysis of Southeast Asia’s SLF market, addressing critical gaps in integrating nature-related risks into financial instruments.

Using market analysis and a retrieval-augmented generation approach to classify key performance indicators (KPIs), the authors reveal that 60% of nature-related KPIs disclosed in corporate reports —particularly those related to water usage and waste management — are absent from SPTs in SLF deals, presenting significant opportunities for improved ecological accountability. The authors’ findings underscore the need for harmonising regional frameworks (e.g. ASEAN SLB Standards) with global guidelines like the Taskforce on Nature-related Financial Disclosures (TNFD) to standardise SPTs, improve transparency and mitigate greenwashing risks. Four policy implications for enhancing the transparency, credibility and scalability of SLF instruments in Southeast Asia are identified.

Key points for decision-makers

• Financial institutions must standardise nature-related metrics in SLF deals by adopting global frameworks, closing disclosure gaps while remaining manageable for participants.
• Lead arrangers and underwriters should be accredited as independent sustainability coordinators to vet and approve SLF targets, bolstering credibility and preventing conflicts of interest.
• Financial regulators should work to align corporate sustainability KPIs with SLF targets and could consider introducing penalties for non-compliance, to encourage consistent progress towards nature-related goals.
• Treasury and fiscal authorities ought to introduce targeted incentives — tax exemptions and credit guarantees — to lower financing costs and mobilise private investment in nature-positive projects.