Companies of all sizes and industries slowly have to get used to the fact, that reporting on sustainability topics is here to stay. The EU as well as individual states are continuously raising the bar on disclosure and request all sorts of sustainability related information from a growing number of companies. While climate change has been in focus for the last few years (and still is), another issue is appearing at the horizon. Biodiversity is becoming the next urgent topic for companies to deal with, not only because of the recently held COP 15 on Biodiversity in Montreal, Canada. This Conference, is however, an important milestone in the combat against biodiversity loss, and is based on national and regional biodiversity strategies such as the EU Biodiversity Strategy 2030. Key aspects of the new agreement are 2030 targets to effectively halt biodiversity loss and to protect at least 30% of terrestrial, inland water, and coastal and marine areas, seen as analogue to the global Paris Agreement climate goals to limit warming to 1.5°C.
Biodiversity loss is taking place at an alarming rate and is, according to the World Economic Forum, number three on the global threat ranking list, after climate change and extreme weather phenomena. As rising temperatures is affecting us all, so is biodiversity loss. Around 1/3 of global food products are dependent on pollination services – worth a three-digit billion amount yearly, and this is only one of many examples of the use and worth of ecosystem services for humans. Thus, there is an urgent need not only to halt biodiversity degradation but to reverse it. A fact that has already been communicated by science and nature conservation organisations for many years, and which has now also reached regulators and rating agencies.
One of the most efficient levers to fight problems such as climate change and biodiversity loss is to steer financial capital into more sustainable channels, and this is where the EU Taxonomy and the Sustainable Financial Disclosure Regulation (SFDR) for financial institutes come into the picture. Somewhat delayed, The Commission is currently preparing a Delegated act with technical screening criteria fulfilling four environmental objectives under the Taxonomy Regulation. By May 2023, it will establish a common classification of economic activities that substantially contribute, among other objectives, to the protection and restoration of biodiversity and ecosystems including forests, wetlands, peatlands, as well as aquatic and marine ecosystems.
SFDR is a European regulation introduced to improve transparency in the market for sustainable investment products and to prevent greenwashing. In art. 9 the reporting obligations for biodiversity are laid down, covering activities negatively affecting biodiversity-sensitive areas. Although SFDR applies to companies in the financial market only, these are already handing the pressure down, requiring the relevant information from the companies they are investing in. By June 2023, financial institutes are expecting transparency on the above-mentioned activities from their investees.
The Corporate Sustainability Reporting Directive (CSRD) is further proof of the intent of the EU and its member states to implement stricter and more homogeneous reporting on sustainability. It introduces mandatory sustainability reporting standards for all EU large companies (250+ employees, turnover >40 million, total balance sheet >20 million), including listed SMEs as well as non-EU companies with large revenues in the EU. The reporting standards are in their finalisation stage, with the European Commission expected to adopt them by June 2023. ESRS E4 (still a draft) covers the disclosure requirements for biodiversity and includes measurable targets for biodiversity and ecosystems as well as metrics on pressures, impacts and response. Furthermore, companies must disclose information on a transition plan in line with the targets of no net loss by 2030 and full recovery by 2050. Reporting for listed companies will begin as of 1. January 2025, for the reporting period 2024.
Finally, a new regulation on deforestation-free supply chains for certain products such as palm oil or cocoa sold within the EU, is expected to come into force within the coming years.
The rating organisations and standard setters are not lagging behind – CDP (Climate Disclosure Project) has added 7 new questions on biodiversity (6 in 2022 and one more in 2023), GRI (Global Reporting Initiative) has done major work on its §304 on biodiversity (currently in stakeholder consultancy until Feb. 2023), SBTN (Science Based Targets for Nature) is developing a new framework for biodiversity targets and TNFD (the Taskforce on Nature related Financial Disclosure) is expecting to launch its biodiversity reporting requirements by Sep. 2023.
The good news for companies is that a.) many companies are already gathering environmental information that is relevant for reporting on biodiversity (e.g. water consumption, GHG emissions) and b.) as most of the regulations and standards mentioned above are under development – companies still have some time to prepare for the new reporting requirements. It is, however, essential that companies start analysing their impacts and dependencies on biodiversity and ecosystems now and that they implement a biodiversity policy and strategy in line with their overall sustainability targets. Like GHG emissions, the largest biodiversity impact of businesses lies within their value chains (upstream and downstream), which means that the biggest task for companies now, is to untangle their supply chains and make sure they know the origin of every material and product they use for their business activities.
How can DFGE help?
Based on our very long experience and status as preferred partner for standard and rating organisations such as CDP, EcoVadis and GRI, we can help you in preparing for disclosure on biodiversity. We also provide support in understanding and analysing your material biodiversity issues as well as give guidance when developing your related strategy and roadmap.
Sources:
https://www3.weforum.org/docs/WEF_The_Global_Risks_Report_2022.pdf
EU Biodiversity Strategy Action Tracker (https://dopa.jrc.ec.europa.eu/kcbd/actions-tracker/public/groups/delayed)
Eurosif (https://www.eurosif.org/policies/sfdr/)
Moody’s Regulatory Calendar (https://assets.website-files.com/5df9172583d7eec04960799a/639b50b77487e9039987582a_RegulatoryCalendar_Q4update.pdf)
