Taking the fear factor out of biodiversity reporting requirements
Sustainability reporting & assurance
Taking the fear factor out of biodiversity reporting requirements
Thu 01 Feb 2024
In the fight against global warming, one of the significant outcomes of COP28 in Dubai was the recognition that biodiversity is inextricably and strategically linked to climate change. COP28 discussions supported the Kunming-Montreal Global Biodiversity Framework (GBF) adopted during COP15, which sets out an ambitious pathway to reach the global vision of a world living in harmony with nature by 2050 as well as showing clear signs of being on the road to recovery by 2030. So what do we mean by biodiversity, and what is the impact on sustainability reporting?
No net zero without nature
When it comes to the near and long-term goals of the Paris Agreement and limiting global warming to 1.5°C by 2030, there is broad acceptance that it’s not enough to consider climate alone but also to address biodiversity loss and land degradation. On COP28 Nature, Land Use and Ocean Day, 18 countries endorsed the COP28 Joint Statement on Climate, Nature and People, placing it at the centre of climate action. The Joint Statement aims to raise greater awareness of biodiversity issues and the ability to deliver the necessary synergies between the Paris Agreement and Biodiversity strategies.
The topic of biodiversity includes a broad definition of nature that aims to identify nature loss in terms of animal and plant species as well as, for example, the impact of greenhouse gas (GHG) emissions, water use, waste treatment, and land degradation.
Impacts on sustainability reporting
There has been a lack of corporate attention on biodiversity due to companies focusing more strongly on climate strategies. However, the arrival of the Corporate Sustainable Reporting Directive (CSRD) and the development of European Sustainability Reporting Standards (ESRS) have highlighted the need to understand and report on biodiversity issues identified as material to sustainability reporting. Given current developments that recognise biodiversity’s connection to climate change issues, companies should now be pushing biodiversity higher up the business agenda.
A further reason biodiversity has not gained much corporate attention is a general lack of understanding of incorporating biodiversity issues into risk and opportunity frameworks. Here, the ESRS E4 standard sets the tone. Focusing specifically on biodiversity and ecosystems, the ESRS E4 standard aims to strengthen corporate understanding of how business operations impact biodiversity. This helps to align business models and operations with biodiversity protection and restoration.
A key part of reporting requires companies to disclose biodiversity metrics, targets and action plans and communicate how they contribute to the goals of restoring the world’s ecosystems based on targets set. The ESRS E4 standard includes specific disclosure requirements on impacts and interdependencies in relation to land, freshwater and marine habitats, ecosystems and populations of related fauna and flora species. This includes diversity within species, between species and
of ecosystems and their interrelation with indigenous and affected communities. If material, companies are required to report on any impacts, risks and opportunities (IROs), including any impact on strategy and business models, as well as any short-, medium- and long-term financial implications.
Assessing material impacts, dependencies, risks and opportunities
The introduction of CSRD and the development of ESRS have put biodiversity firmly on the table. Together, they provide a strong nudge for companies to broaden the scope of climate disclosures by taking a more structured approach to biodiversity. Gaining a clear line of sight between how business activities impact biodiversity issues is a first step.
Equally, it’s essential to analyse the company’s biodiversity-related dependencies and their fit into risk management frameworks. What impact, for example, will deforestation, pollution or loss of plant and animal species have on business operations? Or how will scarcity of raw materials due to biodiversity loss impact the supply chain? Analysing factors that may affect the future profitability of the company can be used to guide long-term strategic planning. At the same time, integrating active biodiversity management into core business strategies can help companies strengthen resilience and improve profitability.
With impacts assessed, companies can begin to see what is material regarding reporting and define relevant key performance indicators (KPIs) to track progress and develop a strategy to adjust measures so targets are met. Despite the complexity of measuring broader biodiversity issues, the growing number of external ratings and rankings providers that focus on sustainability and biodiversity can be used to benchmark progress made and bring additional confidence to strategies.
Preparing for the next steps
Taking the time to understand what biodiversity is and what biodiversity-related regulations are applicable can help reduce the fear factor of reporting requirements. Greater understanding offers much-needed clarity to what biodiversity factors are material to the company, helping to sharpen focus on relevant disclosures and reporting requirements. In terms of quick wins, broader sustainability KPIs already in place can provide an established format to develop more specific biodiversity KPIs that flow into strategies. In addition, the use of tools or frameworks such as the Taskforce on Nature-related Financial Disclosures (TNFD) and the Science Based Targets Network (SBTN) can provide additional guidance for companies to comply with reporting obligations.
Also, take some time to work out impacts and dependencies more thoroughly. For example, extracting raw materials or intensive farming can harm the land and nature. At the same time, deterioration of soil caused by industry can potentially reduce profitability for companies dependent on that land.
Companies play a crucial role in climate protection. Adopting a more holistic approach to climate strategies that recognise biodiversity is inextricably linked to climate change is now a regulatory, economic and social priority. Taking decisive actions and developing relevant biodiversity strategies now can help companies thrive and create a more sustainable global economy.
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