Care for biodiversity becomes crucial for businesses too
#news and trends • 01/03/2023 • Sophie Maeseele and Katelijne NorgaCSRD-regulated companies will soon have to report on their impacts, risks and opportunities linked to biodiversity and ecosystems, if biodiversity is material (relevant) to their business operations. High time to zoom in on this reporting standard: does it apply to my company? How do I engage with biodiversity as a strategic topic?
Biodiversity is rising in the ranking of important ESG topics and risks. Not only is there a growing social awareness of how decisive healthy ecosystems and our natural environment are; the topic is also increasingly higher on the political agenda. As recently as December 2022, the COP15 Biodiversity Conference in Montreal adopted the '30 by 30 agreement'. The European Green Deal is also highly committed to restoring biodiversity. The Biodiversity Strategy 2030, which is part of it, aims to restore European ecosystems and ensure that the Europe of the future is more resilient to the effects of the climate crisis, forest fires, food insecurity and disease outbreaks.
Through the Corporate Sustainability Reporting Directive (CSRD), Europe aims to embed concern for biodiversity in business. Large companies with a significant impact on ecosystems and natural resources will be required to report on their impact and the measures they take to reduce it. To this end, a specific (draft) reporting standard on biodiversity and ecosystems has been prepared.
Who has to report on biodiversity?
All companies for which biodiversity is a material issue - one that is relevant to your business, society and the planet - must report according to the obligations defined in the standard, which is part of the CSRD - the Corporate Sustainability Reporting Directive. That directive requires 50,000 companies across Europe to report on their sustainability strategy, efforts and actions. With the generally growing focus on biodiversity, this topic is bound to become a crucial part of European sustainability reporting. So companies will have to carefully consider whether biodiversity as a theme can be omitted from their report at all.
Biodiversity: material to my business?
Companies currently have little understanding of their relationship to biodiversity. That relationship works in two directions: on the one hand, many industries have an impact on nature, either directly or indirectly through their supply chain; on the other hand, certain sectors are highly dependent on biodiversity and ecosystems. This dual impact perspective - also known as double materiality - is at the heart of the CSRD.
In practice, biodiversity turns out to be material for many companies without realizing it. Agri-food companies affect biodiversity in various ways, including by using organic raw materials or applying crop protection products. Conversely, biodiversity loss also entails risks for food companies: crops yield less due to biodiversity loss, for instance. Extend this reasoning to textile companies using cotton or hemp, developers of projects taking up green space or affecting natural habitats, road builders deforesting ... and it becomes clear that biodiversity is material to a lot of organizations.
Dutch research uncovers damage of 2300 euros per inhabitant
Chain research in the Netherlands (a study conducted by ABN AMRO and Impact Institute) shows that Dutch society causes nearly €40 billion worth of damage to ecosystem services. 65 industries, trade with 140 countries and 42 types of crops were included in the study. Differences in local ecosystems were taken into account when calculating the damage in euros: for instance, land use or air pollution is more harmful in a tropical rainforest than in a desert. The calculated damage is equivalent to about 5 per cent of GDP in the year 2020, or just under 2300 euros per inhabitant.
Most of that damage is hidden. Of the total damage, 70 per cent takes place through business partners abroad. The import of cocoa, for example, may be associated with land use in Ivory Coast or Ghana, that of rice with methane emissions from cultivation in India.
Download the full study here.
How do you report on biodiversity?
How do you go about reporting on biodiversity? That is where Europe offers guidance with the European Sustainability Reporting Standards (ESRS). These standards translate the rules of the CSRD into concrete reporting requirements:
- Map your impacts in detail
This concerns both the (negative and positive) impacts that you yourself exert on biodiversity and the impact that your company experiences due to its degradation. Know that these are both real, current impacts and possible (future) impacts. Go beyond a mere description: Europe demands insight into the scope of your analysis, whether you base it on assumptions, whether scenario analyses were applied, which time horizon was used and in which ways stakeholders and affected communities were consulted. Engaging stakeholders, and describing that process, by the way, is one of the CSRD's general obligations. If you have sites that are near a vulnerable area, this should be specifically described.
- Draw up a transition plan
As a large company, you need to draw up a transition plan that makes your entire business model and corporate strategy fit within the planetary limits for biodiversity and the European biodiversity targets. These state that there should be no net loss of biodiversity by 2030, while aiming for a net gain in nature from 2030 and full restoration of European ecosystems by 2050. The transition plan should look beyond what happens inside the walls of your company, and take your entire value chain into account. Finally, the transition plan should transparently report whether you use offsets: offsetting your negative impacts and emissions through certified climate and nature projects. In your report, you also indicate which management levels validate this transition plan and how they will monitor the topic of biodiversity and the risks associated with it.
- Write policies
In your sustainability report, you will also have to demonstrate which policies you will outline to prevent and remedy your negative impacts on nature. This could be, for instance, protective policies for a company site close to a vulnerable area, sustainable land management practices, or a collaboration you develop with your suppliers to monitor and address impacts in the chain. You should also describe the policies you have in place to manage both your dependence on biodiversity and related risks and opportunities. You should also include the social component of biodiversity loss in your supply chain. Think for example about the dependence of indigenous people on biological resources and the fair use of local know-how for its sustainable management.
- Establish a roadmap with targets and action plans
Europe encourages companies for whom biodiversity is material to set numerical targets and communicate them in their report. In your report, you also describe actions and action plans that convert your policies into concrete measures. In each case, the European 'mitigation hierarchy' applies, indicating whether the action contributes to avoiding, reducing or minimizing negative impacts, or restoring and rehabilitating biodiversity. The involvement of local communities and the use of local knowledge around biodiversity management in defining key actions is also an important point in the reporting.
- Measure your performance
The aim of your sustainability report is to demonstrate progress towards the European biodiversity targets. Therefore, Europe also expects the necessary KPIs in your report. Mandatory in any case are KPIs that provide insight into the pressures your company causes in the form of land use, use of natural water resources and (the introduction of) invasive species, insofar as these pressures are material. Relevant impact KPIs should also be included. For example, if the company has an impact on certain species, report the KPIs on this that seem relevant to you as well. Some examples are:
- the number of breeding pairs counted in a given area
- the area of ecosystems occupied by the company, such as forest
- an indicator reflecting the quality of the ecosystem compared to a baseline condition
- EU taxonomy and financial risks
The EU taxonomy requires companies to report financial KPIs that provide insight into how their activities contribute to key environmental objectives. If, as a company, you want to demonstrate that your activities make a substantial contribution to ecosystem restoration, you have to calculate and report what proportion of your turnover, CAPEX and OPEX, is in line with the EU taxonomy for the target 'The protection and restoration of biodiversity and ecosystems'. Currently, the technical criteria to perform this assessment for biodiversity are not yet available. Finally, your report should provide insight into the financial risks or opportunities associated with (the degradation of) biodiversity.
Want to know more about how to get started with the biodiversity standard or CSRD more generally? Get in touch at mail@pantarein.be, we'd be happy to help!
Gerelateerde artikels
