CSRD-regulated companies will soon have to report on their impacts, risks and opportunities linked to biodiversity and ecosystems, if and when biodiversity is material (relevant) to their business operations. So it’s high time to zoom in on this reporting standard: Does it apply to your company? And how do you tackle biodiversity as a strategic topic?
Biodiversity is becoming increasingly important among ESG topics and risks. Not only is there a growing social awareness of how decisive healthy ecosystems and our natural environment are, but the topic is also moving up 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 a part of this commitment, aims to restore European ecosystems and to ensure that the Europe of the future is more resilient to the effects of the climate crisis, forest fires, food insecurity and disease outbreaks.
With the Corporate Sustainability Reporting Directive (CSRD), Europe also aims to embed care for biodiversity in businesses. 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 already been prepared.
All companies where biodiversity is a material topic – i.e. relevant to your business, society and the planet – have to report according to the obligations defined in the standard, which is part of the CSRD. This directive requires 50,000 companies across Europe to report on their sustainability strategy, efforts, and actions. With the general increase in focus on biodiversity, this topic is bound to become a crucial part of European sustainability reporting. Companies will have to carefully consider whether or not it is possible to omit biodiversity as a topic from their report.
Currently, companies lack insight into their relationship to biodiversity. That relationship goes 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, certain sectors are highly dependent on biodiversity and ecosystems. That double impact perspective – also known as double materiality – lies at the heart of the CSRD.
In practice, biodiversity turns out to be material for many companies without them realising it. Agri-food companies affect biodiversity in various ways, such as their use of organic raw materials or the application of crop protection products. The other way round, biodiversity loss also entails risks for food companies: crops produce lower yields due to biodiversity loss, for instance. Extend this reasoning to textile companies using cotton or hemp, project developers taking up green space or affecting natural habitats, road builders cutting down forests, etc., and it becomes clear that biodiversity is material to many, many organisations.
Supply chain research conducted in the Netherlands (within the scope of a study by ABN AMRO and Impact Institute) has shown that Dutch society has caused nearly €40 billion worth of damage to ecosystems. A total of 65 industries, trade with 140 different countries, and 42 types of crops were all included within the study. Differences in local ecosystems were considered when calculating the damage in euros as well: for instance, land use or air pollution is more harmful in a tropical rainforest than it is in a desert. The calculated losses correspond to about 5 per cent of GDP for 2020, just shy of €2,300 per inhabitant.
Most of those losses are invisible. Of the total damage, 70 per cent takes place through business partners abroad. For example, imports of cocoa may be associated with land use in Ivory Coast or Ghana, and those of rice with methane emissions from cultivation in India.
How do you tackle biodiversity reporting? This is where Europe offers guidance with the European Sustainability Reporting Standards (ESRS). These standards translate the rules of the CSRD into specific reporting requirements:
This concerns the (both negative and positive) impacts you yourself exert on biodiversity, and the impact your company experiences due to its degradation. Know that this concerns real, current impacts as well as possible (i.e. 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 timeframe was used, and in which ways stakeholders and affected communities were consulted. Incidentally, engaging stakeholders and describing the process involved in this is one of the CSRD’s general obligations. If your company has sites situated near vulnerable areas, then this should definitely be described.
As a large company, you have to draw up a transition plan that makes your entire business model and corporate strategy fit within both the planetary boundaries for biodiversity and the European biodiversity targets. These state that there should no longer be a net loss of biodiversity by 2030, while aiming for a net gain in nature by 2030 and full restoration of European ecosystems by 2050. This transition plan should look beyond what happens inside the walls of your company, and take your entire value chain into account. Furthermore, the transition plan should report transparently on whether you use offsets; compensating for your negative impacts and emissions through certified climate and nature projects. In your report, you should also indicate which management levels validate this transition plan and how they will follow up on the topic of biodiversity and the risks associated with it.
Another element that you must demonstrate in your sustainability report is what policies you are developing to help prevent and remedy your negative impacts on nature. These could be, for instance, protective policies for a company site close to a vulnerable area, sustainable land management practices, or a collaboration with your suppliers to monitor and address impacts in the supply chain. In addition, you should describe the policies you have in place to manage both your dependence on biodiversity and the related risks and opportunities. The social component of biodiversity loss within your supply chain is another important inclusion. Think of indigenous people being dependent on biological resources, and the fair use of local know-how for their sustainable management.
If biodiversity is determined to be material for a company, Europe encourages them to set quantitative targets and include these in their report. In your report, you should also describe action plans that allow you to turn your policies into tangible measures. The European ‘mitigation hierarchy’ always applies; this indicates whether the action contributes to avoiding, reducing, or minimising negative impacts, or to restoring and rehabilitating biodiversity. The involvement of local communities and the use of local knowledge concerning biodiversity management in defining key actions are likewise vital parts of the report.
The purpose of your sustainability report is to demonstrate progress towards European biodiversity targets. Therefore, Europe also expects the necessary KPIs to be included in your report. Certain KPIs are mandatory, specifically those providing insight into the impact(s) your company has in the form of land use, use of natural water resources and (the introduction of) invasive species, insofar as these impacts are material. Other relevant impact KPIs should also be included. For example, if your company has an impact on certain species, the KPIs that seem significant to you should also be included. Some examples include:
- the number of breeding couples counted in a given area;
- the surface area of ecosystems – such as forest – occupied by a farm;
- an indicator reflecting the quality of the ecosystem compared to a baseline state.
The EU Taxonomy requires companies to report financial KPIs that provide insights into the ways in which 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 need to calculate and report what proportions of your turnover, CapEx and OpEx are in line with the EU Taxonomy for the objective ‘Protect and restore biodiversity and ecosystems’. Finally, your report should also provide insight into the financial risks or opportunities associated with (the degradation of) biodiversity.
Do you want to know more about the biodiversity standard or how to prepare your company for the CSRD in general? Contact us at mail@pantarein.be: We would love to help you out!
The content of the ESRS standards has changed slightly since the publication of this article. This also applies to the standard pertaining to biodiversity. If you have any questions, please feel free to contact us at mail@pantarein.be.
