Biodiversity Disclosures for CSRD and Beyond

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In 2022, 31% of companies had already endorsed biodiversity-related initiatives according to the Carbon Disclosure Project (CDP), however, the majority is not translating these commitments into action. The need for businesses to understand and mitigate their impacts and dependencies upon nature is quickly increasing in importance as a result of the observed high pace of biodiversity loss and growing interest from diverse stakeholder groups. This article sheds light on the emerging expectations of stakeholders, mainly investors, suppliers and regulatory bodies, by looking into the Corporate Sustainability Assessment (CSA) from S&P Global, the Carbon Disclosure Project (CDP) and the Corporate Sustainability Reporting Directive (CSRD), while presenting best practice examples and elaborating on the first key steps to be taken to respond to stakeholders’ interests and improve corporate disclosure and performance on biodiversity.

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Insights into the expectations of the CSA, CDP and CSRD

The year 2022 marked a turning point. In the ESG rating arena, while the CDP Climate Change questionnaire introduced a biodiversity module for the first time, the CSA broadened the scope of industries to which the biodiversity module applies. From a corporate reporting perspective, by including a standard specifically aimed at biodiversity and ecosystems, the first set of draft ESRS, published last November and developed under the CSRD, also encourages companies to start developing an understanding of their impacts on biodiversity and taking actions to mitigate them as well as reporting such information provided that the topic meets a certain materiality threshold for the organization.

The expectations and requirements set by all three entities share some similarities by fostering companies to:

take inventory of biodiversity risks considering both dependency- and impact-related biodiversity risks by following internationally recognized methodologies/ frameworks (e.g., Task Force on Nature-related Financial Disclosures (TNFD), Natural Capital Protocol) and applying scenario analysis,

assess the exposure of their sites used for operational activities to critical biodiversity (e.g., number and size of sites in close proximity to critical biodiversity and their proximity to these areas),

publicly commit to addressing the identified biodiversity risks through policies and by setting a long-term net positive impact target on biodiversity, identifying priority areas (e.g., deforestation), supporting biodiversity-related initiatives with the endorsement of high-level management (board of directors, executive management)

translate these commitments into action through the implementation of measures and actions aiming at mitigating biodiversity impacts and progressing biodiversity-related commitments following a thorough mitigation hierarchy.

Besides this common ground, the CSRD takes a step further by expecting companies to ensure that their strategy and business model do no significant harm to nature by developing a robust transition plan that respects internationally recognized biodiversity targets. The standards also encourage companies to measure impact and monitor progress using biodiversity- and ecosystem change-related metrics and start quantifying potential financial effects of biodiversity and ecosystem-related risks and opportunities.

Companies leading the way

Companies like Iberdrola, Mitsubishi Estate Group and Global Power Synergy Public Company Limited are demonstrating best practice examples when it comes to understanding and managing the topic of biodiversity within their organization.

Iberdrola has set an ambitious goal of having net positive impact on biodiversity by 2030 and developed an accompanying biodiversity plan that focuses on three logical pillars, namely, measuring impacts, taking actions based on the principle of conservation hierarchy and the results of measurement, transforming interactions with nature through cultural change.

As for Global Power Synergy Public Company Limited, the company has developed a comprehensive set of biodiversity commitments and guidelines to ensure proper management of biodiversity issues from risk assessment to action plan development.

Mitsubishi Estate Group demonstrates strong reporting practices about the outcomes of its biodiversity exposure assessments performed in collaboration with governments and/or in accordance with the Environmental Impact Assessment Act, depending on project scale, as well as about the actions taken to mitigate and reduce impacts as defined in internally developed guidelines.

Key steps to respond to growing stakeholders’ interests

Identify biodiversity-related risks and opportunities
To ensure that their impact and dependencies on nature is as positive as possible, companies first need to understand the nature of the interactions between their activities and nature and identify any biodiversity-related risks and opportunities stemming from such interactions. To this end, the LEAP approach introduced by the Task Force on Nature-related Financial Disclosures (TNFD) that adapts and builds on the TCFD steps for assessing climate-related risks can turn out to be helpful. By locating where interactions between business operations and nature occur and identifying priority locations based on the state of ecosystems, companies can analyze their dependencies and impacts on nature and map those against corresponding risks and opportunities for their business.

Assess the materiality of biodiversity for your business
Materiality assessments are essential for organizations to identify the level of materiality of specific ESG topics to the business and build a strong base for their sustainability strategy while understanding the expectations of their stakeholders on their non-financial performance. By determining the materiality of the topic of biodiversity and the associated risks and opportunities, and clarifying the expectations of their stakeholders, companies will be able to prioritize their efforts and improve their performance in relation to this topic.

From a non-financial reporting perspective, materiality assessments compliant with the CSRD can help companies to select the issues to report on based on a materiality threshold considering both impact materiality (refers to the scale, scope, and irremediable character of an ESG topic's impact) and financial materiality (refers to the size and likelihood of an ESG topic’s impact).

Therefore, it is essential that companies first get a sense of the materiality of the topic and the associated risks and opportunities for their organization by engaging with key stakeholders in order to determine their priorities in terms of sustainability performance and reporting.

Analyze the gaps in your approach to answer the CSA and CDP questionnaires
Participating in the CSA and CDP benchmarks and answering their questions related to biodiversity is a good way for businesses to understand the expectations of some of their key stakeholders, mainly investors and suppliers, and improve their performance and reporting on the topic. To stay ahead of the expectations of these two rating agencies, companies need to map these expectations against their current processes and reporting practices to identify any gaps. These gaps should then be addressed by means of an action plan that will guide companies towards actual integration of biodiversity into their sustainability journey.