Corporate Sustainable Reporting Directive – European Sustainability Reporting Standards and Biodiversity (ESRS E4)
Posted 16th September 2024
Introduction
Science is now clear that our economies and societies are highly dependent upon nature, biodiversity and the ecosystem services provided. Evidence is now also clearly indicating that deterioration of nature poses a significant risk to our economies and ultimately to companies. Governments worldwide have fully endorsed actions through ambitious goals and targets under the Kunming-Montreal Global Biodiversity Framework (GBF) to reverse and stop further decline and loss in nature values. Target 15 of the framework seeks to increase business transparency with respect to assessing and disclosing its risks, dependencies, impacts and opportunities for biodiversity.
In 2024, the European Commission introduced the Corporate Sustainability Reporting Standards Directive (CSRD) which elevates corporate sustainability reporting to a similar status as annual financial reporting. It is a significant step and is anticipated to capture about 49,000 European small, medium and large companies which will need to start reporting from this year.
The new CSRD supports the EU Biodiversity Strategy for 2030
The CSRD covers various sustainable reporting standards called European Sustainability Reporting Standards (ESRS) with ESRS S1 focused on own workforce, ESRS G1 focused on Governance and ESRS E1 focused on environment. Expanding the scope of materiality assessment are additional cross-sector (thematic) standards, and these include:
These focus on:
- ESRS E1 Climate Change
- ESRS E2 Pollution
- ESRS E3 Water and Marine Resources
- ESRS E4 Biodiversity and Ecosystems
- ESRS E5 Resource Use and Circular Economy
The new CSRD will require companies to address and expand their sustainability reporting to include the above cross-sectoral and sector-specific and company-specific standards and will also require addressing the principle of double materiality. In this article, we will focus on ESRS E4 and Biodiversity and Ecosystems.
About ESRS E4
The aims of ESRS E4 is to drive transparency of companies’ corporate social responsibility focusing on biodiversity and ecosystems and increase accountability. ESRS E4 is designed to support companies assess and address their impacts on biodiversity, and ensure protection is built into its business and operations.
The objectives of ESRS E4 are to collate information to disclosure (Disclosure Requirements) to understand the following (EFRAG, 2022):
- Plans, policies and resources allocated by companies in driving adaptation of its business model and operations
- How companies affect biodiversity and ecosystems (both negative and positive and actual and potential impacts)
- What actions have companies undertaken and have those actions resulted in preventing or reducing actual or potential adverse impacts and/or losses (on biodiversity and ecosystems) through successful mitigation/remedial actions.
- What is the nature, type and extent of companies’ material risks and opportunities related to impacts and dependencies and how are these managed (DR E4-3)
- What are the financial effects on companies over short, medium and long-term time frames of material risks and opportunities from impacts and dependencies.
Reporting Requirements
The two key steps set out in ESRS E4 include:
- General disclosures
- Materiality analysis
Disclosure requirements are broken down as:
- General, Strategy, Governance and Materiality assessment
- DR E4-1 Transition plan in line with targets of no net loss by 2030, net gain from 2030, full recovery by 2050
- DR E4-2 Policies implemented to manage biodiversity and ecosystems
- DR E4-3 Measurable targets for biodiversity and ecosystems
- DR E4-4 Biodiversity and ecosystems action plans
- DR E4-5 Pressure metrics
- DR E4-6 Impact metrics
- DR E4-7 Response metrics
Optional DR’s include:
- Optional DR E4-8 Biodiversity-friendly consumption and production metrics
- Taxonomy Regulation for biodiversity and ecosystems
- Optional DR E4-9 Biodiversity offsets
Finally:
- DR E4-10 Potential financial effects from biodiversity-related impacts, risks and opportunities.
Conclusions
Together with existing sustainability reporting, biodiversity and ecosystem dependencies and impacts must now be considered and publicly disclosed, thus recognising the importance of ensuring that our economies and societies address the challenges that nature faces. The first years of implementation will be challenging and the requirements of ESRS E4 are complex, however subject matter experts such as IBC are experienced with the actions and assessments necessary.
Can International Biodiversity Consultants Ltd help?
IBC have been assisting European multinationals identify and document potential biodiversity impacts and are also supporting development of mitigation action programmes to address negative impacts across their global footprints.
Contact IBC via their email: info@ibioconsultants.com or use IBC’s online contact form.
References:
EFRAG (2022) Exposure Draft – ESRS E4 Biodiversity and Ecosystems, Project Task Force on European Sustainability Reporting Standards (PTF-ESRS). Accessed at: https://www.efrag.org/Assets/Download?assetUrl=%2Fsites%2Fwebpublishing%2FSiteAssets%2FED_ESRS_E4.pdf on 2 August 2024.
EUR-Lex (No Date) Directive 2022/2464 – CSRD DIrective. Accessed at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32022L2464 on 18 August 2024.
European Commission (No Date) Corporate Sustainability Reporting. Accessed at: https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en on 2 August 2024.