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6 December 2023 Article

Understanding biodiversity data - a new frontier in sustainability reporting

As a civilization, we are becoming increasingly aware of the negative impacts that various industries can have on biodiversity and ecosystems worldwide. Thankfully, we are also becoming increasingly aware of what can be done, and what needs to be done to reverse those trends.

By Björn Atli Davíðsson

Addressing Industry Impact on Global Biodiversity and Ecosystems

This is perhaps most notably highlighted in the UN’s Sustainable Development Goal number 15 of the 2030 Agenda, which is devoted to protecting, restoring and promoting sustainable use of terrestrial ecosystems, sustainably managing forests, combating desertification, and halting and reversing land degradation and biodiversity loss.

Klappir participates in Nefco’s Biodiversity Pilot Program

Since the autumn 2022, Klappir Green Solutions has benefited greatly from participating in Nefco's Biodiversity Pilot Program. Through workshops, peer learning, and facilitated sessions, participating businesses have gained invaluable insights into biodiversity-related risks and opportunities. The tailored biodiversity actions have enabled these organizations to develop management plans and take tangible steps towards addressing biodiversity loss.

The programme not only highlights the importance of protecting biodiversity but also demonstrates how private-public partnerships can drive meaningful change for both companies and the environment. As part of the program a biodiversity data guide was developed for Klappir to give insights on the upcoming reporting disclosures, existing biodiversity datasets and tools. As a result of this fruitful cooperation with Nefco, Klappir is in a better position to tailor its solutions and services to new reporting requirements that its customers will face in the years to come. Klappir looks forward to putting this knowledge to the test, partnering with financial institutions to help them assess their real-life impacts on biodiversity and ecosystems.

As we know from other sustainability topics such as climate change mitigation, we need to be able to quantify and measure our real impact in order to set real targets and improve our performance. At Klappir, we have a decade of experience developing software solutions that enable organizations to collect and report their sustainability data. We are used to quantifying various metrics, including greenhouse gas emissions, water consumption and other utility use, as well as companies’ and their value chains’ performance in social and governance matters. Metrics and targets related to biodiversity and ecosystems provide a unique challenge.

The ambitious new European Sustainability Reporting Standards (“ESRS”) that large and listed European companies will be obligated to report by according to the new EU’s new Corporate Sustainability Reporting Directive, (CSRD) devote an entire standard to the topic of biodiversity and ecosystems. Reporting undertakings will be required, among other things, to assess and report on their direct impact drivers of biodiversity loss. These impact drivers include climate change, land and water use change, direct exploitation, pollution, and introduction of invasive species that can be traced to a reporting undertaking’s operations. To name another example, undertakings will be required to report on their impacts on the extent and conditions of ecosystems, including land degradation, desertification and soil sealing. These goals are clear enough, but what exactly should be measured, and how?

ESRS E4: Biodiversity and Ecosystems

The new standard ESRS E4: biodiversity and ecosystems, requires reporting undertakings to report metrics related to their material impacts on biodiversity and ecosystems. This is detailed in disclosure requirement E4-5. Keep in mind that there are various other requirements relating to biodiversity and ecosystems in the ESRS E4, including undertakings’ transition plans and the financial impacts biodiversity and ecosystem loss may have for companies, but this short article will focus on the metrics, i.e. what data do we collect and report. As will often be the case with sustainability reporting according to ESRS, the applicability of specific disclosure requirements depends on what the reporting undertaking has deemed the material in its own materiality assessment. This is particularly evident from the conditional phrasing of the E4-5, e.g. paragraph 34: “If the undertaking identified sites located in or near biodiversity-sensitive areas that it is negatively affecting (see paragraph 19(a)” it should disclose the number and area (in hectares) of sites owned, leased, or managed. This is obviously subject to the company’s own assessment of biodiversity-sensitive areas that it may be negatively affecting. The reference to paragraph 19(a) indicates that the negative impact should be assessed according to whether deterioration of natural habitats of species has occurred or a disturbance of species for which a protected area has been designated.

This emphasis on the assessment of geographical areas as “metrics” is a common theme in reporting under the ESRS E4, but other metrics also come into play, as is evident from paragraphs 38-40 of the standard. If a reporting undertaking has concluded that it contributes directly to the impact drivers of land-use change, freshwater-use change and/or sea-use change, or if it has concluded that it contributes to the introduction of invasive species or other material impacts related to species, the undertaking will need to report relevant metrics, though undertakings seem to have a varying degree of discretion as to what metrics they use according to the standard. One can speculate that this is likely to change in the future and become more uniform, based on what forms of data are most commonly reported.

Reporting on material impacts related to ecosystems, as stipulated in paragraph 41 of ESRS E4 is divided into two categories. On the one hand, ecosystems extent which is a measurement of the geographical area such as a forest without necessarily considering the quality of the area as an ecosystem e.g. by counting species in that forest. On the other hand, measurements of ecosystem condition which includes ongoing measurements of the quality of ecosystems compared to a predetermined reference state, metrics that measure species richness and abundance indicators over time and metrics that reflect structural components such as connectivity of habitats. This goes to show that measurement and reporting of biodiversity and ecosystems is usually a combination of defining geographic areas and investigating the flora and fauna in those areas.

To summarize:

Reporting on biodiversity and ecosystems is a new challenge to most reporting organizations, even those who are already well-versed in carbon accounting and reporting of other more traditional sustainability metrics. As we can tell from the standard ESRS E4 on biodiversity and ecosystems, the metrics in disclosure requirement E4-5 typically relate to the company’s own materiality assessment. In the case of biodiversity, this entails an assessment of geographical areas or sites where a company has operations located in or near biodiversity sensitive areas or impacts that a company knows or suspects it is having on ecosystems and habitats. The metrics range from relatively simple, like geographical coverage in hectares or square kilometers, to more complex, relying e.g. on monitoring and quantifying living organisms in a defined area over a period of time. Sustainability reporting is not a one-off compliance exercise but an ongoing journey and this is also true of the reporting standards, that are subject to change and adapt to evolving information, new science, and emerging legal requirements.

Information on the pilot program and its participants can be found: Biodiversity Pilot Program | Nefco

By Björn Atli Davíðsson6 December 2023

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