Putting Biodiversity Disclosure higher on COP15's Agenda: Action Items for Policymakers in Montreal

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Berlin, April 2022

Putting biodiversity disclosure higher on COP15’s Agenda:

Action items for policy makers in Kunming

Authors: Blerita Korça, Katharina Erdmann, Liyana Nayan

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Introduction In the next two weeks, all eyes will be on Kunming, China as world leaders congregate for the second part of the Convention for Biological Diversity’s COP 15 meeting. Top agenda of the meeting: Finalizing the Post-2020 Global Biodiversity Framework. Often obscured by the prominence of the climate crisis, the biodiversity crisis is steadily earning its spot on the world’s top critical issue. WWF Living Planet Report 2020 describes that more than 4,300 different vertebrate species have declined by 68% between 1970 to 2016 due to anthropogenic causes. The World Economic Forum ranks biodiversity loss as the 3rd most severe economic risk that humanity will face over the next decade. Without swift intervention and a reallocation of capital, biodiversity loss will be irreversible and ultimately results in devastating impacts to the world economy and humanity. Corporate biodiversity disclosure increases transparency on the companies’ impact on biodiversity but also to what extent they are affected by the global decline of biodiversity and ecosystems. As it stands today, corporate biodiversity disclosure is mainly missing. In this article, we outline why corporate biodiversity disclosure regulation should be on top of policymakers’ agenda heading into COP15 and highlight a set of recommendations to implement corporate biodiversity disclosure globally (Figure 1).

Why do we need corporate disclosure regulations on biodiversity for sustainable development? It is about time that environmental disclosure requirements at the international level include biodiversity aspects. Transparency through corporate disclosure is needed to be able to identify biodiversity risks, impacts and opportunities. Higher transparency allows investors to have a comprehensive overview of a firm’s or product’s performance. A recent international study shows that corporate environmental disclosure is mandated in most large economies. However, not all crucial aspects are being disclosed. Disclosure regulations on climate-related matters is more common while biodiversity disclosure is mainly lacking.

Biodiversity-related risks present a double-materiality concern where entities are exposed to risks related to their impact on biodiversity, as well as their dependence on the provisioning of nature to sustain their activities. Business activities that are found to be detrimental to biodiversity can hence be subjected to stringent regulations, hefty fines or changes in market behaviour. On the other hand, biodiversity risks can materialize into financial risks where businesses are disrupted due to the degradation of nature. A recent study by the Dutch Central Bank found that the Dutch financial sector alone is exposed to around EUR 510 billion in biodiversity risks from their equities and bond investments. Meanwhile, a working paper by Banque de France found that 42% of securities held by French financial institutions are dependent on the provisioning of at least one ecosystem service. This reveals the importance of capturing firms’ activity, both from the inside-out (impact) and the outside-in (dependency) perspective through an effective biodiversity disclosure measure.

What is the current state of international initiatives and biodiversity disclosure measures? At present, too few effective environmental disclosure regulations cover biodiversity-related aspects. The currently implemented or planned policy measures often miss a clear description and corresponding key performance indicators. In addition, those available are largely divergent and no single framework exists. Lack of awareness of risks posed by the rapid decline of biodiversity have also dampened progress. To foster transparency on biodiversity aspects and to make data available and comparable, it is important that urgent action takes place. One critical development on the way to better reporting on biodiversity impact is the current development of the Post-2020 Global Biodiversity Framework by the Convention on Biological Diversity (CBD). The framework builds upon and take lessons from the unsuccessful Strategic Plan for Biodiversity 2011-2020 with even more ambitious targets, recognizing that the next decade could be the final turning point for biodiversity. Target 15 of the post-2020 framework postulates that all businesses will assess and report on their dependencies and impacts on biodiversity. This

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Figure 1

has propelled the rapid development of biodiversityrelated corporate reporting, pointing to the importance of standards harmonization. For example, the marketled Taskforce in Nature-related Financial Disclosure (TNFD) takes on the task of steering the development of sector-agnostic disclosure framework for naturerelated risk and opportunity. It has recently released its framework beta version that provides a first draft of disclosure recommendations. The TNFD, which addresses both financial institutions and non-financial corporates, seeks to align with the two global targets in the CBD’s Global Biodiversity Framework draft of “no net loss by 2030 and net gain by 2050”. These initiatives and goals, while still in development, will push firms to align their sustainability goals, necessitating disclosure regulations to also include biodiversity considerations. necessitating disclosure regulations to also include biodiversity considerations. Besides these international initiatives, the first reporting regulations targeting biodiversity (risks) have evolved. The European Union (EU) is among the pioneer jurisdictions worldwide to require from large entities to disclose environmental information since 2014 following the Non-Financial Reporting Directive (NFRD). However, the NFRD was found to be quite ineffective in generating transparency and failed to account especially for biodiversity-related issues. Only recently, biodiversity started to appear in the EU disclosure initiatives: in the EU Taxonomy in 2020 with its objective to protect and restore biodiversity and ecosystem and in the proposal for the Corporate

Sustainability Reporting Directive (CSRD) which explicitly mentions that entities must report their impacts and dependencies on biodiversity, among others. The CSRD extends its scope to not only large entities but also listed entities - including those large and small-and-medium sized – and is expected to apply starting from the financial year of 2023. At the moment, the European Financial Reporting Advisory Group (EFRAG) is developing the exact reporting requirements for biodiversity. Besides the EU, Brazil also mandates biodiversityrelated disclosure. The Brazilian Accounting Norm for non-financial corporates and banks requires disclosure on the preservation and/or recovery of degraded environments. Indonesia, in addition, includes the disclosure of biodiversity impacts and conservation activities in its reporting obligation. Other countries also broadly mention biodiversity in their regulations, such as India in their planned Business Responsibility and Sustainability Reporting by listed entities.

What are the next steps to develop biodiversity disclosure measures globally? Considering the urgency to act now and properly consider biodiversity impacts and risks, it is important

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that policy makers put this topic high on the agenda. In this regard, imposing mandatory requirements is known to increase data availability and enhance reporting quality. Therefore, jurisdictions need to implement much more effective regulations and improve existing ones on biodiversity-related aspects. To ensure comparability and interoperability at the international level, the alignment of regulations is crucial. To tackle biodiversity disclosure with more concrete actions, we urge policymakers to consider following necessary steps described below (Figure 1). As an overarching initial step, the topic of biodiversity disclosure should be high on the international policy agenda. G7 and G20 discussions on Sustainable Finance should prioritize it and further advance disclosure by incorporating biodiversity matters together with other environmental aspects. Clearly stating the importance to account for biodiversity risks and impacts is a step closer to start tackling the current crisis. However, immediate efforts should not be limited to high-level talk and awareness raising, but also on the development of metrics. Disclosures should be comparable, and this requires precisely defined key performance indicators (KPIs). The methods of measurement should be well-defined based on scientific evidence. In addition, companies need to receive guidance on how to report in alignment with these metrics. Under the proposed CSRD, EFRAG takes the lead in developing draft standards for sustainability reporting. Its recently published draft for the Biodiversity and Ecosystem reporting standards outlines how pressure, impact, and response metrics of a company should be disclosed. As an overarching final step, biodiversity disclosure should be made mandatory via binding legislations. While transparency through corporate disclosure can be a measure to incentivise market behavioural reactions, legal compliance for companies to report on their biodiversity-related activities can bring about more concrete results. Availability of precise KPIs and metrics would facilitate biodiversity disclosure. It remains utterly relevant that biodiversity disclosure is mandated across jurisdictions and that these regulatory initiatives aim to foster transparency and standardization. Increased corporate data availability as a result of mandatory disclosure would allow to keep track of firms’ biodiversity impacts and evaluate their risks.

In a nutshell Corporate biodiversity disclosure plays an instrumental role in identifying nature-related risks and opportunities and is a crucial practice for organisations to contribute to halting biodiversity degradation through transparency and good business conduct. We urge policymakers to prioritise this topic by 1) advancing discussion on biodiversity disclosure regulations at a global level, 2) streamlining requirement and tools, 3) standardizing practical guidelines for organisations and 4) making corporate biodiversity disclosure mandatory via legislations.

Publication Details CREATED BY Climate & Company Ahornallee 2 | 12623 Berlin

AUTHORS Blerita Korça, Katharina Erdmann, Liyana Nayan Version: 1.0, April 2022

CONTACT E-Mail: hello@climcom.org Website: climateandcompany.org

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