Rear view of a father and his child hiking through a stream in a lush green forest gorge, Chiba, Japan

How the nature-related regulatory disclosure landscape is evolving

As nature-related regulations grow and nature becomes a focus area, companies should start preparing their response to these requirements.

In brief

  • Nature-related risks and opportunities, including those associated with biodiversity loss, are increasingly becoming an area of focus for key stakeholders.
  • As the global ESG regulatory landscape evolves, so do the requirements for companies to include nature-related disclosures in their ESG reporting.
  • Companies should start preparing for and considering their response to the emerging nature-related disclosure requirements.

Introduction and background on nature and biodiversity

As the global climate response is accelerating, awareness of another global challenge is also growing: nature and biodiversity loss. Biodiversity is defined by the United Nations Environmental Program as “the variety of life on Earth and the natural patterns it forms.”¹ It is essential to all the processes that support life on Earth. People rely on natural ecosystems to be able to “breathe fresh air, drink clean water, eat nutritious food and fight disease,” while businesses require “healthy people to work for them and to buy their goods and services.”²

How EY can help

As the nature and biodiversity crisis becomes more apparent with increasing calls for urgent action, there has been increasing pressure on governments and corporations to consider their dependencies and impacts on biodiversity and nature as a whole. The World Economic Forum’s 2023 Global Risks Report states that “biodiversity loss and ecosystem collapse” is expected to be one of the top five more severe global risks over the next decade. The report also outlines that climate change mitigation, food insecurity and biodiversity degradation are inextricably linked.³

Given the scale of this impact, efforts are being made to take a “whole of society” mitigation approach with the participation and leadership of regulators, policy makers, investors, companies, NGOs and scientists. The UN’s 2030 Sustainable Development Goals, in particular “Goal 14: Life Below Water” and “Goal 15: Life on Land,” are a call for urgent action to preserve nature and its diverse species globally.⁴ Conversation and collaboration have already begun to address these global goals and biodiversity loss more broadly.

At the Fifteenth Meeting of the Conference of the Parties to the UN Convention on Biological Diversity (COP15), which ended in Montreal, Canada, on December 19, 2022, a landmark agreement, the Global Biodiversity Framework (GBF), was adopted. The GBF provides direction for both the public and private sector to address biodiversity loss, restore ecosystems and protect indigenous rights, building upon existing regulatory and voluntary action.

The roles of business and finance in addressing this challenge are cited in Target 15 of the GBF, which recommends that legal and policy measures are taken to encourage companies to regularly monitor, assess and disclose their risks, dependencies and impacts to reduce negative impacts on biodiversity and increase positive impacts.⁵ ⁶ In response to this historic agreement, it is anticipated that there will be an increase in the number of regional and country-based policies and regulations that outline new nature- and biodiversity-related disclosures for companies, similar to how the Paris Agreement was a tipping point for action on climate change.⁷ This article will explore the evolving nature-related corporate disclosure landscape.

The state of existing and emerging nature-related disclosures

As the global environmental, social and governance (ESG) regulatory landscape evolves, so do the requirements for companies to include nature-related disclosures in their ESG reporting. Below are descriptions of some examples of the existing and emerging nature-related disclosure requirements.

The EU Corporate Sustainability Reporting Directive (CSRD) and its European Sustainability Reporting Standards (ESRS) are leading the way for nature-related disclosures

In Europe, the CSRD mandates that companies issue ESG-specific disclosures across numerous standards known as the ESRS. The EY publication How the EU’s new sustainability directive is becoming a game changer shares more detail around the directive. ESRS includes a standard that is specific to nature: ESRS E4 Biodiversity and Ecosystems. Subject to materiality, the standard requires companies to disclose topic-specific policies, targets, action plans and resources in relation to biodiversity and ecosystems and recommends understanding biodiversity impacts and dependencies across the value chain. The standard spans across multiple nature-related sub-topics such as:

  • Direct impact drivers of biodiversity loss
  • Impacts on the state of species
  • Impacts on the extent and condition of ecosystems
  • Impacts and dependencies on ecosystem services

Companies are required to disclose information under this standard if they deem the biodiversity and ecosystem-related topics material either from a financial or impact materiality dimension, or both, as defined in the ESRS.⁸ Disclosure Requirement E4-1 relates to an organization’s transition plan on biodiversity and ecosystems and is voluntary.⁹ ¹⁰

In addition to ESRS E4, three environmental ESRSs have additional nature-related disclosures: E2 Pollution, E3 Water and Marine Resources, and E5 Resource Use and Circular Economy.¹¹

The EU’s Taxonomy Regulation and Delegated Acts set out a clear definition of what is “sustainable” and outline six environmental objectives

The EU taxonomy is a “common classification system for sustainable activities.” It was created to develop a common language and definitions around sustainable activities with the intent that investment could be scaled and directed in line with this classification system to meet the EU’s climate targets.

The Taxonomy Regulation, which was published in June 2020, created the outline for the EU Taxonomy by defining criteria that qualify economic activity as environmentally sustainable. The EY podcast Think ESG: a view of the EU taxonomy shares more detail around the taxonomy and regulation. In the Taxonomy Regulation and its draft Delegated Acts, one of the six environmental objectives that economic activity will be evaluated against relates to biodiversity issues.¹²

Countries have begun to implement or develop regulations requiring companies to disclose nature-related information

There are also several countries preparing and passing nature-related regulations to guide global, corporate action to address biodiversity loss. Below are several examples of national governments driving corporate disclosure requirements in this space:

  • In 2021, France published a new decree, Article 29, that requires financial institutions to publish both climate and biodiversity-related disclosures. Specifically, companies will have to disclose strategies and targets to reduce biodiversity impacts and align with international biodiversity goals.¹³
  • Australia, France, Germany, the Netherlands, Norway, Switzerland and the United Kingdom have funded the development of the TNFD.¹⁴ The United Kingdom has indicated that it is considering making TNFD-aligned disclosures mandatory, which would mirror its upcoming 2025 requirement for entities to disclose against climate risks, opportunities and emissions in line with the Task Force on Climate-Related Financial Disclosures (TCFD).¹⁵
  • In 2021, the Securities and Exchange Board of India (SEBI) introduced the Business Responsibility and Sustainability Reporting (BRSR) framework, requiring the top 1,000 companies listed in India (by market capitalization) to report on their material issues, such as deforestation and biodiversity and a range of sustainability indicators from water usage to waste generation to supply chain management.¹⁶ ¹⁷
  • Effective January 1, 2023, the German Supply Chain Act (GSCA) combines various German laws with the intent to eliminate child labor and poor labor working conditions, and provide environmental protections within global supply chain activities, including supply chain risks such as in the areas of unlawful breaching of water bodies, lands and forests.¹⁸ ¹⁹ ²⁰
  • Additionally, countries such as, Costa Rica and Brazil, have already implemented legislation and programs around nature. Costa Rica has a “Payments for Environmental Services Program” that promotes forest conversation and recovery and in 2015 Brazil passed legislation focused on access and benefit sharing.²¹ ²²

An overview of voluntary disclosures, standards, and reporting frameworks

In addition to regulations, there has also been an increase in the number of voluntary corporate reporting standards, guidance and frameworks developed and/or updated to incorporate nature and biodiversity disclosures. The table below summarizes some of the common examples of voluntary standards, frameworks and guidance to which organizations are aligning their nature-related disclosures.

Examples of voluntary standards, frameworks and guidance with nature-related disclosure requirements

Frameworks and guidance
  • Taskforce on Nature-related Financial Disclosures (TNFD) recommendations
  • Science-based Targets for Nature by the Science Based Targets Network (SBTN)
  • Natural Capital Protocol principles and framework
  • WEF Measuring Stakeholder Capitalism common metrics and consistent reporting
    • Land use and ecological sensitivity (i.e., the number and area of sites owned, leased, or managed in or adjacent to protected areas and/or key biodiversity areas)
  • CDP
    • Climate change questionnaire, Module C15 - Biodiversity (i.e., C15.2 - Has your organization made a public commitment and/or endorsed any initiatives related to biodiversity?)
    • Forest questionnaire
    • Water security questionnaire

Standards
  • IFRS’s International Sustainability Standards Board (ISSB)
    • Exposure Draft IFRS S1 – General Requirements for Disclosure
    • Exposure Draft IFRS S2 Climate-related Disclosures
  • Sustainability Accounting Standards Board (SASB)
    • Biodiversity impacts (i.e., EM-MM-160a.1, CG-HP-140a.1)
  • Global Reporting Initiative (GRI)
    • Standard 304 – Biodiversity

The TNFD is developing a framework for nature-related risk management and disclosure

The TNFD was created to “develop and deliver a risk management and disclosure framework for organizations to report and act on evolving nature-related risks and opportunities, with the ultimate aim of supporting a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.”²³ The voluntary, integrated framework has been leveraged in recent biodiversity-related corporate disclosure standards, including the ISSB, ESRS and GRI.²⁴

The TNFD framework serves to help financial institutions and companies understand how nature impacts an organization’s financial performance and to incorporate nature-related risks and opportunities into their strategic planning, risk management and asset allocation decisions. The TNFD framework takes inspiration from the TCFD framework and other pre-existing guidance, such as the Natural Capital Protocol, a decision-making framework focused on natural capital accounting.²⁵ The framework was developed collaboratively across 40 organizations, with stakeholder representation from businesses, governments and NGOs as well as Indigenous Peoples and Local Communities, who are essential to and impacted by nature and biodiversity.²⁶ It is anticipated that the framework will be finalized by September 2023.

The TNFD framework does the following:

  • Builds on the original 11 disclosure recommendations from the TCFD with an additional three recommendations.
  • Includes new guidance on nature-related scenario analysis and outlines specific indicators and metrics for disclosure.²⁷
  • Identifies four social dimensions relevant to nature-related risks and disclosures (e.g., human rights, indigenous peoples, access/benefits sharing and social justice & equity/just transition). Provides guided metrics for disclosure for priority sectors and biomes (e.g., land and water use change, assets and revenue with dependence on ecosystem services)²⁸
  • Provides voluntary guidance on how to Locate, Evaluate, Assess and Prepare nature-related risks and opportunities, otherwise known as the “LEAP” approach.²⁹ In summary, these steps include:
    1. Locating interface with nature
    2. Evaluating dependencies and impacts
    3. Assessing risks and opportunities
    4. Preparing to respond to nature-related risks and opportunities and report³⁰

The SBTN is developing guidance on setting science-based targets (SBTs) for nature

The TNFD framework and the Science Based Targets Network (SBTN)³¹, a component of the Global Commons Alliance, which is a coalition working to protect Earth’s shared natural resources, published joint guidance on setting science-based targets for nature in November 2022. In May 2023, the SBTN released its technical guidance for SBTs for nature. In this release, it included technical guidance for setting freshwater and land targets. The SBTN defines SBTs as “measurable, actionable and time-bound objectives, based on the best available science, that allow actors to align with Earth’s limits and societal sustainability goals.” The objective of SBTs for nature is to help companies act on a subset of these goals focused on nature across three physical realms: land, freshwater and ocean.

  • As part of its target-setting guidance, the SBTN created an Action Framework (AR3T) that companies can use to take action immediately. The framework consists of the following steps:
    • Avoid and reduce pressures on nature loss
    • Restore and regenerate so the state of nature can recover
    • Transform underlying systems to address the drivers of nature loss³²

The TNFD and SBTN are collaborating to further align their respective frameworks and methods to ease the corporate disclosure burden and accelerate standardization of nature-related performance measurement and reporting.³³

Voluntary sustainability standards provide additional guidance and structure for how organizations can report on nature and biodiversity

Leading voluntary sustainability standard-setting bodies, such as the ISSB³⁴ and the GRI, as well as initiatives such as CDP, are in the process of refreshing or developing new biodiversity and nature-related disclosure standards and metrics.

Following the announcement of the ISSB in 2021, the IFRS Foundation converged with the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF) in early and mid-2022, respectively.³⁵ The CDSB Framework outlines an approach that companies can take to report on environmental and social information. It also includes technical guidance on biodiversity.³⁶ The VRF encompassed resources, such as the SASB standards, that aim to identify the ESG issues most relevant to the financial performance of target industries, such as Marine Transportation, Forestry Management, Processed Foods, Agricultural Products and Meat, Poultry & Dairy.³⁷

Since the SASB standards’ integration into the IFRS Foundation, the ISSB has encouraged companies’ and investors’ continued support of the SASB standards and is committed to building on the SASB standards’ industry-based approach.³⁸ The standards identify specific metrics related to protecting forestlands with endangered species and indigenous lands.³⁹

At COP15, the ISSB indicated plans to define sustainability as inextricably linked to natural ecosystems and human capital in its disclosure standard, “General Sustainability-related Disclosures Standard” (S1). Additionally, it announced plans for further enhancements, including those related to nature that complement its “Climate-related Disclosures Standards” (S2). To do so, it plans to leverage the TNFD framework and other sustainability initiatives.⁴⁰ S1 and S2 are currently voluntary and would become mandatory for any jurisdictions that adopt the standards.⁴¹

GRI, another voluntary sustainability standard-setter, is currently revising its 2016 Biodiversity Standard to better align with recent developments. GRI’s biodiversity exposure draft has broadened its scope of reporting to include nature and biodiversity impacts across the entire value chain of the company. The revised standard is planned to be formalized in the final quarter of 2023.⁴² Similar to the EU’s CSRD standard on biodiversity, GRI is proposing that companies assess the materiality of biodiversity impacts based on scope and scale and asks companies to disclose the locations where the highest impacts on nature occur. Noteworthy disclosure metrics added to GRI’s exposure draft include:

  • An organization’s drivers of biodiversity loss (e.g., climate change, land use, pollution)
  • Changes to the state of biodiversity that the organization and its value chain impact (e.g., changes to size and changes to species impacted)
  • Biodiversity-related human rights impacts, in accompaniment with GRI standards GRI 411: Rights of Indigenous Peoples and GRI 413: Local Communities (e.g., impacts on land significant to indigenous peoples and local communities as well as ecosystem services and beneficiaries that are or could be affected)
  • Biodiversity-specific management disclosures, focused on mitigation of biodiversity-related impacts and how policies and commitments align to CBD’s post-2020 Global Biodiversity Framework⁴³

CDP, a not-for profit that runs a sustainability global disclosure system, has also increased its focus on biodiversity, and in 2023, added new questions on biodiversity to its climate change questionnaire, including asking organizations if they “have activities located in or near to biodiversity-sensitive areas in the reporting year.”⁴⁴ CDP is currently expanding its strategy to include coverage for the following environmental issues: oceans, land use, food production and waste; it will use the new GRI biodiversity standard to inform updates to CDP questionnaires.⁴⁵ It also announced plans to incorporate the ISSB climate disclosure standard from 2024, an indication of what’s to come for nature- and biodiversity-related disclosure requirements by the initiative.⁴⁶ That announcement is especially important since a recent finding from CDP found that 70% of companies said they don’t assess the impact their value chain has on biodiversity.⁴⁷

Next steps for companies

As the number of emerging nature-related regulations grows and nature and biodiversity become increasingly important areas of focus, companies should start preparing for and considering their response to these nature-related disclosure requirements. Summarized below are five key actions that companies can do now to help prepare for future disclosure and contribute to global action on biodiversity.

  1. Understand the applicability and scope of nature-related reporting, reviewing existing and upcoming nature-related disclosure requirements, both mandatory and voluntary and assessing applicability for your organization.
  2. Identify location-specific nature interfaces and priority risks and opportunities across your organization’s value chain, leveraging the first three stages of the LEAP process — Locate, Evaluate and Assess — as described by the TNFD framework.
  3. Assess data and measurement needs to monitor performance, considering how your organization will measure and monitor impacts and dependencies on nature.
  4. Identify reporting gaps in preparation for evaluating and disclosing performance, assessing potential overlap across relevant standards and requirements and potential metrics against which to report performance.
  5. Draft disclosures in alignment with the TNFD framework, leveraging the final stage of the LEAP process — Prepare — and the TNFD’s 15 disclosure recommendations.
Lucy Godshall, Principal, Climate Change and Sustainability Services, Ernst & Young LLP co-authored this article.
The views of the third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, legal or other professional advice. Please refer to your advisors for specific advice.

Summary 

As the global climate response is accelerating, awareness of another global challenge is also growing: nature and biodiversity loss. The ESG regulatory landscape is evolving, as are the requirements for companies to include nature-related disclosures in their ESG reporting. In addition to regulations, there has also been an increase in the number of voluntary corporate reporting standards, guidance and frameworks developed and/or updated to incorporate nature and biodiversity disclosures.

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