By Ayman Chowdhury
Biodiversity and nature, often overlooked in the past, are now at the forefront of global concerns. The regulatory landscape for nature-related disclosures is rapidly evolving, and boards must not lag behind. Taking biodiversity seriously is not just about compliance; it’s about contributing to global efforts to protect our planet’s ecosystems and biodiversity.
Nature-Related Disclosures Are on the Rise
As the ESG regulatory landscape evolves, nature-related disclosure requirements are emerging worldwide:
- EU Corporate Sustainability Reporting Directive (CSRD): The associated European Sustainability Reporting Standards (ESRS-E4) list biodiversity and ecosystems as a material issue for oversight by boards, alongside climate change (ESRS E1).
- International Sustainability Standards Board: Already indicated it will work with the Taskforce for Nature-related Disclosures (TNFD) and other existing nature-related standards to develop incremental enhancements to the IFRS S1 and S2 to address the intersection of climate and biodiversity disclosures.
- Voluntary Frameworks: The signing of the Global Biodiversity Framework in December 2022 elevated nature’s importance on the world stage, increasing expectations for businesses. Simultaneously, established frameworks like the Science Based Targets Network and Taskforce for Nature-Related Financial Disclosures have formalized guidelines and fourteen recommendations for target-setting and disclosure, emphasizing businesses’ need to mitigate risk and actively contribute to a nature-positive future.
- National Governments: Numerous countries, including France, Australia, Germany, the Netherlands, Norway, Switzerland, the United Kingdom, and India, have introduced or are developing regulations requiring companies to disclose nature-related information.
It’s essential to recognize the profound interconnection between climate change and biodiversity. These two crises are mutually reinforcing, exacerbating each other’s impact. Businesses are impacted as changing climate patterns disrupt supply chains and ecosystems crucial to their operations. These changes can disrupt an organization’s natural capital, sustainability efforts, and, ultimately, affect consumers through rising prices. For instance, droughts intensified by climate change can disrupt the Electric Vehicle (EV) supply chain by reducing water availability for mining, chip manufacturing, and battery production. They can also limit hydroelectric power needed for EV charging, potentially raising EV prices and hindering emission reduction efforts in transportation.
Next Steps for Boards
- Boards and audit committees must prompt management to assess biodiversity risks and opportunities across their organizations. This assessment should encompass implications for investments, accounting practices, and valuations.
- Boards may consider enhancing internal management capacity or seek external expertise to perform thorough risk assessments, considering their impacts on and dependencies upon natural capital. It’s vital to approach this assessment with a “double materiality” perspective, evaluating both the company’s impacts on and dependencies on natural capital.
- Forward-thinking directors should establish proactive risk governance practices to recognize, address, and communicate biodiversity-related dependencies, impacts, risks, and opportunities. Quick-witted directors can also spot potential opportunities linked to biodiversity that enhance the company’s long-term sustainability.
- Most importantly, boards should prepare themselves to ask the right questions in the boardroom as they are at the risk of liability for a failure to consider biodiversity risks in governance and disclosure if this breaches the duties of care or loyalty.
Guidance can be found in the Competent Boards Climate and Biodiversity program to ensure effective board oversight over climate and biodiversity actions and commitments and enhance your company’s competitiveness in future low-carbon and nature-positive markets.
Ayman Chowdhury is Director, Programs & Advisory at Competent Boards. Follow Competent Boards on LinkedIn
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