How to know what to disclose for your company in ESRS E2 Water and marine resources, what are the disclosure requirements, and an educational video is included in this article.
What is ESRS E4 Biodiversity and Ecosystems and its main objective?
The objective of ESRS E4 Biodiversity and ecosystems is to establish clear disclosure requirements that allow stakeholders to understand how an organization impacts biodiversity and ecosystems, encompassing both positive and negative effects. These disclosures are aimed at providing a comprehensive view of the organization’s interaction with the natural environment and its efforts to mitigate harmful impacts and enhance biodiversity conservation.
How to know what to disclose for your company in ESRS E4
Note! All the 6 sections of disclosures below might not have to be disclosed depending on what’s material for the company concerning Biodiversity and ecosystems.
The logic of what to disclose is included in the Mentcon model for the ESRS web-app to make it easy for companies to know what to disclose. This is made based on the draft of ID 177 – Links between AR16 and Disclosure requirements, and will be updated in the Mentcon model if any changes are made in the final version.
What are the disclosure requirements under ESRS E4 Biodiversity and Ecosystems summarized?
These are divided into eight sections of disclosure requirements:
- E4-1 – Transition plan and consideration of biodiversity and ecosystems in strategy and business model
- ESRS E4 SBM-3 – Material impacts, risks and opportunities and their interaction with strategy and business model
- ESRS E4 IRO-1 Description of processes to identify and assess material biodiversity and ecosystem-related impacts, risks, dependencies and opportunities
- E4-2 – Policies related to biodiversity and ecosystems
- E4-3 – Actions and resources related to biodiversity and ecosystems
- E4-4 – Targets related to biodiversity and ecosystems
- E4-5 – Impact metrics related to biodiversity and ecosystems change
- E4-6 – Anticipated financial effects from biodiversity and ecosystem-related risks and opportunities
E4-1: Transition Plan and Consideration of Biodiversity and Ecosystems in Strategy and Business Model
Disclosure Requirement E4-1 mandates companies to describe how biodiversity and ecosystems impact their business strategy and model. It aims to showcase the company’s resilience in relation to biodiversity-related risks and opportunities and ensure alignment with local, national, and global biodiversity targets.
Key elements include:
Resilience Assessment: Companies need to evaluate the resilience of their current business model and strategy against biodiversity and ecosystem-related risks, which can be physical (e.g., habitat loss), transitional (e.g., regulatory changes), or systemic (e.g., ecosystem collapse). The assessment should cover the company’s operations and value chain.
Scope and Assumptions: The scope of the analysis must be defined, including key assumptions and time horizons used. This involves assessing how various timeframes (short, medium, long-term) might impact the company’s operations and strategy.
Results of Resilience Analysis: Companies must disclose the outcomes of their resilience analysis, indicating how their strategy and business model hold up against potential biodiversity impacts. This should include stakeholder involvement, especially from those with indigenous and local knowledge, to ensure that a wide range of perspectives are considered.
Transition Plan: Companies may disclose a transition plan that aims to align their business model with frameworks like the Kunming-Montreal Global Biodiversity Framework or the EU Biodiversity Strategy for 2030. This plan should highlight efforts to align with planetary boundaries related to biodiversity integrity and land-system change.
This disclosure ensures that companies are actively considering biodiversity impacts in their strategic planning, assessing their vulnerability to ecosystem changes, and aligning with global biodiversity goals.
ESRS E4 SBM-3: Material Impacts, Risks, and Opportunities and Their Interaction with Strategy and Business Model
SBM-3 focuses on identifying material impacts on biodiversity and ecosystems that interact with a company’s strategy and business model. This disclosure requires a thorough understanding of the company’s direct and indirect influences on biodiversity-sensitive areas.
Key aspects include:
List of Material Sites: Companies must disclose a list of material sites within their operations, including those under their operational control. This includes specifying activities that negatively affect biodiversity-sensitive areas, providing a breakdown of these sites based on impacts and dependencies, and specifying the biodiversity-sensitive areas impacted.
Negative Impacts: Companies should identify whether their activities contribute to land degradation, desertification, or soil sealing. This helps in understanding how operations might be causing detrimental effects on land quality and ecosystem health.
Threatened Species: Companies must disclose if their operations affect threatened species, indicating how their activities might be contributing to the decline of certain species and, consequently, biodiversity loss.
ESRS E4 IRO-1: Description of Processes to Identify and Assess Material Biodiversity and Ecosystem-Related Impacts, Risks, Dependencies, and Opportunities
This requirement involves a detailed disclosure of the processes used by companies to identify and assess biodiversity and ecosystem-related impacts, risks, dependencies, and opportunities. It aims to provide transparency around how companies evaluate their interaction with natural ecosystems.
Key elements include:
Impact and Dependency Assessment: Companies must describe how they identify and assess their actual and potential impacts on biodiversity and ecosystems at their own site locations and along their value chain. This includes detailing the assessment criteria used to evaluate impacts and dependencies, such as the disruption of ecosystem services or natural habitat loss.
Risk and Opportunity Identification: Companies should outline how they identify and assess biodiversity-related risks (physical, transition, and systemic) and opportunities, including the criteria used for these assessments. This involves evaluating how biodiversity loss might pose operational or financial risks, or how preserving ecosystems might offer new business opportunities.
Consultation with Affected Communities: The process should involve consultation with communities affected by the company’s operations, particularly when these operations impact shared biological resources. Companies must disclose how they involve these communities in their materiality assessment and identify measures to avoid or mitigate negative impacts on ecosystem services relevant to these communities.
Scenario Analysis: Companies may use biodiversity and ecosystems scenario analysis to inform their risk and opportunity assessments over different time horizons. This involves selecting scenarios that reflect different future states of biodiversity and ecosystems, considering both scientific consensus and expectations from intergovernmental bodies.
E4-2: Policies Related to Biodiversity and Ecosystems
E4-2 requires companies to outline the policies they have implemented to manage their material impacts, risks, dependencies, and opportunities related to biodiversity and ecosystems. This requirement highlights the company’s commitment to preserving and enhancing biodiversity.
Key disclosure elements include:
Policy Description: Companies must describe their policies related to biodiversity and ecosystems, indicating how they address the identification, assessment, management, and remediation of material impacts, dependencies, risks, and opportunities. These policies should align with ESRS 2 MDR-P, which provides guidelines for managing material sustainability matters.
Policy Scope: Companies should specify whether their policies cover various aspects such as biodiversity protection, sustainable land/agriculture practices, sustainable oceans/seas practices, and deforestation policies. These policies must demonstrate an integrated approach to managing biodiversity-related issues within the company’s operations and value chain.
Relation to Impacts and Dependencies: The disclosure should explain how these policies relate to the company’s identified material impacts and dependencies on biodiversity and ecosystems. This involves detailing how policies support product traceability, sourcing practices, and consumption patterns that affect biodiversity.
Monitoring and Enhancement: Companies need to describe how their policies support the regular monitoring and reporting of biodiversity status and gains or losses, indicating a commitment to maintaining or enhancing conditions for biodiversity in managed ecosystems.
E4-3: Actions and Resources Related to Biodiversity and Ecosystems
E4-3 requires companies to disclose the actions taken and resources allocated toward biodiversity and ecosystem conservation. This disclosure provides insight into how companies are actively contributing to biodiversity goals and implementing their policies.
Key aspects include:
Key Actions: Companies must describe significant actions taken or planned to achieve biodiversity and ecosystems-related objectives. These actions could include habitat restoration, conservation projects, sustainable sourcing practices, or initiatives to protect endangered species.
Mitigation Hierarchy: Companies may disclose how they applied the mitigation hierarchy in their actions. This involves prioritizing avoidance of negative impacts on biodiversity, followed by minimization, restoration/rehabilitation, and finally compensation or offsets if necessary.
Biodiversity Offsets: If the company’s action plans include biodiversity offsets, the disclosure should cover:
- The aim of the offsets and the key performance indicators (KPIs) used to measure their success.
- The financial impact of offsets, including direct and indirect costs.
- A description of the offsets, including area, type, quality criteria, and compliance with recognized standards.
Incorporation of Local and Indigenous Knowledge: Companies should explain whether and how they have integrated local and indigenous knowledge and nature-based solutions into their biodiversity-related actions. This highlights the importance of community engagement and the use of traditional practices in conservation efforts.
E4-4: Targets Related to Biodiversity and Ecosystems
Disclosure Requirement E4-4 focuses on the targets set by companies to support their biodiversity and ecosystems policies. This requirement aims to provide stakeholders with a clear understanding of the company’s ambitions and progress in addressing biodiversity impacts and dependencies.
Key elements include:
Target Setting: Companies must outline their biodiversity and ecosystem-related targets, specifying how these targets relate to identified impacts, dependencies, risks, and opportunities. Targets should be aligned with the Kunming-Montreal Global Biodiversity Framework, the EU Biodiversity Strategy for 2030, and other relevant frameworks.
Ecological Thresholds: If applicable, companies should explain how ecological thresholds and allocations of impacts were used in setting targets. This involves detailing the thresholds identified, the methodology used, and how responsibility for respecting these thresholds is allocated within the company.
Geographical Scope: The disclosure should specify the geographical scope of the targets, indicating whether they apply to specific regions, ecosystems, or globally across the company’s operations.
Use of Biodiversity Offsets: Companies should indicate whether biodiversity offsets were used in setting targets and describe how these offsets align with the mitigation hierarchy (avoidance, minimization, restoration, compensation).
Alignment with Mitigation Hierarchy: Companies should relate their targets to the layers of the mitigation hierarchy, clarifying whether they focus on avoidance, minimization, restoration, or compensation efforts.
E4-5: Impact Metrics Related to Biodiversity and Ecosystems Change
E4-5 requires companies to report on metrics related to their material impacts on biodiversity and ecosystem changes. This disclosure provides quantitative data to assess the company’s performance and effectiveness in managing its biodiversity impacts.
Key aspects include:
Location in Biodiversity-Sensitive Areas: Companies must disclose the number and area (in hectares) of their sites located in or near biodiversity-sensitive areas, such as protected areas or key biodiversity areas. This helps in understanding the direct impact of company operations on vulnerable ecosystems.
Land-Use Change and Ecosystem Impacts: If companies contribute to land-use changes (e.g., deforestation, urban development) or impact ecosystems’ extent and condition, they should disclose relevant metrics. This could include:
- The conversion of land cover over time, indicating deforestation or habitat fragmentation.
- Changes in ecosystem management practices, such as agricultural intensification or better forestry practices.
- Structural and functional connectivity of habitats, which affect species movement and genetic diversity.
Invasive Species: Companies that introduce or manage the spread of invasive alien species should disclose metrics on managing these pathways and the risks they pose to native ecosystems.
Species and Ecosystem Health: If companies impact the state of species, they should provide metrics on species population sizes, extinction risk, and habitat changes. For ecosystems, metrics should cover extent, condition, species richness, and habitat connectivity.
E4-6: Anticipated Financial Effects from Biodiversity and Ecosystem-Related Risks and Opportunities
E4-6 focuses on disclosing the anticipated financial effects of biodiversity and ecosystem-related risks and opportunities. This requirement highlights how these environmental factors can impact the company’s financial performance and strategic planning.
Key elements include:
Quantification of Financial Effects: Companies must quantify the anticipated financial effects of biodiversity-related risks and opportunities. This includes estimating the potential financial impact in monetary terms, considering both the risks and the opportunities that could arise from changes in biodiversity and ecosystem services.
Material Risks: The disclosure should describe material risks arising from biodiversity impacts and dependencies, including how these risks could affect the company’s financial position, performance, and cash flows over different time horizons (short, medium, long-term). This could involve risks from regulatory changes, operational disruptions due to ecosystem degradation, or increased costs for raw materials.
Opportunities: Companies should also identify potential financial benefits from biodiversity-related opportunities. This might include cost savings from sustainable resource management, revenue growth from new products or services aligned with biodiversity conservation, or enhanced market access due to responsible sourcing practices.
Critical Assumptions and Uncertainty: The disclosure should outline the critical assumptions used in quantifying these financial effects and discuss the level of uncertainty associated with these assumptions. This transparency helps stakeholders understand the robustness of the financial analysis and the potential variability in outcomes.
Full list of disclosure requirements in ESRS E4 Biodiversity and Ecosystems
Direct link to the topic ESRS E4 Biodiversity and ecosystems in ESRS: Consolidated TEXT: 32023R2772 — EN — 22.12.2023 (europa.eu)
Video of ESRS E4 Biodiversity and Ecosystems (Educational)
This educational video was made for the draft of ESRS from the EU financed organization EFRAG who was responsible of creating the ESRS. We have not found any other video with qualitative information in English for ESRS E4 Biodiversity and ecosystems. The minor changes made in the final version of ESRS E4 Biodiversity and ecosystems has not impacted this video’s relevance.
Read more in our FAQ section about ESRS E4 Biodiversity and ecosystems.
