Biodiversity reporting: What is on the horizon for 2022 and beyond?

Although mobilising quickly, the financial industry still needs guidance

As approaches to climate risk and disclosure begin to mature and appetite for action on “ESG” issues continues to grow, companies and investors are increasingly shifting their attention to other environmental impacts. Armed with a set of tools that have been developed to tackle climate change issues – formal pledges, disclosure frameworks and collaborative engagement initiatives – biodiversity impact appears to be next on the agenda.

The finance industry in particular, has previously struggled with understanding how to account for the importance of biodiversity impacts. Employing lessons learned from the approach to climate change, calls for collaboration and early alignment are central to ambition. Although swift movement is expected, with the simultaneous roll-out of several initiatives and increasing calls to action, there’s still a recognition that expert guidance is required. Thus, the most influential developments are likely to be in the form of standardised frameworks.

Early alignment of reporting standards, with some differences in approach

A number of key initiatives and frameworks for reporting on biodiversity are beginning to emerge, and concrete effects are likely to be seen later in the year. With much of the initial consolidation of sustainability reporting framework and standards having already taken place, developments are expected to be relatively concentrated, fast-moving and high-impact.

Demonstrating alignment between global and European approaches, cooperation between the Global Reporting Initiative (GRI) and the European Financial Reporting Advisory Group (EFRAG) is likely to lead to more a universal understanding of biodiversity impacts for organisations. As a result of collaboration on the technical work, it is likely that the respective standards – the GRI Biodiversity Standard and the EU sustainability reporting standards – build on existing practices, incorporate common expertise and, crucially, will incorporate a double materiality approach. Drafts for both standards are expected to be available in the second half of 2022.

Taking a more traditional financial materiality approach, the Climate Disclosure Standards Board (CDSB) published its application guidance  for biodiversity disclosures in November 2021. The framework is aimed at helping companies disclose the risks and opportunities that biodiversity presents to an organisation’s strategy and financial performance. Although the impacts of the organisation on biodiversity are not considered, as in the double materiality approach, the framework is expected to be adopted as part of the International Sustainability Standards Board (ISSB) disclosure standards and will likely influence mainstream reporting practices.

Building on the structure of its climate-related predecessor, TCFD, the Taskforce on Nature-related Financial Disclosures (TNFD) also takes a risk-based approach to reporting on nature-related and biodiversity impacts. Beyond reporting, the TNFD framework is aimed at improving the ability of organisations to assess, manage and act on nature-related risks in order to shift financial flows towards “nature-positive outcomes”. As with the TCFD, it is expected that improved and standardised information on issue-specific risks will aid organisations in successfully incorporating such risks into governance structures and long-term strategy.

Three biodiversity-related initiatives most likely to impact corporates in 2022

In a recurring theme, the three potentially most influential initiatives aimed directly at corporates all had their roots in climate. CDP, Science Based Targets Network (SBTN) and Nature Action 100 all aim to leverage highly successful climate campaigns to incentivise improvement in biodiversity performance.

In its recently published five-year strategy, CDP announced that it would expand the scope of its work to cover the full range of planetary boundaries and outlined the “[restoration of] ecosystem health” as a priority. CDP will include six additional biodiversity-related questions in its 2022 climate change questionnaire. Covering subjects such as board-level oversight and value-chain impacts, we believe that approaching the new questions in earnest will be beneficial for ISSB and TNFD-aligned reporting in the future.

The SBTN, building on the momentum of the climate-focused SBTi, is developing a set of science-based targets for nature for companies (with additional work to develop targets for nature and climate for cities). Aimed at promoting robust target-setting rather than disclosure, this forward looking initiative focuses on assessment of potential pathways to reducing corporate impacts and dependencies on nature. Similarly to the TNFD, the initiative will take a whole value chain approach and aspires to eventually target “nature-positive” outcomes.

Finally, in an investor-led drive to incentivise companies to take action on biodiversity, the proposed Nature Action 100 initiative aims to emulate the successes of arguably one of the most successful collaborative engagement initiatives, Climate Action 100+. Although still in development, Nature Action 100 will likely take a similar approach, targeting high-impact companies and working alongside them to assess and address nature-related impacts. Further developments are expected throughout 2022, and we anticipate that corporate engagement will encourage participation in initiatives such as CDP disclosure and SBTN target-setting when possible.