ESRS E4 and CSRD: Strenghtening companies’ environmental responsability
The Corporate Sustainability Reporting Directive (CSRD) was proposed in April 2021 and seeks to bolster the regulatory framework for ESG reporting by companies within the EU, aligning them with the objectives of the EU Biodiversity Strategy for 2030. With the implementation of ESRS E4 standards, companies face heightened scrutiny regarding their impact on biodiversity and ecosystems. This article helps you navigate the different ESRS E4 requirements to showcase your commitment to environmental sustainability within Environmental, Social, and Governance (ESG) frameworks.
Implications for businesses
The integration of biodiversity into the CSRD carries significant implications for businesses. Firstly, it means that companies will need to assess and monitor their impact on biodiversity more rigorously. This could necessitate deeper environmental assessments and better management of biodiversity-related risks.
Secondly, companies will be required to communicate more transparently about their biodiversity actions. This includes disclosing policies, conservation programs, investments in biodiversity preservation, and ecosystem restoration initiatives.
Lastly, integrating biodiversity into the CSRD may impact the reputation and credibility of companies. Investors and consumers are increasingly sensitive to environmental issues, and companies demonstrating genuine commitment to biodiversity may benefit from a positive image and enhanced stakeholder attractiveness.
The CSRD
The Corporate Sustainability Reporting Directive (CSRD) is an initiative of the European Union aimed at expanding and strengthening the existing directive on non-financial reporting by companies. The primary goal of the CSRD is to increase transparency of companies regarding sustainability and social responsibility, thereby promoting more informed decision-making for investors and stakeholders.
ESRS
ESRS (European Sustainability Reporting Standards) comprises a set of European standards and indicators for sustainability reporting. Founded on a double materiality approach, these standards standardize companies' non-financial disclosures by addressing Environmental, Social, and Governance (ESG) issues.
This initial category focuses on the company's environmental impact according to various criteria:
E1 Climate Change: Transparency regarding the company's emissions, carbon credit usage, adaptation measures, resilience to climate change, and greenhouse gas (GHG) emission reduction plan.
E2 Pollution: Precise identification of pollutants emitted by the company and the most emitting areas.
E3 Water and Marine Resources: Information on the company's water consumption and pollution of water areas it is responsible for.
E4 Biodiversity and Ecosystems: Indicating the company's impact on its environment and the biodiversity it harbors.
E5 Resource Use and Circular Economy: Description of the resources used and how the company engages in a circular economy approach.
ESRS E4
Through these disclosure requirements, the objectives of ESRS E4 standards are to prompt companies to understand and communicate:
How they impact biodiversity and ecosystems, in terms of real and potential material positive and negative impacts.
The outcome of their actions to prevent or mitigate significant negative impacts, real or potential, and to protect and restore biodiversity and ecosystems.
Plans and capability to adapt their strategies and business models based on planetary boundaries.
The type and extent of key risks and opportunities related to their impacts or dependencies on biodiversity and ecosystems, and how these are managed.
The short-, medium-, and long-term financial effects associated with these risks and opportunities.
Here is a detailed list of ESRS E4 requirements:
1. Transition Plan on Biodiversity and Ecosystems (ESRS E4-1):
Companies must reveal a transition plan aligning their business model and strategy with preserving planetary boundaries, biosphere integrity, and land-system changes.
The plan should adhere to targets set in the EU Biodiversity Strategy 2030 and clarify its correlation with business development strategy.
Approval by administrative, management, and supervisory bodies is required.
2. Material Impacts, Risks, and Opportunities (ESRS 2 SBM-3)
Companies detail the resilience of their strategy and business model regarding biodiversity and ecosystems.
This includes information on the extent and outcomes of resilience analysis, timeframe, critical assumptions, and stakeholder engagement.
3. Processes to Identify and Assess Biodiversity and Ecosystem-related Impacts (ESRS 2 IRO-1)
Companies outline methods to recognize and evaluate significant impacts, risks, and opportunities associated with biodiversity and ecosystems.
Description includes identification and assessment of effects and dependencies throughout the company's site locations and value chain.
4. Policies Related to Biodiversity and Ecosystems (ESRS E4-2)
Companies outline strategies to handle effects, risks, and opportunities related to biodiversity and ecosystems.
This includes how strategies address dependencies, risks, and opportunities during transitions, and their connection to activities for preserving or improving biodiversity conditions.
5. Actions and Resources Related to Biodiversity and Ecosystems (ESRS E4-3)
Companies provide details on efforts concerning biodiversity and ecosystems, along with dedicated resources.
Clarification includes integration of biodiversity measures into planned or executed initiatives and whether they are singular or part of an ongoing practice.
6. Targets Related to Biodiversity and Ecosystems (ESRS E4-4)
Companies outline objectives related to biodiversity and ecosystems, including progress and effectiveness assessment.
Reporting includes establishment of timelines, milestones, and consideration of ecological thresholds and allocations.
7. Impact Metrics Related to Biodiversity and Ecosystems Change (ESRS E4-5)
Enterprises disclose significant influences leading to changes in biodiversity and ecosystems.
Reporting includes indicators measuring alterations in species numbers or impacts on protected areas.
8. Potential Financial Effects from Biodiversity and Ecosystem-related Impacts (ESRS E4-6)
Companies disclose prospective financial consequences of risks and opportunities associated with biodiversity and ecosystems.
Quantification of financial impacts on financial standing and performance is required, aligning with qualitative characteristics outlined in ESRS 1.
Biodiversity is a major focus of the CSRD, which aims to strengthen companies' environmental responsibility. Ultimately, this directive aims to create a more sustainable economic environment that addresses urgent challenges and promotes a future where coexistence between humanity and nature is preserved.
At Natural Solutions, we understand the challenges companies encounter when trying to meet ESRS E4 standards. That's why we offer specialized environmental and biodiversity data management software designed to streamline your reporting process.
Our software empowers companies to:
Effortlessly track and report on actions taken to prevent, mitigate, or restore adverse impacts on biodiversity and ecosystems.
Detail measures implemented to safeguard and restore biodiversity, ensuring transparency and accountability.
Gain insights into the influence of risks and opportunities on short-, medium-, and long-term development, performance, and status.
Align business models and activities with the objectives of the EU Biodiversity Strategy for 2030, demonstrating commitment to sustainability.
Don't let ESRS E4 compliance become a daunting task. Reach out today and discover how our innovative software solutions can help you meet and exceed regulatory requirements while advancing your environmental goals.
