Biodiversity: ESRS Standard E4 and GRI 101

On 31 July 2023, the European Commission adopted the ESRS for all companies subject to the CSRD. This decision represents a further step in the transition towards a sustainable economy in the EU. The ESRS are a set of standards used to report on the impacts and dependencies of business activities on various aspects of sustainability (ESG). They were developed by EFRAG and are part of European law. There are 12 ESRS and they are divided into 4 categories: General Standards (ESRS 1 - ESRS 2); Environmental Standards (ESRS E1, ESRS E2, ESRS E3, ESRS E4,ESRS E5); Social Standards (ESRS S1, ESRS S2, ESRS S3); Governance (ESRS G1, ESRS G2, ESRS G3).

The European Commission has confirmed that ESRS was developed taking into account discussions with theInternational Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI) to ensure a high degree of interoperability between EU and global standards to avoid company reporting. As of January 2024, large and listed companies in the EU will have to use ESRS, as stipulated by the CSRD. The European Directive No. 2022/2464 requires large companies, listed SMEs and parent companies of large groups to provide a range of sustainability information. The adoption of the ESRS and its implications for listed SMEs are important to ensure greater transparency and accountability in the area of sustainability.

The ESRS standards are designed to ensure uniformity and clarity in environmental, social and governance (ESG) reporting. On the subject of biodiversity, the ESRS E4 - Biodiversity and Ecosystems plays a key role. Indeed, it provides information on factors contributing to the loss of biodiversity, impacts on species and connections to ecosystems. The ESRS E4 standard requires companies to publicly disclose their strategic plan to ensure that their business model becomes transition-compatible to achieve three targets:no net biodiversity loss by 2030, net gain from biodiversity by 2030 and full biodiversity recovery by 2050.

Each company will be required to make public all policies related to biodiversity and ecosystems to ensure that they have effective policies to protect biodiversity and that these policies are monitored and managed appropriately. Furthermore, they will have to activate transparency policies on the strategies and actions implemented to achieve the biodiversity conservation goals. Disclosures should also include information on the alignment of corporate policies with global goals and agreements, such as the Sustainable Development Goals (SDGs), the Global Biodiversity Framework (GBF) and the European Green Deal.

Companies will have to make public the specific biodiversity and ecosystem targets they have adopted, including timelines, milestones, compliance with ecological thresholds and planetary boundaries. These targets must be supported by the company's management board and must comply with the guidelines set out by the Convention on Biological Diversity (CBD) and the Intergovernmental Science Policy Platform on Biodiversity and Ecosystem Services (IPBES). The company will have to clarify how its activities exert additional pressure on the drivers of biodiversity loss, including pollution, invasive species, land use, climate change and exploitation of natural resources. In addition, the company will have to disclose impact parameters related to geography or raw materials, e.g. impacts on species and their risk of extinction.

The GRI has announced the release of a new biodiversity standard, called GRI 101: Biodiversity 2024, which will replace GRI 304: Biodiversity 2016 and will be in force from 2026. This global standard offers companies around the world the opportunity to fully and transparently disclose their impacts along the supply chain and reporting on site-specific impacts. The main objective of the new standard is to provide full transparency on biodiversity impacts, even at the procurement stages where such impacts are often difficult to identify. In addition, the standard requires location-specific reporting of impacts, providing detailed information on countries, jurisdictions and the size of operational sites. The GRI 101: Biodiversity 2024 was developed through a multi-stakeholder process, involving experts from different industries, organisations, investors, etc.

GRI 101 - Biodiversity 2024 has a structure divided into two: Topic management disclosure and Topic disclosure. The Topic management disclosure comprises: 101-1: Policies to halt and reverse biodiversity loss; 101-2: Managing impacts on biodiversity; 101-3: Access and benefit sharing. The Topic disclosure includes: 101-4: Identification of biodiversity impacts; 101-5: Sites with biodiversity impacts; 101-6: Direct drivers of biodiversity loss; 101-7: Changes in biodiversity status; 101-8: Ecosystem services.

The GRI Biodiversity Standard provides new information on the direct causes of biodiversity loss, including land use, climate change, overexploitation, pollution and invasive species. It also requires reporting on impacts on society, including those on communities and indigenous peoples, and promotes the interaction of organisations with local groups in the restoration of affected ecosystems. The GRI Standard 101 builds on global developments in the field of biodiversity, such as the United Nations Global Biodiversity Framework, the Science Based Target Network and the Taskforce on Nature-related Financial Disclosures. The publication of the new standard is particularly important at a time when biodiversity is at risk. The latest IPBES assessment showed a decline in biodiversity in all regions of the world, with 50 per cent of the global economy threatened by biodiversity loss.

The new GRI biodiversity standard is designed to ensure detailed, location-specific reporting, enabling stakeholders to assess how impacts on biodiversity are being mitigated and reduced along the supply chain and business operationsi. Identifying and managing the most significant impacts is essential to understanding organisations' dependencies and risks. The update of the GRI biodiversity standard has been enthusiastically welcomed by organisations and stakeholders who recognise the need for urgent action to protect biodiversity. The new standard will provide companies with clear and comprehensive guidance for assessing and reporting their impacts on biodiversity, enabling them to take effective measures to reduce risks and help restore ecosystems.

The European Commission and the EFRAG have worked closely with GRI to ensure a high degree of interoperability between ESRS and GRI standards in order to promote global comparability. However, the standards differ substantially, specifically ESRS adopts the concept of dual materiality, which requires companies to assess not only the impacts of their operations on the environment and society, but also how these issues affect their financial performance. In contrast, GRI standards focus primarily on impact materiality, i.e. the effects of business activities on the environment and society.

The professor Giacomo Pigatto, researcher at the Scuola Superiore di Pisa "Santa Anna" and researcher at the NBFC in 3Bee's Webinar entitled "Reconciling biodiversity with ERS4 and GRI 101", compared the two standards ESRS E4 and GRI 101. Specifically, it pointed out that the ESRS E4 is mandatory for companies subject to CSRD, which must therefore use this standard as a reference, while GRI 101 remains voluntary. Both standards have materiality: ESG E4 has a double relevance while GRI101 has an Inside Out relevance. Furthermore, both take into account impacts on the entire value chain and link with other international initiatives.

Professor Giacomo Pigatto, also highlights other aspects comparing the two standards, specifically, the ESRS E4 is principle-based with a determined focus on users who must understand the biodiversity impact of the organisation and its exposure to ecosystem collapse and is future-oriented, while, the GRI 101 is geared towards Preparers, analytically suggests pathways for reporting impacts with guidance on the methods to be used, and is past-oriented. Both standards consider impacts, but ESRS E4 also considers dependencies. The webinars at the Oasis are an integral part of the Network of CSR: the exclusive community for sustainability professionals, geared not only for professional development, but also for networking and ongoing support from 3Bee's technical team, with reference to the new European regulations and the sustainability reporting standards. Want to learn more?