Sustainability Assembled
Legal and Regulatory Market Updates Q1 2024
ESG Standards: Spotlight on Biodiversity
GRI publishes updated Biodiversity Standard
On January 25, 2024, Global Reporting Initiative (GRI) published a major update to its biodiversity standard by expanding and replacing GRI 304: Biodiversity 2016 with GRI: 101: Biodiversity 2024 (Biodiversity Standard).
The Biodiversity Standard helps companies to understand the business practices and decisions which lead to biodiversity loss, where the relevant impact occurs in a value chain and biodiversity-related impact can be effectively managed. The standard emphasises the importance of reporting significant impacts, not all impacts.
GRI 101: Biodiversity 2024 comes into effect on 1 January 2026 and is required for all reporting on biodiversity published on or after 1 January 2026.
Changes to the Biodiversity Standard
- New biodiversity-related disclosures across supply chains.
- New requirements to understand biodiversity-related impact on people.
- A new disclosure to report on the direct causes of biodiversity loss: land and sea use, exploitation of natural resources, pollution, and invasive alien species.
- New biodiversity-specific management disclosures including policies developed to halt and reverse biodiversity loss.
Alignment
- International goals such as the Kunming-Montreal Global Biodiversity Framework
- Taskforce on Nature-related Financial Disclosures (TNFD) disclosure
- ESRS E4 Biodiversity and ecosystems.
Taskforce on Nature-related disclosures publishes draft sector-specific guidance
On December 7, 2023 the Taskforce on Nature-related Financial Disclosures (TNFD) published draft sector-specific guidance for nine sectors (Guidance).
Guidance for the following nine high-impact industries is included: Oil and gas; Metals and mining; Food and agriculture; Forestry and paper; Electric utilities and power generators; Aquaculture; Biotechnology and pharmaceuticals; and Chemicals.
The TNFD invites feedback on the draft Guidance until 29 March 2024 and plans to publish the final versions in Q3 2024.
Joining the Dots:
The impact of biodiversity loss on the business and financial sector is well documented. The JRC Working Paper “Loan pricing and biodiversity exposure: Nature-related spillovers to the financial sector” is a reminder that biodiversity loss poses not only ecological risks but also adverse economic and financial impact by reducing the availability of natural resources and increasing costs.
Sustainable loan products can play an important part in addressing biodiversity loss by financing relevant projects through green loans or by selecting relevant key performance indicators (KPIs) in sustainability-linked loans. The LMA refers to biodiversity in the context of green loans explicitly recognising biodiversity conservation as a category of eligibility for Green Projects and The Global Reporting Initiative Standards (GRI Standards) are referred to in the Sustainability-Linked Loan Principles and related Guidance as a way to consider the materiality, parameters, and scope of key performance indicators.
This revision of the Biodiversity Standard offers the opportunity of examining how ESG standards can be used not only for reporting and disclosure but as a tool to structure relevant loan products and ensure robust terms. Key takeaways include:
- materiality and ambition of KPIs in sustainability-linked loans is crucial. The Biodiversity Standard includes guidance on how to determine the most significant impacts on biodiversity which in turn can inform the selection of KPIs;
- when considering biodiversity as a potential KPI, the Biodiversity Standard can assist parties in determining the parameters and scope of a biodiversity-related KPI and the criteria to be applied for evaluating and selecting an eligible green project under a Green Loan; and
- the additional tools and approaches included in the GRI Biodiversity Standard can assist market participants and ESG consultants to increase understanding and assessment of potential biodiversity impact and relevant data (e.g., ENCORE tool, SBTN Materiality Screening Tool, TNFD LEAP approach, and WWF Biodiversity Risk Filter).