3. Table of Definitions and Acronyms

When talking about ESRS E4, biodiversity, and ecosystems you will encounter multiple definitions and acronyms. Below is a table that presents these definitions and acronyms.

4. Objective of ESRS E4

So, what is the ESRS E4 about? Let’s begin by deciphering its objectives. We'll break down its objectives into five key components:

1. Impact on Biodiversity and Ecosystems: Describe how the organization influences biodiversity and ecosystems, both positively and negatively, considering actual and potential impacts and its contribution to the drivers of biodiversity loss and degradation.

2. Actions Taken: Outline the actions the organization has undertaken to prevent or mitigate negative impacts on biodiversity and ecosystems, including results achieved, and efforts to protect and restore these elements while addressing associated risks and opportunities.

3. Adaptation Strategies: Discuss the organization's plans and capacity to align its strategy and business model with planetary boundaries, the Kunming-Montreal Global Biodiversity Framework, EU Biodiversity Strategy for 2030, EU Birds and Habitats Directives, and the Marine Strategy Framework Directive.

4. Material Risks and Opportunities: Present the nature, type, and extent of the organization's significant risks, dependencies, and opportunities related to biodiversity and ecosystems, clarifying how the organization manages them.

5. Financial Impacts: Explore the financial effects on the organization over short, medium, and long-term horizons resulting from material risks and opportunities arising from its impacts and dependencies on biodiversity and ecosystems.

Based on these objectives a company might need to disclose several pieces of information, depending on whether they are material to the company. This information can be related to governance, strategy, impacts, risks, opportunities, metrics, and targets. More on this in the next sections.

5. Governance

Even though ESRS E4 doesn't have detailed disclosure requirements (DRs) for governance, companies might still need to provide information about how they handle impacts, risks, and opportunities (IRO) if they are deemed material.

6. Strategy

For ESRS E4, there are two main DRs. The first is a transition plan and the consideration of biodiversity and ecosystems in the strategy and business model of the company. This disclosure aims to provide insights into the resilience of the current business model and strategy concerning physical, transition, and systemic risks related to biodiversity and ecosystems. The company may also disclose its transition plan to align with global biodiversity goals and targets.

The second is IRO related to biodiversity and ecosystems and their interaction with strategy and the business model. This DR requires companies to disclose a list of material sites in their operations, specifying activities negatively affecting biodiversity-sensitive areas. They should provide a breakdown of sites based on impacts, dependencies, and ecological status, allowing users to understand the location and responsible authorities. The disclosure also addresses whether the company has identified material negative impacts related to land degradation, desertification, soil sealing, and operations affecting threatened species.

ESRS E4 introduces two key strategy DRs. The first focuses on a transition plan and the company's business model and strategy in context of biodiversity and ecosystems. The second is about material IRO related to biodiversity and ecosystems and their interaction with strategy and the business model.

7. Impact, Risk and Opportunity Management

This section is about the impacts, risks, and opportunities related to biodiversity and ecosystems and is subdivided into three sections.

7.1. Identifying and Assessing Biodiversity and Ecosystems-Related IRO

Understanding how companies manage the IRO associated with biodiversity and ecosystems is an important component of ESRS E4. Companies are required to describe their process for identifying and assessing IRO. This includes a comprehensive analysis of:

• Identification Process:

  • Describe how the company identifies and assesses actual and potential impacts on biodiversity and ecosystems at its sites and in the value chain.

  • Explain the assessment of dependencies on biodiversity, ecosystems, and their services, including disruption criteria and considerations of ecosystem services.

• Risk and Opportunity Assessment:

  • Detail the evaluation of transition and physical risks and opportunities related to biodiversity and ecosystems, specifying assessment criteria based on impacts and dependencies.

  • Highlight whether the company considered systemic risks in its assessment.

• Community Consultations:

  • Discuss the company's consultations with affected communities on sustainability assessments, addressing negative impacts on biodiversity and ecosystems.

  • If negative impacts are unavoidable, disclose plans to minimize and implement mitigation measures, involving affected communities.

• Scenario Analysis:

  • Reveal whether the company used biodiversity and ecosystems scenario analysis to identify material risks and opportunities.

  • If used, provide insights into scenario selection, updates, and alignment with authoritative intergovernmental bodies' expectations.

7.2. Policies for Managing Material IRO

Companies must reveal their adopted policies to manage material IRO related to biodiversity and ecosystems. The goal is to understand the extent to which these policies address the identification, assessment, and management of biodiversity-related matters. For example a company might need to adopt a biodiversity and ecosystem protection policy for operational sites within or near biodiversity-sensitive areas.

7.3. Biodiversity and Ecosystems Actions and Resources

This section is about disclosing actions and resources related to biodiversity and ecosystems. The goal is to provide insight into the key measures taken or planned by the company that significantly contribute to achieving policy objectives and targets related to biodiversity and ecosystems. The company should outline its actions and the resources allocated to implement these measures.

Moreover, the company may disclose how it applies the mitigation hierarchy, including actions like avoidance, minimization, restoration, and compensation or offsets.

Lastly, the disclosure addresses the incorporation of local and indigenous knowledge and nature-based solutions into biodiversity and ecosystems-related actions. This approach ensures a comprehensive understanding of the company's commitment to sustainable practices and environmental conservation.

This part of ESRS 4 focuses on how companies identify, assess, and manage IRO. The company might need to disclose information about community consultations, scenario analysis, and the mitigation hierarchy for sustainable practices and conservation.

8. Metrics and Targets

8.1. Biodiversity and Ecosystem Targets

Companies must disclose biodiversity and ecosystem-related targets. The disclosure should cover ecological thresholds, alignment with global and national strategies, relation to identified impacts, geographical scope, use of biodiversity offsets, and allocation within the mitigation hierarchy.

8.2. Impact Metrics on Biodiversity and Ecosystem Change

This section focuses on reporting metrics related to material impacts on biodiversity and ecosystems. Companies should disclose the number and area of sites affecting biodiversity-sensitive areas, along with metrics related to land-use change and impacts on ecosystems based on Life Cycle Assessment. Additional impact metrics include population size, range, extinction risk, and changes in relevant habitats for threatened species. For ecosystems, metrics cover area coverage and conditions, including quality relative to a reference state, species diversity, and structural components like habitat connectivity.

8.3. Anticipated Financial Effects

Companies need to disclose the anticipated financial effects resulting from material risks and opportunities linked to biodiversity and ecosystems-related impacts. This includes quantifying anticipated financial effects, providing descriptions of considered effects, related impacts, and likely time horizons. Critical assumptions used in estimates should be clarified and the sources and levels of uncertainty associated with these assumptions should be addressed.

Companies must disclose biodiversity and ecosystem targets. Impact metrics include site details and broader ecosystem assessments. Anticipated financial effects from biodiversity risks and opportunities require quantification and clear assumptions.

9. Conclusion

ESRS E4 is important for addressing the impact of human activities on biodiversity and ecosystems. It guides companies to report their impact, mitigation efforts, and strategies. It includes components like governance, strategy, impact, risk, opportunity management, metrics, and targets. These disclosures help stakeholders understand a company's impact and financial resilience in the context of biodiversity and ecosystems. We need healthy ecosystems and biodiversity for services like clean air, water, and food. ESRS E4 plays a crucial role in preserving these resources.