Next up: biodiversity and ecosystem services

Changes to the European Sustainability Reporting Standards

The European Commission is expected to release in early June delegated acts with key amendments to the European Financial Reporting Advisory Group’s (EFRAG) proposed European Sustainability Reporting Standards (ESRS), which will be open for a one-month consultation period. It would seem that one important change from the current version of the standards would be to make all disclosures subject to a materiality assessment, whereas initially the standards called for certain disclosures to be mandatory for all in-scope companies, namely climate disclosures (ESRS E1), some employment data (under ESRS S1, 1-9), and notably the Principal Adverse Impact (PAI) indicators, which feed into the prescribed fund-level disclosure obligations of investors under the Sustainable Finance Disclosure Regulation (SFDR). If this comes to pass, it would be disappointing in my opinion, and would further defer the widescale availability of key data points considered universally material for all companies. This is not to say that the materiality principle is not a good one – it’s foundational – however assessment of materiality is ultimately subjective and company-specific. It grants companies discretion in determining what to measure and disclose (in fact the ESRS would follow the assumption that any disclosure omitted is deemed non-material by the reporting entity). This is a good thing in itself; however, it does not allow for the systematic (read: system-level) determination of certain material issues, impacts, or performance measures and their associated disclosures. It will be interesting to see how all of this unfolds.

Beyond Growth 2023 Conference

During three days in May (15-17), the European Parliament hosted the Beyond Growth 2023 Conference. This was a cross-party initiative of 20 Members of the European Parliament, supported by a wide range of partner organizations (fun fact: none of which were commercial entities). The purpose of this conference was to discuss and co-create policies for sustainable prosperity in Europe, based on a systemic and transformative approach to economic, social, and environmental sustainability. Organizers aimed to challenge conventional policymaking in the European Union and to redefine societal goals, in order to move away from the harmful focus on the sole economic growth of GDP as the basis of our development model. In other words, exploring the idea of a post-growth, future-fit EU that combines social well-being and viable economic development with the respect of planetary boundaries. The goals for the conference were ambitious:

• Discuss the significance of economic growth as a policy goal and deconstruct underlying assumptions of GDP being the only mean to achieve economic policy objectives.
• Shift the discourse towards future-oriented economic policymaking and the benefits of beyond growth indicators for a well-being European economy.
• Shape the EU’s path to a more resilient economic agenda in line the European Green Deal objectives and the Sustainable Development Goals.
• Create real policy impact with new proposals to establish a new social, economic, and environmental contract.
• Create new and unusual alliances between a great diversity of stakeholders.

Prior to the conference, a group of 400 experts shared an open letter calling for replacing “the current focus on quantitative growth [with] the aim of thriving in a regenerative and distributive economy, one that delivers qualitative wellbeing by meeting the needs of all people within the means of the living planet – as elaborated in the framework of [Kate Raworth’s] Doughnut Economics”. The conference was free to attend either in person or online, attracting more than 5,000 participants. This is not surprising, given our growing collective understanding that we need a system-level change in what we do and how we do it. All the sessions remain available to watch. I will be diving into them in the coming weeks, and I truly hope you will, too.

All about biodiversity

S&P Global published a report on How the world’s largest companies depend on nature and biodiversity, highlighting that (no surprise) a vast majority of companies have a significant dependency on nature across their direct operations. It makes for a very interesting, data-packed read on the interconnection of the natural ecosystem and economic activity and why we need to address the system-level risk of biodiversity loss. Also, recognizing that biodiversity and nature are gaining rising attention from companies, investors, and governments but that many companies are in the early stages of understanding the risks these may pose to their business, S&P Global Sustainable1 has launched a Nature & Biodiversity Risk Dataset that assesses nature-related impacts and dependencies across a company’s direct operations that can be applied at the asset, company and portfolio level. It apparently covers more than 17,000 companies and more than 1.6 million assets.

To help companies identify and manage their dependencies and impacts on biodiversity and ecosystem services, the Science-Based Targets Network has released the first science-based targets for nature. These provide companies with very detailed methods, tools, and technical guidance to take “ambitious and measurable action on climate and nature in tandem.” (Note that the climate science-based targets are addressed by the Science Based Targets Initiative (SBTi).)

To put some teeth into biodiversity action, a paper from the Taskforce on Nature on The Rights of Nature: Developments and implications for the governance of nature markets (published in December 2022) maps the development of legal rights of nature around the world. It focuses on three specific emerging environmental rights that “sit at the intersection of nature, law, and human rights”:

• the right to a healthy environment (i.e., the recognized link between the health of an environment that an individual finds themselves in and the degree to which their human rights are fulfilled;
• ecocide (i.e., the unlawful or wanton acts committed with knowledge that there is a substantial likelihood of severe and either widespread or long-term damage to the environment being caused by those acts); and
• the rights of nature (i.e., the range of legal mechanisms giving nature a right to have its interests be argued before the law and found in favour of by courts, as though it were a human litigant)

According to the report, these rights evoke a shift “from the idea of humans having dominion directly over the environment, a mindset responsible for the current biodiversity and climate crisis, to a more ‘biocentric’ way of thinking.” And recent legal developments indicate “a paradigmatic shift in the understanding of humans’ relationship with nature. […] what the legal rights of nature do that conservation and environmental law alone has not, is create active and responsive boundaries in markets. They embed voice in markets by empowering all citizens to speak on behalf of natural entities and to demand legal action when transgressions occur. While nature markets continue to valorise nature and its services, these [legal rights of nature] restrict the parts of nature that cannot be economically valued and traded, even in principle, even in secondary markets.” The implication (not addressed in this paper but presumably in future work) is that markets that value and trade nature need clear market boundaries and restrictions that embed these legal rights. The implication is also that the legal protection of nature provides an important lever for change.