Mastering the CSRD ESRS E4: Biodiversity Non-Materiality Doesn’t Mean No Disclosures
Key Takeaways
Certain ESRS E4 biodiversity disclosures remain mandatory under CSRD, even when biodiversity is deemed non-material in your double materiality assessment.
The critical mandatory disclosure is whether your company has sites located in or near biodiversity-sensitive areas.
This location-based requirement exists because biodiversity impacts are inherently tied to geographic context, and companies may have hidden risks they haven't identified through traditional materiality assessments.
Understanding Double Materiality Assessments
One of the fundamental pieces of the EU’s Corporate Sustainability Reporting Directive (CSRD) is its requirement that organizations conduct a double materiality assessment (DMA). While DMAs are meant to help companies focus their reporting on the most relevant sustainability topics, the CSRD establishes certain mandatory disclosure requirements regardless of materiality outcomes. One of these is related to the ESRS E4: Biodiversity and Ecosystems.
If your company has completed a DMA, and determined that biodiversity is not material, did you know that you are still required to disclose information for the topical standard ESRS E4?
Here is a quick recap of DMAs:
Double materiality has two dimensions: impact materiality and financial materiality. DMAs are required by the CSRD to ensure that sustainability reporting is not only about how sustainability issues affect the company financially, but also about how the company's operations and value chain affect people and the environment. Impact and financial materiality are interrelated, and the dependencies between them must be considered. However, the ESRS suggest starting with impact materiality because impacts give rise to risks and opportunities, and feed into the financial materiality assessment – although there could be material risks and opportunities unrelated to the company's impacts.
Mandatory Biodiversity Disclosures Under CSRD
If your company has completed a double materiality assessment and the topic of biodiversity was found to be not material, you might assume that no information needs to be disclosed regarding topical standard ESRS E4: Biodiversity and Ecosystems. However, it is important to understand the mandatory requirements of the CSRD regarding ESRS E4 that could be overlooked.
In the cross-cutting CSRD standard ESRS 2: General Disclosures, certain disclosure requirements apply to all organizations, regardless of the results of the DMA. This is described in ESRS 1 paragraph 29:
“Irrespective of the outcome of its materiality assessment, the undertaking shall always disclose the information required by: ESRS 2 General Disclosures (i.e. all the Disclosure Requirements and datapoints specified in ESRS 2) and the Disclosure Requirements (including their datapoints) in topical ESRS related to the Disclosure Requirement IRO-1 Description of the process to identify and assess material impacts, risks and opportunities, as listed in ESRS 2 Appendix C Disclosure/Application Requirements in topical ESRS that are applicable jointly with ESRS 2 General Disclosures.”
One of these disclosure requirements of ESRS 2 IRO-1 that is irrespective of materiality is ESRS E4, paragraph 19 (a). This states:
“The undertaking shall specifically disclose:
(a) whether or not it has sites located in or near biodiversity-sensitive areas and whether activities related to these sites negatively affect these areas by leading to the deterioration of natural habitats and the habitats of species and to the disturbance of the species for which a protected area has been designated”
What Qualifies as a Biodiversity-Sensitive Area?
Biodiversity-sensitive areas are those located in or near one or more of these types of sites, according to the CSRD definition:
Natura 2000 network of protected areas
UNESCO World Heritage sites
Key Biodiversity Areas (‘KBAs’)
Other protected areas
As explained by EFRAG, the category of “other protected areas” could include:
“forest protected areas or areas lying within river basin districts designated as requiring special protection by governmental authorities. This may require consulting national legislation sources defining these other protected areas. In addition, the World Database on Protected Areas (WDPA) can support preparers in the identification of protected areas.”
The Geographic Importance of Biodiversity Reporting
If your company found biodiversity to not be material during the DMA, why would the CSRD still include this proximity requirement regarding biodiversity and ecosystems? This is because impacts to biodiversity and ecosystems are inherently location-based. Even if your company’s specific industrial operations were deemed unlikely to adversely impact biodiversity, the proximity of any industrial operations to biodiversity-sensitive areas has the potential to create impacts and is thus important to disclose. Each ecosystem on the planet has its unique characteristics, species, and contributions to the local and global balance (e.g., providing ecosystem services such as water filtration or air quality). Understanding impacts to biodiversity therefore depends on where business sites are located.
The ESRS E4 requirement to assess whether sites are located in or near biodiversity-sensitive areas seeks to answer questions such as whether you are operating near:
Threatened species, who may be sensitive to even small amounts of pollution?
Legally protected areas, which, having already been designated as important to biodiversity, could represent a legal risk that you are not yet aware of?
The answers to these, and similar biodiversity-related questions, would not show up in a DMA, because that assessment is not looking at the location of sites where business activities occur. Rather than assuming environmental impact is limited to traditionally high-impact sectors, companies should recognize that their operations could affect ecosystems in unexpected ways, particularly when considering the geographic context of their activities. This is the purpose of the location-based analysis required by ESRS E4: to cover hidden biodiversity risks of which a company may not otherwise be aware.
If, through its DMA, a company has found that it does in fact have negative impacts on sites located near biodiversity-sensitive areas, then there are additional disclosure requirements, such as ESRS E4-5 paragraph 35, which states that:
“If the undertaking identified sites located in or near biodiversity-sensitive areas that it is negatively affecting (see paragraph 19(a)), the undertaking shall disclose the number and area (in hectares) of sites owned, leased or managed in or near these protected areas or key biodiversity areas.”
Alignment with TNFD Framework
While the CSRD can be a bit confusing, it aligns with the TNFD framework. Figure 1 illustrates the alignment between the CSRD requirements and TNFD recommendations. The TNFD references Sensitive locations, where business activities interface with nature in areas deemed important for biodiversity, and Material locations, where organizations have identified material impacts and dependencies. The combination of Sensitive locations with Material locations identifies “priority” locations.
Figure 1.
Visual representation of TNFD recommendations and CSRD requirements.
Adapted from the TNFD.
Conclusion
The inclusion of mandatory location-based biodiversity reporting in the CSRD recognizes that environmental risks and impacts can arise simply from where a company operates, not just how it operates. This approach helps companies identify potential biodiversity vulnerabilities that might not surface through traditional materiality assessments alone.
This location-based approach to biodiversity reporting signals a broader shift in corporate sustainability disclosure – one that increasingly recognizes the complex, interconnected nature of environmental impacts. As frameworks like CSRD and TNFD mature, companies will need to develop more sophisticated approaches to understanding and reporting their relationship with the natural world, regardless of their industry or materiality assessments.
Not sure how to navigate these CSRD biodiversity disclosure requirements? Our team at Dunya Analytics can help you assess your locations against biodiversity-sensitive areas and develop a robust reporting approach that meets CSRD requirements. Contact us to learn more about our CSRD compliance solutions.
