Corporate biodiversity measurement approaches within the current and future global policy context

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Corporate biodiversity measurement approaches within the current and future global policy context

Executive summary

The Aligning Biodiversity Measures for Business initiative seeks to form a common view among key stakeholders on the measurement, monitoring and disclosure of corporate biodiversity impacts to encourage the development and uptake of credible indicators to drive improved corporate performance.

This discussion paper reviews the drivers and frameworks and current practice around corporate disclosure on biodiversity and investigates the role of biodiversity measurement approaches as part of future disclosure for informing global policy targets, namely the UN Sustainable Development Goals (SDGs), which encourage companies to adopt sustainability information in their reporting cycle, and the strategic plan of the Convention on Biological Diversity (CBD) where there have been a number of decision reflecting the need for greater corporate reporting.

Key discussion points:

• As awareness of the material risks that biodiversity loss presents to a business grows, there is growing recognition of the need to measure and report on impacts and dependencies on biodiversity.

• International agreements can play a role in driving corporate disclosure of biodiversity impacts and dependencies and can provide a framework to report against. However, attempts by the CBD to articulate a framework and encourage its uptake have had limited success, in part due to challenges in mainstreaming the decisions of the CBD across relevant national policies

• There are a number of mandatory mechanisms for corporate sustainability reporting but few that relate specifically to biodiversity. France is one exception where biodiversity is explicitly mentioned among mandatory topics covered in non-financial reporting documents.

• Mandatory reporting on biodiversity takes place under impact assessment regulations but this reflects project level rather than corporate level information and therefore does not meet the demand for evaluation of corporate level impact

• Enacting further legislation on disclosure would likely meet a lot of resistance and there is a need for a clear rationale for how this would encourage better performance.

• There are a number of voluntary disclosure mechanisms that have achieved widespread uptake (e.g. GRI) and a number of initiatives are emerging to improve future corporate disclosure on biodiversity. Governments can play a role in encouraging these voluntary efforts, which are felt to achieve greater dialogue between governments and companies

• Current corporate disclosure is limited to environmental flows and there are very low levels of company participation in biodiversity-specific disclosure mechanisms;

• Very poor quality in biodiversity information disclosed, with a focus on management narratives and very little quantitative non-monetary information;

• To effectively report on biodiversity, its status and changes due to corporate activities and those of others must be measured

• The corporate biodiversity measurement approaches analysed in this project have the potential to support improved disclosure of biodiversity impacts and risks in different ways, depending on their relevance for external disclosure and reporting against global policy targets

• A broadly agreed accounting framework can support corporate disclosure by providing an assessment of net impacts over time. The Biological Diversity protocol is being developed to

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serve this purpose but this will likely require site level data and many biodiversity measurement approaches based on global data and predictions are likely to be unsuitable.

• The common ground principles being developed as part of this project will support improved quality of corporate disclosure on biodiversity and will therefore be an important output of this project.

The questions for consideration during this webinar are as follows:

• Can existing measurement approaches be used to track corporate contributions to global policy targets?

• Is there a need for such targets to be developed with consideration of measurement approaches?

• What is needed to encourage broader uptake of measurement approaches? What are the key mechanisms for this (voluntary and mandatory)?

• To what extent do disclosures require tracking of both status and activities?

• Is a broadly agreed accounting framework required to support the use of the measurement approaches as a disclosure approach?

• Could the common ground principles for measurement approaches being developed as part of this project strengthen the quality of corporate disclosure?

1. Introduction

The Aligning Biodiversity Measures for Business initiative seeks to form a common view among key stakeholders on the measurement, monitoring and disclosure of corporate biodiversity impacts to encourage the development and uptake of credible indicators to drive improved corporate performance.

This document seeks to do the following:

1. To examine the current drivers and frameworks for corporate disclosure of impacts on biodiversity. This includes external and internal drivers, the role of international frameworks, regulatory and voluntary mechanisms;

2. To review current practice on corporate biodiversity reporting and disclosure and where the gaps are for driving improved performance and contributions to global biodiversity and societal goals, namely the Sustainable Development Goals, the Convention on Biological Diversity Aichi targets and post-2020 agenda;

3. To identify future corporate biodiversity disclosures and the possible contributions of biodiversity measurement approaches to assessing corporate progress on policy commitments, and the actions required to promote their uptake.

This paper is based on desk based review of the literature as well as input from policy experts within six countries – Brazil, China, France, the Netherlands, South Africa and the United Kingdom – It is therefore limited in scope and not a comprehensive analysis of reporting requirements and trends.

This paper will be discussed during a webinar on 23rd September and further refined afterwards. It will inform the upcoming workshop in Rio de Janeiro, Brazil in October 2019.

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Key terms used in this discussion paper.

Biodiversity impact – an alteration in the status of biodiversity, which can be either positive or negative. A direct impact is an outcome directly attributable to a defined action or project activity, while an indirect impact is triggered in response to the presence of the project, rather than being directly caused by the project’s own operations.

Biodiversity dependence – how a particular business activity relies upon specific features of biodiversity. Observed or potential changes in natural capital affect the costs and/or benefits of doing business.

Biodiversity measurement approach – a tool to assess biodiversity performance for different business applications.

Corporate disclosure – business reporting on biodiversity impact against international frameworks, or against voluntary or mandatory reporting requirements.

Indicator – a measure of variables over time often used to measure achievement of objectives.

Metric – a set of measurements that quantifies results.

Mitigation hierarchy – A tool which aims to help manage biodiversity risk, and is commonly applied in Environmental Impact Assessments (EIAs). (Includes a hierarchy of steps: Avoidance, Minimisation, Rehabilitation, Restoration and Offset).

No net loss - A target for a development project in which the impacts on biodiversity caused by the project are balanced by measures taken to otherwise mitigate the project’s impacts,

Net gain - A target for a development project in which the impacts on biodiversity caused by the project are outweighed by measures taken to otherwise mitigate the project’s impacts

2. Existing drivers and frameworks for corporate measurement and disclosure

2.1 Internal and external drivers of corporate biodiversity disclosure

Business activities, through their use of water, land and other resources and their emissions are contributing to the loss and biodiversity and degradation of ecosystem function and the services they provide to businesses and society as a whole. These impacts and dependencies create risks for companies such as loss of the social and legal licences to operate, disrupted production, finance access,

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timely project delivery and more.¹ The Global Risk Register 2018 placed accelerating biodiversity loss as among the most pressing environmental challenges facing us,² and this is recognised by business. In line with this, there is increasing recognition of the need to both quantify and disclose information on corporate biodiversity management to mitigate these risks. This allows companies to assess biodiversity performance for internal decision-making relating to risk management and accounting, as well as to meet external reporting requirements, such as certification, financial lending requirements, non- financial disclosure and environmental regulation and policies.³ Improved biodiversity management can also lead to operational efficiencies and the added benefit of disclosing this can include gaining a reputational or competitive advantage⁴.

While corporate disclosure of impacts and dependencies on biodiversity is a clear need, it must be recognised that a pre-requisite to this is the awareness of the abovementioned risks, which remains lacking for many companies. This was iterated by many of the country representatives spoken to.

Therefore any disclosure initiative will need to tackle the challenge of a poorly understood business case to achieve widespread uptake, or indeed will need to rely on policy and regulation to mandate these actions.

2.2. International frameworks

Multilateral Environmental Agreements can play a role in driving corporate disclosure of a company’s environmental performance, as well as setting the targets for what should be considered within those disclosures. For example there have been efforts to demonstrate how company activities are or could be contributing to the achievement of the Sustainable Development Goals (SDGs). A White Paper for the World Economic Forum illustrated the potential relationship between good practices in the mining industry and the SDGs⁵. The SDGs also include the need for corporate reporting as means to drive uptake of more sustainable practices (Target 12.6 of the Sustainable Development Goals

“Encourage[s] companies, especially large and transnational companies, to adopt sustainable practices and to integrate sustainability information into their reporting cycle ”). Also while many companies mention the alignment of their activities to some of the SDGs, there is no evidence of corporate biodiversity disclosures against SDG targets (i.e., SDG 14 and 15: Life on land and under water indicators). In 2018 it was shown that 89% of corporate sustainability reports reviewed acknowledged the SDGs in some way, and 53% map their sustainability strategy to relevant SDGs and provide some evidence of activities⁶. However comprehensive reporting against the SDG targets remains lacking. A

1 Invitation to Join the Biodiversity Disclosure Project

2 World Economic Forum. Global Risks 2018: Fractures, Fears and Failures.

3 The Development and Use of Biodiversity Indicators in Business: An Overview

4 The Development and Use of Biodiversity Indicators in Business: An Overview

5 Mapping Mining to the Sustainable Development Goals: An Atlas (2016)

6 Reporting Matters (2018) World Business Council on Sustainable Development

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recent study by KPMG showed that SDGs Life on Land (SDG15), and Life Below Water (SDG14) were the least commonly prioritized by leading companies⁷.

There also appears to have been little or no corporate reporting against the current strategic plan of the CBD and its Aichi Targets, despite the alignment that has been shown to exist with corporate

activities⁸. Discussions held with UK businesses in 2018 highlighted the challenges around business awareness of the Aichi targets and their relevance for business reporting⁹. Under the Convention on Biological Diversity there has been some emphasis on the need to encourage improved corporate reporting on biodiversity. At the twelfth meeting of the Conference of the Parties, decision XII/10, on business engagement, invited Parties and businesses to take steps to increase the degree of reporting by businesses and requested the Executive Secretary to establish a typology of possible actions (Table 1.). This report highlighted a growing number of reporting frameworks that now exist leading to inconsistent and incomplete reporting, a lack of information on corporate action within the CBD national reports, and challenges around accessing this information due to the fragmentation of corporate reporting efforts. A typology of actions was proposed as a way to both improve and harmonise reporting on biodiversity and recognised the need for a cooperative approach among the Parties, various international and national partners, the existing global reporting schemes, and the business community to achieve this¹⁰.

Table 1. Revised Typology of Actions taken from the Guidance for Reporting by Businesses on their Actions Related to Biodiversity report prepared by the Executive Secretary of the CBD¹¹

Theme Main Topics Aichi Targets GRI Indicators

Commitment • Biodiversity

appear a material issue

• Existence of a biodiversity policy statement

• Management

approach to biodiversity reported on

• Reports include a CEO letter which

Strategic Goal “A” and Strategic Goal “E”

GRI 103 Management Disclosure

7 How to report on the SDGs: What looks good and why it matters (2018) KPMG.

https://assets.kpmg/content/dam/kpmg/xx/pdf/2018/02/how-to-report-on-sdgs.pdf

8 Smith, T., Addison, P., Smith, M. & Beagley, L. (2018) Mainstreaming international biodiversity goals for the private sector: Main Report & Case Studies, JNCC Report No. 613, JNCC, Peterborough, ISSN 0963-8091.

9ENGAGING BUSINESS IN THE DEVELOPMENT OF A POST-2020 GLOBAL BIODIVERSITY FRAMEWORK (2018) Note by the Executive Secretary. CBD/COP/14/INF/5

10 Business Reporting on Biodiversity. Note by the Executive Secretary to the Convention on Biological Diversity (2016)

11 Guidance for Reporting by Businesses on their Actions Related to Biodiversity. Note by the Executive Secretary to the Convention on Biological Diversity (2018)

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specifically refers to biodiversity

Engagement • Action taken to

address biodiversity impacts, risks and opportunities

• Specific examples of engaging with stakeholders e.g.

supplier

• Partnerships with NGOs and other organizations on biodiversity related projects

• Funding specific biodiversity related projects

Strategic Goal “A”, Strategic Goal “B”, Strategic Goal “C”, Strategic Goal “D” and Strategic Goal “E”

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Measuring • Identifying risks

and opportunities

• Using tools and other means to measure both positive and negative impacts

• Reporting on biodiversity specific indicators such as GRI

• All operations with significant impact taken into account in measurements

Strategic Goal “A”, Strategic Goal “B”, Strategic Goal “C”, Strategic Goal “D”

Strategic Goal “E”

304-1 304-2 304-3 304-4

Aichi Strategic Goals

Strategic Goal A: Address the underlying causes of biodiversity loss by mainstreaming biodiversity across government and society

Strategic Goal B: Reduce the direct pressures on biodiversity and promote sustainable use Strategic Goal C: To improve the status of biodiversity by safeguarding ecosystems, species and genetic diversity

Strategic Goal D: Enhance the benefits to all from biodiversity and ecosystem services

Strategic Goal E: Enhance implementation through participatory planning, knowledge management and capacity building

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Despite such efforts, there seems to have been little uptake at the national level and awareness of these decisions remains limited to the environmental ministries in countries. In part this is due to policies and legislation related to business activities falling under a separate institution (e.g. The Department for Business, Energy, and Industrial Strategy in the UK). Mainstreaming of CBD

decisions into the other national institutions beyond the environmental ministries is a key challenge in most countries, highlighted by the mainstreaming agenda of the CBD. Some countries have

mechanisms in place to overcome this division between national institutions. For example, the Biodiversity Industry Network in Brazil is a group of nearly 50 companies and institutions whose purpose is to implement the decisions under the CBD and propose policy. They formerly liaised with the Brazilian government when committees were in place under the former administration. Such groups can be important mechanisms for mainstreaming CBD decisions, including that related to corporate reporting, but their effectiveness relies on a strong connection with the relevant government departments.

In recognition of the fact that the potential contributions of business to helping achieve global conservation goals are largely unreported, a number of initiatives are emerging to better engage business in the development and implementation of the Post 2020 Global Biodiversity Framework.

This could help ensure that the new framework gains greater traction with business. For example the Business for Nature coalition that comprises WBCSD, We Mean Business, the Consumer Goods Forum, the World Economic Forum, the Natural Capital Coalition and WWF aims to drive business momentum for the Nature Action Agenda. At the national level, The UKs Department for

Environment and Rural Affairs, along with the Joint Nature Conservation Committee, BP, and other partners in the UK are leading on an initiative to strengthen the voice of UK business in the

development of the new framework. In discussions with country representatives in Brazil, South Africa, the UK, China and France, it was felt there was an opportunity for greater uptake of the Post 2020 Global Biodiversity Framework in corporate reporting. It was highlighted however that national government led guidelines and an improved structure of the National Biodiversity Strategy and Action Plans might be needed to help achieve this.

This project is exploring how the emerging set of biodiversity measurement approaches could support greater reporting against these global policy targets. An initial assessment of their potential relevance is provided in section 3.

2.3. Regulatory and voluntary reporting mechanisms

Regulatory

Despite signals from the CBD for improved corporate reporting at the national level, there are few examples of legislated requirements for biodiversity disclosure. There are however some national level requirements related to sustainability or annual reporting. France was one of the first countries to establish an obligatory, non-financial reporting system for certain companies. Other countries to have passed legislation on the disclosure of non-financial information include The Netherlands in 1997 and the United Kingdom in 2006 and in 2008.

Although there have been legislative advances in non-financial disclosure related to sustainability, the comprehensive inclusion of biodiversity remains limited. In 2012, France was the first country to explicitly refer to biodiversity among the subjects to be covered in non-financial reporting

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documents¹². In China an Annual CSR Report is ‘required’ by the State Administration of State- Owned Enterprises’, a state institution to oversee and supervise the Chinese state-owned enterprises.

Companies must report on biodiversity and ecosystem services impact in this report. While South Africa has a well-developed policy and legislative framework for biodiversity, mandatory disclosure requirements for public and private South African companies listed on the stock exchange, such as KING IV, do not include specific requirements around biodiversity.

In the most part, countries encourage rather than mandate companies to disclose biodiversity information. For example, the UK’s environmental reporting guidance includes biodiversity and explains how companies can set targets or “key performance indicators” (KPIs). The Netherlands produced a Guide to Sustainable Reporting in 2003 that states that sustainability reporting also discloses information on the effects of business operations on biodiversity and the measures taken to limit these. It doesn’t however provide guidance on how this is to be done leading to highly variable disclosure of biodiversity impacts and mitigation.

One mandatory system for monitoring in countries relates to Environmental Impact Assessment (EIA) regulations. Where biodiversity impacts have been included, this very often requires assessment of potential impacts and monitoring to ensure compliance with the Environmental Management Plan.

This however is a project level process, rather than corporate level, and the outputs of these monitoring programmes are not necessarily included in corporate level reporting.

No Net Loss (NNL) and Net Gain (NG) legislation is gaining traction. For example, the EU NNL legislation that calls for the development of a methodology to assess the impact of EU funds on biodiversity. The aim is for the European Commission to develop an initiative which ensures NNL of biodiversity and ecosystem services.¹³ There are now over 100 countries with policies and legislation related to NNL or NG.¹⁴ Such policies require quantification of biodiversity impacts and mitigation efforts to establish residual impacts for the design of compensation measures. These need to be monitored and reported as part of impact assessment and mitigation legislation. However as before this information is not necessarily systematically collected and made available at corporate level.

Evolving measurement approaches for corporate disclosure may therefore have more uptake if they are aligned with these existing site level legislative requirements

Voluntary

While mandatory requirements are often lacking there has been progress regarding voluntary reporting frameworks. Decisions under the Convention on Biological Diversity highlighted the important role of voluntary reporting for achieving corporate disclosure of biodiversity impacts.

Governments can play an important role in encouraging uptake of voluntary requirements, however these instruments can also help drive better performance in the absence of government leadership.

This is being witnessed in some countries.

12 IUCN French Committee (2014) Corporate Biodiversity Reporting and Indicators: Situation Analysis &

Recommendations. Paris.

13 https://ec.europa.edu/environment/nature/biodiversity/nnl/index_en.htm

14 https://portals.iucn.org/offsetpolicy/

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The GRI Sustainability Reporting Standards are the main mechanism for voluntary reporting that is used by companies around the world. These include standards and indicators related to biodiversity.

Of the world’s largest 250 corporations, 92% report on their sustainability performance and 74% of these use GRI’s Standards to do so.’ In addition, 35 countries use GRI in their sustainability policies¹⁵. The four performance indicators that relate to biodiversity aspects in the G4 guidelines¹⁶ are:

• Disclosure 304-1 Operational sites owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas

• Disclosure 304-2 Significant impacts of activities, products, and services on biodiversity

• Disclosure 304-3 Habitats protected or restored

• Disclosure 304-4 IUCN Red List species and national conservation list species with habitats in areas affected by operations

While this standard has achieved significant uptake, the inclusion of biodiversity aspects is based on an assessment of whether it is a material issue to the company and it is therefore not always included.

Furthermore, the indicators have been unchanged since 2016 and biodiversity management

approaches have matured considerably since then. The GRI is anticipating revising the indicators in the next two years. In China it was reported by a country expert that in 2017, there were over 2,000 CSR reports in China, of which only 17% mentioned biodiversity.

The CDP, formerly the Carbon Disclosure Project, is an organisation which works with shareholders and corporations to disclose information on environmental impacts, focusing on climate, water and forests. CDP asks companies for data on their environmental performance and then transform the data into analysis of environmental risks, opportunities and impacts. Investors, business and policy-makers then use these results in decision-making, managing risk and capitalising on opportunities. This past year, CDP released a new questionnaire, aimed at the mining sector, which specifically asked about biodiversity among questions covering climate change, water, forests and supply chain. Over 7,000 companies responded to this questionnaire. CDP also houses the forest footprint disclosure tool, which covers carbon, water, forests, and biodiversity.

The Task Force on Climate-Related Financial Disclosures (TCFD) have developed voluntary, consistent climate-related financial risk disclosures for use by companies to provide information to investors, lenders, insurers, and other stakeholders. It considers the physical, liability and transition risks associated with climate change and effective financial disclosures across industries

The TCFD helps companies understand what financial markets want from disclosure for measuring and responding to climate change risks and has been instrumental in creating awareness on cliate change disclosure. One of the key recommendations from WWF France and AXA for the members of

15 https://www.globalreporting.org/information/sustainability-reporting/Pages/gri-standards.aspx

16 https://www.globalreporting.org/standards/gri-standards-download-center/gri-304-biodiversity- 2016/

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the G7 Environment meeting in 2019¹⁷ was to launch a Task Force on Nature Impacts Disclosures.

This is seen as a way to support the transition towards protection, restoration and promotion of biodiversity. This is currently under development through the Global Canopy Programme.

The World Benchmarking Alliance has been developed to support reporting against the SDGs.

There are seven benchmarks, including one on food and agriculture where biodiversity is included as one of the key environment topics. This aims to translate these globally recognised targets into meaningful and actionable targets for the private sector.

The Climate Standards Disclosure Board is an international consortium of business and environmental NGOs that aim to align the global mainstream corporate reporting model to equate natural capital with financial capital. They provide a framework for reporting environmental information. With support from the European Union’s LIFE fund they are aiming to improve companies’ ability to report on natural capital, including biodiversity.

There are also voluntary standards being developed at the national level. For example in Brazil, companies voluntarily report against the LIFE initiative, which grants LIFE certification to businesses, which implement the LIFE Methodology. Now operational beyond Brazil, this

methodology helps business identify their impacts and design a strategic plan to reduce, mitigate and compensate them.¹⁸

It was felt by country experts that these initiatives motivate companies to disclose their impact on biodiversity. Large companies competing within the same sector do not want to fall behind and therefore want to demonstrate their competitive advantage related to sustainability.

Mandatory versus voluntary disclosure

Experts in some countries felt that there would be a lot of resistance to enacting further legislation on disclosure of impacts, without a clear rationale for how this would encourage better performance. The role for government at this stage was felt to lie in building awareness among their industries of the risks associated with biodiversity loss and the key role that companies can play in mitigating impacts, addressing dependencies and driving transparency. It was also highlighted by country experts that voluntary disclosure of impacts allows for more constructive dialogue between the company and the government. Nonetheless it was also highlighted that once voluntary practices and disclosure are established then making it mandatory will increase the reach to those companies less engaged.

17 Into the wild: integrating nature into investment strategies (2019) WWF France and AXA recommendations for the members of the G7 Environment meeting in Metz, 5-6 May 2019.

https://d2ouvy59p0dg6k.cloudfront.net/downloads/report_wwf_france___axa_into_the_wild_may_2019__d v_1.pdf

18 EU Business @ Biodiversity Platform (2018) Assessment of Biodiversity Accounting Approaches for Businesses and Financial Institutions

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3. Current and future practice of corporate biodiversity reporting and disclosure

3.1. Sustainability disclosures – a fragmented landscape focused on environmental issues

Driven both by mandatory and voluntary reporting requirements, over 90% of the world’s 2 250 largest companies now report on their sustainability practices and impacts, with most of them using the GRI Standards (KPMG, 2017¹⁹). Furthermore, the Reporting Exchange found that environmental topics have been consistently the most prevalent ESG reporting requirements (69% of all reporting requirements catalogued worldwide in 2017). A study by ACCA (the Association of Chartered Certified Accountants) and CDSB (the Climate Disclosure Standards Board) (2016²⁰) argues that despite progress made in sustainability reporting and its growing importance, the fragmentation of the discipline is weakening its impact. In other words, sustainability accounting and disclosure practices have yet to generate the same level of influence as financial statements do. As highlighted in the previous section, sustainability reporting does not often include biodiversity and therefore the impact of current practice around sustainability reporting for disclosure of biodiversity impacts remains very weak.

A number of academics, practitioners and organisations have called for reporting on biodiversity or natural capital to be significantly improved. For instance, they argue that current practices fall far short of providing the detailed sustainability information needed by the institutional investment community for investment decision-making (e.g., Solomon et al., 2011; UNEP PRI / UNEP FI 2011).

3.2 Types of disclosure

Currently, there are four complementary ways for companies to report on environmental impacts and dependencies, including those related to biodiversity:

• Narratives about the company’s management approach are used to explain how reporting organisations deal with a specific issue, which may include disclosing adherence to specific standards, frameworks, targets or charters;

• Quantitative non-monetary information is disclosed to express how the reporting organisation uses and / or impacts the environment (e.g., using GRI indicators);

• Financial information may be disclosed to explain the financial implications or consequences of a material event (e.g. mine closure liability, oil spill fines);

• Information on externalities, disclosed by a very limited number of companies to date (e.g. BSO / Origin – Huizing & Dekker, 1992; Novo Nordisk - Danish Environmental Protection Agency 2014; Kering from 2014), is used to present the uncompensated economic impacts on society

19 KPMG (2017). The KPMG Survey of Corporate Responsibility Reporting 2017. Available at:

https://home.kpmg/content/dam/kpmg/campaigns/csr/pdf/CSR_Reporting_2017.pdf

20 ACCA and CDSB (2016), Mapping the sustainability reporting landscape: Lost in the right direction.

http://www.accaglobal.com/uk/ en/technical-activities/technical-resourcessearch/2016/may/mapping- sustainabilityreporting-landscape.html

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generated by the reporting organisation (e.g. economic costs of company air and water emissions).

However, mainstream corporate sustainability reporting related to environmental impacts and dependencies is currently essentially limited to the first (management narratives) and second (quantitative non-monetary information) types of disclosures. Besides, quantitative non-monetary information is currently mostly focused on:

• Non-product outputs or emissions such as greenhouse gas (e.g. GHG Protocol scopes 1, 2 and 3 – WRI & WBCSD 2004²¹; GRI 305 indicators - GRI 2016), hazardous waste and spills (e.g.

GRI 306 indicators – GRI 2016);

• Amounts of material inputs such as material used (weight or volume) (e.g. GRI G4 - EN1 indicator) and water withdrawal by source (e.g. GRI G4 - EN8 indicator).

3.3. Extremely limited corporate biodiversity disclosures

As shown recently by Addison et al. (2018)²², in their assessment of the top 100 of the 2016 Fortune 500 Global companies’ sustainability reports, 49 of the Fortune 100 mentioned biodiversity in their reports, and 31 made clear biodiversity commitments, of which only 5 were specific, measurable, and time bound. A variety of biodiversity-related activities were mentioned (e.g., managing impacts, restoring biodiversity, and investing in biodiversity) (i.e. narratives), but only 9 companies provided quantitative indicators to verify the magnitude of their activities (e.g., area of habitat restored). Yet, these quantitative estimates of beneficial activities for biodiversity are never compared to the quantified magnitude of negative impacts on biodiversity that these companies generate. The limited extent and poor quality of biodiversity disclosures are corroborated by other studies targeting different samples, including (but not limited to):

- A 2016 note “business reporting on biodiversity” by the Executive Secretary of the CBD for the Subsidiary Body on Implementation²³.

- An assessment of the biodiversity disclosure of Johannesburg Stock Exchange listed companies in 2018²⁴.

It must however be noted that while corporate disclosure of biodiversity impacts and dependencies remains limited, there has been increasing efforts by the corporate sector to quantify their impacts and achieve targets of no net loss or a net gain of biodiversity. This has been driven by standards set by the finance sector, including the International Finance Corporations Performance Standard 6, as well as national legislations and policies (e.g., EU NNL policy, Uganda’s new Environment Bill, US Clean Water Act for wetlands). These require quantitative assessments and monitoring of business on some aspects of biodiversity as part of site level environmental permitting processes. This information

21 The Greenhouse Gas Protocol (2004) A Corporate Accounting and Reporting Standard. WBCSD and WRI.

Available at https://ghgprotocol.org/sites/default/files/standards/ghg-protocol-revised.pdf

22 Addison, P.F.E., Bull, J.W. and Milner-Gulland, E.J. (2018a). ‘Using conservation science to advance corporate biodiversity accountability’. Conservation Biology. https://doi.org/10.1111/cobi.13190.

23 https://www.cbd.int/business/sbi-01-inf-12-en.doc;

24 https://www.ewt.org.za/wp-content/uploads/2019/02/biodiversity_report_a4_v3.pdf.

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however remains buried in monitoring reports that are rarely disclosed or fed into corporate level reporting.

3.4 Disclosures in the context of natural capital

Natural capital refers to the stocks of renewable and non-renewable natural resources (e.g., plants, animals, air, water, soils, minerals) and the associated flows of ecosystem services which benefit people and companies (Natural Capital Protocol 2016). Biodiversity is an integral part of natural capital and interaction between its components ensure the quality, quantity and reliability of various ecosystem services. Sustainably managing and conserving renewable natural capital²⁵ involve complementary factors, including their ability to sustain (renew) themselves (e.g., sufficient space and time to do so) and the implementation of cost-effective management systems.

The disclosure of environmental performance indicators and biodiversity within that, directly refers to flows of resources, both inputs and outputs of the reporting organization. In other words, the underlying changes in natural capital stocks (e.g. stocks of renewable resources, air or water quality) are not disclosed to external stakeholders. In addition, these disclosures do not explicitly refer to a baseline year and are valid only for the reporting period (e.g. amount of materials used over the reporting period).

This leads to a series of annual disclosures with no information on net impacts or changes since a relevant baseline year (e.g. starting date of resource exploitation or emission generated).

3.5 The importance of disclosing net impacts on biodiversity

To understand if a business sustainably manages a specific renewable natural capital stock (e.g., wetland or forest) and therefore to effectively report on biodiversity, it is important to understand its status (amount, condition, location) and track any changes due to the companies activities and, potentially, those of others that may also rely on these stocks.

Fortunately, this has already been recognised by several companies. As shown by de Silva et al. (2019), a number of companies have adopted voluntary biodiversity commitments, including those to achieve a no net loss (NNL) or Net Gain (NG) on biodiversity by balancing or outweighing any negative impacts through mitigation activities. Between 2001 and 2016, 66 companies had made NNL/NG environmental commitments, with 33 making specific biodiversity commitments. However, there were only 18 companies with active NNL/NG biodiversity commitments in 2016 as some commitments were retracted, or their status became unclear. While there has been a lot of progress in the development of quantitative metrics to assess the achievement of these targets at the site level, corporate level reporting on these elements remains a challenge, in part due to a lack of agreed and standardised measurement approaches and accounting framework to consolidate this information at corporate level.

25 Non-renewable or exhaustible natural capital stocks cannot be sustainably managed in themselves: the only option is to manage the rate of exploitation or use.

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3.6. The possible contributions and limitations of biodiversity measurement tools

A key challenge around effectively reporting on a company’s biodiversity impact is that it requires extensive effort to monitor the state and condition of biodiversity at given locations. Through providing ways of measuring state and / or condition the biodiversity measurement approaches analysed in this project will enable companies to assess the scale of their impacts on biodiversity which, as shown by Addison et al. (2018)²⁶, is the critical piece of information missing from current corporate biodiversity disclosures. By assessing the scale of their impacts, it can be expected that reporting organisations will be in a better position to adopt / define biodiversity policies, strategies and science-based targets and disclose the scale of their risks / exposure and opportunities.

However, biodiversity measurement approaches have some key differences:

• Different output data or key performance indicators: some focus on impacts on ecosystems / habitats / land cover (e.g., BFFI, GBS, PBF) while others focus on species (e.g., STAR) or monetary values (e.g. EP&L).

• Some approaches model or extrapolate biodiversity impacts from indirect environmental pressure data (e.g., GHG emissions and water use) (e.g., BFFI, EP&L, GBS, PBF) while others use primary biodiversity data to measure actual changes in biodiversity (e.g., Biodiversity Indicators for Extractives). In the case of the former these approaches are therefore not responsive to site-level management intervention, and don’t allow for the effectiveness of mitigation efforts to be recognised for a specific project;

While site level data is required to accurately assess a change in state, for many sectors, this is not possible. Hence use of global data sets and extrapolations are the only means by which measurement is currently possible. Each approach is therefore likely to have a varying role in disclosure. For example the need to disclose identification and management of risk or the need to disclose effectiveness of impacts mitigation responses. Equally different approaches are more or less suitable for reporting against global policy targets. To gain greater clarity on how they could each be used external disclosure purposes, developers of measurement approaches were asked to indicate whether their approach was able to deliver against external disclosure and policy target requirements. See table 1 below. The majority of approaches, while designed as biodiversity metrics or indicators are not designed with the intention of enabling disclosure of corporate level performance. The exception to this is the Biological Diversity Protocol. This is an accounting framework that is compatible with those measurement approaches that use real data and as such has the most direct relevance to corporate reporting.

Table 1. The utility of biodiversity measurement approaches for external disclosure and reporting against policy targets based on information provided by developers.

Approach External disclosure Policy targets

Agribiodiversity Index (Biodiversity International)

Allows comparison of company performance, but not yet adapted or tested for companies.

Can help monitor company’s contribution to the global development goals and targets

2626 Addison, P.F.E., Bull, J.W. and Milner-Gulland, E.J. (2018a). ‘Using conservation science to advance corporate biodiversity accountability’. Conservation Biology. https://doi.org/10.1111/cobi.13190.

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related to agricultural agrobiodiversity. IN particular Aichi Target 7 related to sustainable agriculture.

Biodiversity Footprint Financials (ASN)

Not designed to reflect external reporting requirements. This may change if biodiversity reporting requirements for financial institutions are introduced.

Not designed to reflect or link into global targets on biodiversity.

However, a financial institution can link the footprint result to references like the Aichi targets and SDGs to decide on the steps following the footprint.

Biodiversity Impact Metric (CISL)

Not designed to reflect reporting requirements, could be used for external reporting. Does not provide insight into overall performance, but can provide indication of where potential issues/ risks might lie in the supply chain.

Consistent with monitoring and measuring impacts related to SDG15.

Biodiversity Indicators for Extractives (UNEP-WCMC)

Primarily designed for internal reporting purposes. The possibility of adapting indicators to meet external reporting needs will be explored once piloting has been completed at the end of 2019.

Can link to corporate contributions to Sustainable Development Goal targets, for example 15.5

Biodiversity Performance Tool (Solagro)

Not designed for external disclosure at corporate level but to assess farm level performance.

Direct link to SDG 15 “protect, restore and promote biodiversity on land”

Global Biodiversity Score (CDC)

LIFE certification (LIFE Institute)

Response not clear. Designed to global targets, as:

o Aichi Targets: see Principle 7 of LIFE Biodiversity

Management Standards.

o Global targets on biodiversity: Ecoregions classification and fragility;

national biodiversity priorities; IUCN protected areas classification.

o SDGs:

Product biodiversity footprint (iCare)

Methodology is at product level, not appropriate for corporate disclosure unless company produces a limited number of products and services and impact of each is added.

not suitable for tracking progress to high level societal targets such as Aichi targets,

Species Threat Abatement and Recovery

Not designed for corporate reporting Exploring means by which approach can be linked into post 2020 targets

Biodiversity Footprint Financials (ASN)

Not designed to reflect external reporting requirements. This may change if biodiversity reporting requirements for financial institutions are introduced.

Not designed to reflect or link into global targets on biodiversity.

However, a financial institution can link the footprint result to references like the Aichi targets and SDGs to decide on the steps following the footprint.

3.7. Using a biodiversity accounting framework to account for net impact

The Biological Disclosure (BD) Protocol is based on the assumption that for any impact accounting framework to be able to present a complete and accurate representation of the net consequences of an organisation, it must be able to account for both periodic (e.g. annual) and historical (e.g. since the start

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of a business) performance. This is the case with financial accounting and reporting, which uses double- entry bookkeeping to produce Statements of Financial Position and Performance (i.e. Balance Sheet and Profit / Loss Statement).

To help provide a comprehensive audit trail of the biodiversity impacts of an organisation, the BD Protocol embraces an accounting framework that enables the measurement of net impacts over time.

This involves the development of biodiversity accounts which record and allow the monitoring of both periodic and accumulated changes in biodiversity (for both impacts on ecosystems/ habitats / land cover and species). The BD Protocol adapts double-entry bookkeeping to that end. Accounting for biodiversity impacts revolves around the following equations:

• Statement of Biodiversity Position: (A) total biodiversity impacts (i.e. biodiversity assets or stocks) = (B) accumulated positive impacts + (C) accumulated negative impacts;

• Statement of Biodiversity Performance: (E) net biodiversity impacts over the accounting period = (F) periodic positive impacts or gains - (G) periodic negative impacts or losses.

The BD Protocol can be used by biodiversity measurement approaches to produce Statements of Biodiversity Position and Performance. The draft BD Protocol currently requires adherence to the accounting and reporting principles listed below (section 3.8.), which includes building a biodiversity impact inventory based on primary, site-based biodiversity data. As many of the biodiversity measurement approaches are not based on site level data, but on globally available data, there may be limitations in their utility as part of the BD protocol.

3.8. Common ground principles for future corporate biodiversity disclosures

Provided there is either greater corporate interest in biodiversity disclosure processes and / or more incentives to do so, future biodiversity disclosures are likely to progressively adapt. Based on the principles of sustainability disclosure developed by groups such as GRI and CDP required aspects are likely to include:

• Governance;

• Disclosure boundaries and exclusions, with clear impact inventory;

• Net impacts on biodiversity (i.e. changes in the state of biodiversity);

• Dependencies;

• Risks / exposure and opportunities, including financial implications for the reporting organisation and externalities (e.g., monetary valuation of biodiversity impacts such as the loss of ecosystem services)

• Business policy, strategy and science-based targets;

• Implementation, including management actions, procedures and expenditures;

• Verification / independent 3^rd party audits.

To improve the quality of biodiversity disclosures, accounting and reporting principles would need to be adopted by reporting organisations, as is done for the disclosure of GHG emissions using the GHG Protocol. For instance, the Biological Diversity Protocol (draft 1 under consultation) proposes some key principles listed below:

• Relevance: Ensure the biodiversity impact inventory appropriately reflects the biodiversity impacts of the company and its value chain. It shall serve the decision-making needs of users, both internal and external to the company.

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• Completeness: Account for and report on all biodiversity impacts within the chosen organisational and value chain boundaries. Disclose and justify any exclusion.

• Consistency: Use consistent methodologies to allow for meaningful comparisons of biodiversity impacts over time. Transparently document any changes to the data, inventory boundary, methods or any other relevant factors in the time series.

• Transparency: Address all relevant issues in a factual and coherent manner, based on a clear audit trail. Disclose any relevant assumptions and make appropriate references to the data collection and estimation methodologies used.

• Equivalency (critical for net impact accounting, based on mitigation hierarchy): Ensure that the notion of equity in the type of biodiversity (i.e. ecological equivalency or like-for- like principle) is integral to biodiversity impact inventory development and accounting.

Undertake net impact accounting only for equivalent biodiversity losses (negative impacts) and gains (positive impacts).

• Accuracy: Ensure that the measurement of biodiversity impacts is systematically accurate, as far as can be judged, notably by reducing uncertainties as far as is practicable. Achieve suitable accuracy to enable users to make decisions with reasonable assurance as to the integrity of the reported information. When no direct observation is possible, estimate impacts on the basis that they are reasonably likely to occur, recording all methodological limitations.

• Time period assumption: Account for biodiversity impacts consistently across business reporting periods.

Corporate biodiversity measurement approaches within the current and future global policy context