Paris for climate. Kunming-Montreal for biodiversity.
In terms of its rank and significance (nearly 200 countries involved in negotiating the content of the agreement), this document may resemble the Paris Agreement developed in 2015, which today forms the basis and framework for the climate strategies of almost all countries in the world and many companies and financial institutions. References to the Paris Agreement can be found, among others, in the GRI Standards, the EU SFDR Regulation, the Taxonomy, the CSRD Directive, and the draft ERSRs, i.e., the European Sustainability Reporting Standards.
Global biodiversity framework for the period after 2020: What exactly does the Kunming-Montreal Agreement entail?
Ambitions Kunming-Montreal Agreement on Biodiversity are focused around four main goals and 23 specific goals (tasks). The whole refers to two time horizons, 2030 and 2050, and the following tasks caught our attention:
- protecting 30% of land and sea areas and managing these areas responsibly,
- starting or completing the restoration of degraded terrestrial and aquatic ecosystems in order to increase biodiversity and restore their functions and services,
- halving food waste by 2030 and reducing global consumption through, among other things, education,
- sustainable management of areas where agriculture, aquaculture, fisheries, and forestry are practiced, and a significant increase in agroecology and other biodiversity-friendly practices,
- combating climate change through nature-based solutions (NBS),
- recognition and respect for the rights of indigenous communities, their knowledge, and the role they can play in protecting biodiversity,
- phasing out (by 2030) subsidies that harm biodiversity by at least $500 billion per year, while increasing incentives for sustainable and biodiversity-friendly activities,
- by 2030, establish a biodiversity fund with at least $200 billion annually from public and private sources,
- Require large and transnational companies and financial institutions to monitor, assess, and transparently disclose their risks, dependencies, and impacts on biodiversity through their operations, supply and value chains, and asset portfolios.
Furthermore, the agreement obliges countries to monitor and report every five years on selected indicators showing progress in achieving the above-mentioned goals (including the percentage of effectively protected land and sea areas and the number of companies disclosing their impact on and dependence on biodiversity).
What next? What does this mean for companies?
The countries that have signed the agreement (more than 180) will have to implement frameworks for these commitments at the national and international levels and, before the next COP in 2024, prepare updated national strategies and action plans as well as national biodiversity financing strategies. Comparable to the role played by the Paris Agreement in international sustainability reporting standards, the European Green Deal, and ESG ratings by rating agencies, we believe that the Kunming-Montreal Agreement will play a similar role in the area of biodiversity. The ambitions and global goals of this document will not only be embedded in the government plans of individual countries, but will also translate into businesses through the currently pending sustainability reporting standards.
ESG reporting: What and how to report if biodiversity is an important sustainability reporting topic in my organization?
- GRI Standards 2021
As a reminder, biodiversity is currently included in the GRI Standards under the index „GRI 304: Biodiversity 2016,” and there are four indicators to choose from. These are descriptive indicators that require organizations to refer to areas that are protected and/or have special status in terms of biodiversity, or require organizations to provide a concise description of regenerated areas. Please note that this standard is currently being updated and consulted on by the Global Reporting Initiative and will change in the coming months.
- CDP platform
It is worth visiting the CDP platform, where the topic of biodiversity is included in the „Climate Change” questionnaires. The questions in the section on biodiversity were developed based on guidelines prepared by the International Union for Conservation of Nature (e.g. publication of the IUCN’s Corporate Reporting on Biodiversity Guidelines„). The Forest and Water Security questionnaires, on the other hand, examine in detail the management and impact of companies, including across their entire value chain, on forest and water resources.
- CSRD and ESRSs
Issues related to biodiversity are also addressed in the ESRS (European Sustainability Reporting Standards), specifically in ESRS E4. At MATERIALITY, we encourage you to familiarize yourself with this standard today, as in addition to descriptive indicators, it includes a requirement to conduct a study of the impacts, risks, and opportunities related to biodiversity, draw up a transition plan, and demonstrate specific financial calculations related to ecosystems and biodiversity. The structure of the ESRS E4 „Biodiversity and Ecosystems” standard is similar to that of the ESRS E1 standard on climate change mitigation.
- TNFD
In addition to the existing GRI Standards, CDP platform requirements, and the draft European ESRS, it is also worth taking a look at the TNFD (Taskforce on Nature-related Financial Disclosures) Recommendations currently under consideration. Similar to the TCFD (Taskforce on Climate-related Financial Disclosures) recommendations, the TNFD recommendations propose a structure and guidelines, including metrics, for organizations to report on issues related to nature and biodiversity. It is worth taking a look. to the TNFD website, as TNFD is very similar to TCFD, which is well known to financial institutions and investors. Although TNFD will not adopt the final version until the second half of this year, we believe it is worth looking at the draft recommendations, as they organize work on biodiversity in the context of corporate governance (who is responsible for what in the company?), strategy (what goals have we set?), as well as selected metrics and risk and impact management. It is worth remembering that the European ESRS E4 standard has been adapted to the TNFD draft recommendations. As a result, a company that reports in accordance with ESRS will automatically meet the requirements of the TNFD recommendations.
- EU Taxonomy of environmentally sustainable activities
It is also worth noting that „Protecting and restoring biodiversity and ecosystems” is the sixth objective of the EU Taxonomy, which has been classifying companies' activities as environmentally sustainable since 2021. The European Commission has not yet issued a delegated regulation specifying the Technical Eligibility Criteria for a significant contribution to this objective. However, we are familiar with the draft criteria, as they were presented in a report by the Platform on Sustainable Finance. These criteria may be of great importance in the future for companies in sectors such as agriculture, food processing, travel, tourism and hospitality, infrastructure, clothing and footwear, and other industries that use natural resources.
Biodiversity in company valuation?
At MATERIALITY, we monitor current legislative work at the international, EU, and sectoral levels (new requirements for financial institutions and investors). We also participate in consultation work that will result in future regulations. In our opinion, biodiversity, as is the case with greenhouse gas emissions reporting, is not only gaining importance and will soon be included in the list of issues routinely reported by organizations. In the near future, the impact on biodiversity, dependence on it, and the risks associated with it may become a permanent feature of company valuations.
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