As the world faces a significant climate change crisis, the demand for businesses and organisations to be transparent and accountable about their impact on nature continues to grow at pace.
But with an array of regulations to understand and conform to, including nature-related and climate-related financial disclosures, it can be a bewildering journey even for those organisations committed to creating a greener future.
A major development on the subject was the Corporate Sustainability Reporting Directive (CSRD), which came into force on January 5, 2023. This is the EU requirement for corporate organisations to begin disclosing their impact on nature.
They can no longer say they simply support the environment and are sustainable – they need to show the evidence. The first companies will be required to apply the new rules for the 2024 financial year, which will be reported in 2025.
Here, our expert Megan Russell, CSX’s quality assurance and compliance lead, explains how organisations can put sustainability and responsible business practices at the centre of their work.
What are nature-related financial disclosures?
Nature-related financial disclosures are designed to provide transparency about how businesses and organisations monitor and trace their impact on nature and their opportunities to drive a more positive approach.
Our vital ecosystems and biodiversity can be impacted by negative factors such as deforestation, pollution, carbon emissions and the destruction of natural habitats. Their decline affects the likes of clean water, carbon sequestration, ecosystem sustainability and climate regulation – and can undermine the financial stability of businesses that rely on them.
The Taskforce on Nature-related Financial Disclosures (TNFD) was established in 2021 to establish a roadmap to help companies to assess, report and act on their nature-related dependencies. It lays out a recommended framework of what they need to disclose.
What are climate-related financial disclosures (CRFD)?
Climate-related financial disclosures (CRFD) are mandatory reporting requirements for large companies to identify and disclose the risks and opportunities they face due to climate change. They were introduced in April 2022, in line with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations.
Their aim was to increase the quantity and quality of climate-related reporting across the UK business community, including among some of the most economically and environmentally significant. Businesses need to consider the risks and opportunities they face because of climate change and are encouraged to outline their emission reduction plans and sustainability credentials.
How are these climate and nature-related financial disclosures changing?
CRFDs form part of nature-related disclosures and both come under the umbrella of the Corporate Sustainability Reporting Directive (CSRD), the new EU directive affecting large and listed companies.
In 2025, this sustainability regulation will require corporate organisations to begin disclosing their impact on nature and the resulting financial implications, their risks and dependencies.
The CSRD is informed by the European Sustainability Reporting Standards (ESRS) which cover environmental, social and governance issues, including climate change, biodiversity and human rights.
The standards cover the type of disclosures and the data needed to comply with an emphasis on digital reporting to streamline data collection. The legislation aims to increase a company’s trustworthiness to the public, stakeholders and investors – and could also lead to more EU funding for sustainable activities.
While the CSRD will impact companies that meet requirements including a €40 million net turnover or having more than 250 employees, small and medium enterprises will come into scope in the future.
How can CSX help companies conform to the Corporate Sustainability Reporting Directive (CSRD)?
It’s important that the sustainability and finance teams in a corporate organisation collaborate closely – but many will have gaps in their processes that CSX can support.
We can help assess their impact on nature and ensure data-collection methodologies are robust through CSX’s digital twin approach and extensive data streams. By using our expertise, we can further support disclosure-ready metrics and targets.
We can adapt our biodiversity and carbon workstreams to work in harmony together to help organisations collect the baseline and monitoring data to assess their impacts through, for example:
- Improving habitats and ecosystems with tree planting and peatland restoration
- Using our extensive carbon knowledge to look at above-ground biomass
- Assessing bird populations through our acoustic monitoring service to indicate improving biodiversity
- Studying emissions and creating a carbon sink, which absorbs more carbon from the atmosphere than it releases as carbon dioxide
- Biodiversity assessments, expanding on our biodiversity net gain (BNG) expertise in creating and improving natural habitats in a measurable way.
- Producing a topographic wetness index (TWI) and digital elevation models (DEM) to understand potential flow paths and water accumulation to potentially introduce ponds or wetlands or introduce flood mitigation measures
- Terrestrial laser scanning in woodlands to build a 3D model of an individual tree to calculate its above ground biomass to then estimate carbon sequestration
- Drone imagery to collect high resolution images – creating a digital twin – of the land to build a time series analysis that demonstrates land use change and its impact
Do companies know they need to conform to the Corporate Sustainability Reporting Directive in 2025?
Many companies are fully aware of the directive and are already working towards fulfilling the requirements, with climate-related financial disclosures in force as part of their sustainability reports.
However, they will need to include much more data from 2025 and link their sustainability targets with both the financial aspects of the business and their supply chain management.
From next year, many companies will look to frameworks such as The Taskforce on Nature-related Financial Disclosure (TNFD), a voluntary framework aligned to CSRD, for guidance on integrating nature dependencies into decision-making. They will need to produce their baseline data and implement an improvement action plan over the following months and years.
Once that starts, their reports – which will be published towards the end of the year – should become all-inclusive, featuring climate, nature and finance data and considering their impacts, dependencies and risks.
How can companies capture their baseline nature data?
A business could have several data sources depending on their activities such as their own and their supply chain’s water or land usage. With each one, they need to measure the whole life carbon cost, from cradle to grave, including considerations into Scope 3 emissions and impact on nature
An important part of the requirements is how their supply chain operates, for example a manufacturer that is supplied with raw materials needs to explain the process, or a meat producer must include the farmers supplying the product through to the supermarket selling the goods.
They must consider the carbon emissions involved in the production, farming and transport processes, including land use. Land degradation, such as in intensive farming, makes it less productive – and profitable – in future and can damage local habitats and ecosystems. Baselining nature data ensures there is robust data in place to set targets and work towards ongoing monitoring.
How do companies know how much carbon to offset?
With the UK facing an ambitious target of reaching carbon net zero by 2050, many businesses and organisations are setting their own targets for 2030 and 2040 in preparation of meeting this target.
They need an action plan for collecting more data and introducing further metrics to compile the baseline information they need to understand where the gaps are.
For example, a farmer wanting to reduce the carbon emissions of the overall farm could introduce woodland planting or different activities such as restoring areas of land. At CSX, we can work with them to achieve their decarbonisation target.
In addition, preparing local nature recovery strategies is a statutory requirement for every local authority in the UK under the Environment Act 2021. Each local nature recovery strategy (LNRS) will be locally-led with public, private and voluntary sectors working together to agree how and where to recover nature in an area and improve the wider environment.
Do businesses need more support in making nature-related disclosures?
The information around the framework for the Taskforce on Nature-related Financial Disclosures (TNFD) can seem overwhelming and is not necessarily provided in a digestible and standardised way. People have been told to meet financial-related disclosures in compliance to CSRD – but more information on how to do it is essential.
There are so many different angles to look at, but ultimately it’s all trying to achieve the same goal. We need to support businesses to show them the best methods of bringing all the elements together.
There could be serious repercussions for businesses who are non-compliant. For example, non-compliance or failure to accurately disclose and report on CSRD could lead to financial penalties, mandated changes to conduct and public disclosures detailing shortfalls, which can affect an organisation’s reputation.
One of the biggest issues that organisations face is their supply chain visibility – they must use updated systems that can accurately receive, transfer and track nature and climate monitoring data up and down the supply chain.
What type of companies can CSX help?
The need for reliable sustainability monitoring and reporting is here to stay and will continue to evolve over the coming years.
Embracing and understanding the range of regulations and how they affect different businesses now can stand a company in good stead for future requirements. It is also a great way of highlighting its approach to sustainability and how that adds value to the business and the wider environment.
We can work with any organisation across many industries, such as farming, the food sector and chemical production in understanding their impacts on nature, supporting with the metrics needed and providing the data to conform to the requirements. We understand the importance of science-based data that is accurately researched and verified and provides a detailed audit trail.
Get in touch today
Our specialists have the methodologies to collect large amounts of data about carbon levels, biodiversity and ecosystems to support your business aims.
Contact our CSX experts today for a thorough assessment to find out how we can futureproof your sustainability requirements and compliance needs, by either emailing contact@csxcarbon.com, calling us on 01609 786655, or visiting our contact page.