How can organisations best prepare for future challenges in sustainability policy? BNP Paribas’ Strategic Sustainability Advisor Rado Georgiev sees three areas where upcoming changes present both challenges and opportunities. The adaptation of European ESG regulation calls for action as early as next year. In addition, policies to combat greenwashing are on the drawing board and the first steps are now being taken to also integrate biodiversity protection into corporate reporting.
1. Prepare for upcoming ESG regulation
Organisations are bracing for the application of the new EU Sustainability Reporting Standard (SRS) that will be introduced as early as 2024 under the Corporate Sustainability Reporting Directive (CSRD). It supersedes the existing Non-Financial Reporting Directive (NFRD). The CSRD, possessing a broader scope than its predecessor, will be implemented in stages, starting with companies that are currently covered by NFRD until it extends to even SMEs in 2029.
This means that many organisations will need to start collecting and reporting ESG data for the first time. Those with established ESG reporting will still need to revise their approach to align with the SRS’ double materiality principle. Companies must outline both their societal and environmental impact (impact materiality) and the sustainability issues that influence the company financially (financial materiality). The CSRD also requires companies to map their economic activities to the EU Taxonomy, a recently expanded classification of sustainable activities.
While CSRD and the EU taxonomy are the immediate priorities for corporate sustainability officers, many are also keeping an eye on the progress of the draft Corporate Sustainability Due Diligence Directive (CS3D). This directive sets more stringent requirements for assessing human rights and environmental risks in supply chains. The timeline for implementing this directive is still unclear.
2. Review your corporate sustainability claims
Recently, the EU Commission proposed a Directive on Green Claims aimed at setting stricter requirements on how companies make environmental claims targeted at consumers. This proposed Directive introduces penalties for greenwashing, necessitating companies to support their environmental claims with a comprehensive ex-ante assessment. The proposal follows a 2020 EU Commission study which found that 53.3% of the reviewed claims were vague, misleading, or unfounded, and 42% could potentially amount to an unfair commercial practice.
According to BNP Paribas Exane research, the Directive has the potential to increase the risk of litigation. Departments responsible for implementing sustainability policies may want to partner with marketing and compliance teams to review any existing and new sustainability claims and ensure these are well founded.
3. Identify opportunities to contribute to global biodiversity goals
While climate change has taken centre stage in many companies’ sustainability strategies, there is clear scientific evidence that achieving net zero is not possible without protecting critical ecosystems. Regulators, investors, and companies are expanding their sustainability priorities to include nature-related or biodiversity objectives.
In December 2022, governments at the Convention for Biological Diversity (CBD) COP15 in Montreal agreed on a new global framework for nature conservation to 2030. This includes a commitment to ensure that at least 30% of land areas and sea areas are conserved. In May 2023, guidelines for the first set of company targets under the Science Based Targets Network (SBTN) were released. The guidelines encompass two freshwater and three land-based targets, with more expected to come in future versions across biodiversity and ocean environments.
For freshwater, the first target is to reduce excess freshwater use, while the second target focuses on reducing nitrogen and phosphorus pollution of water caused by businesses. For land, the targets focus on stopping deforestation, reducing companies’ land footprint (the amount of land used in a production process) and increasing involvement in nature conservation initiatives. Seventeen participating companies from the SBTN will set the first science-based nature conservation target by the end of 2023.
While there are no Dutch companies among the pioneers, SBTN is open to early applications. Corporate Sustainability Officers can take inspiration from this and other initiatives such as the Taskforce for Nature-related Financial Disclosures (TNFD). Early adopters will be better prepared to meet new investor demands from coalitions like Nature Action 100 and the Finance for Biodiversity pledge.
In BNP Paribas’ podcast ESG Even Samen Gevat we talked to co-initiator Anita de Horde about the Finance for biodiversity Foundation and the Finance for Biodiversity Pledge she presented at COP15. You can listen to this episode here.