Biodiversity decline: is the UK government doing enough and might the approach of the EU’s proposed “Corporate Sustainability Reporting Directive” be a solution?

This article discusses the significance of the recently proposed EU Directive on Corporate Sustainability Reporting (COM/2021/189 final) and whether, in order to conserve and restore biodiversity, the UK is sufficiently keeping pace with parallel developments in the EU.

The decline of biodiversity in the UK

Biodiversity has faced an unprecedented decline in the UK despite a comprehensive suite of domestic legislation attempting to provide legal protection for key habitats, key species, biodiversity and the natural environment.  The legislation has tended to take a “stick” (rather than “carrot”) approach, using criminal sanctions and duties on public bodies as the key approaches. Examples in England are the Wildlife and Countryside Act 1981, the Badgers Act 1992, Natural Environment and Rural Communities Act 2006, and the Conservation of Habitats and Species Regulations 2017 (and its earlier iterations).Nevertheless, the UK now has an estimate of only 53% of its biodiversity intact, a strikingly low proportion when compared with countries such as Canada, with almost 90% remaining.[1] The extent of deterioration is also reflected by the 2019 State of Nature Report, detailing how the abundance of 214 UK priority species has declined by 60% since 1970.[2]  The UK Biodiversity Indicators 2021, published by DEFRA, also elucidate how key UK species and habitats are continuously declining, with 14 measures showing a decline in the long term (out of 42) and 10 showing a decline in the short term (out of 39). Those deteriorating include UK habitats of European importance, UK species of European importance, farmland birds, woodland birds, and fish size classes in the North sea.It is reasonable, therefore, to assume that the legislation adopted to date is not succeeding in protecting or restoring our natural environment.The forthcoming Environment Bill includes a suite of different provisions directed at further protection of the natural environment including a mandatory “at least 10% Biodiversity Net Gain” (BNG) requirement for developers of land in England. The Bill is expected to receive Royal Assent this year.  These requirements may assist but the BNG requirement is focussed specifically on developers of land. Hence, other sectors with direct or indirect impacts on our natural environment are not covered by these requirements.Are there therefore other approaches which could complement the existing species / habitat / biodiversity protection approach? Would incentivising businesses to recognise and appreciate the value they are obtaining from biodiversity and the natural environment, by requiring them to report on their natural environment impacts, positively inspire them to protect it?

The European Union rules on corporate Non-Financial Reporting 

The EU’s Non-Financial Reporting Directive (NFRD) (2014/95/EU) requires certain large companies and groups with over 500 employees to disclose non-financial information to provide investors and other stakeholders with a comprehensive representation of their development, performance and impact of their activities. These companies are required to provide a review of their business model, policies, outcomes, principal risks and key performance indicators (KPIs), including information on environmental matters, social and employee aspects, respect for human rights, and anti-corruption and bribery issues.The 2014 Directive does not define what is meant by “environmental matters” and therefore there is no legal requirement on any business arising from this Directive to report on its impacts on biodiversity and natural resources.  Even the non-legally binding recitals within the Directive fail to mention biodiversity and natural resources.  The recitals merely explain that the “statement should contain, as regards environmental matters, details of the current and foreseeable impacts of the undertaking's operations on the environment, and, as appropriate, on health and safety, the use of renewable and/or non-renewable energy, greenhouse gas emissions, water use and air pollution.”The UK transposed the NFRD into national law through The Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016 (SI 2016/1245) by inserting new sections into the Companies Act 2006 (s414CA and s414CB). In relation to environmental reporting, s414CB is vague.  It requires the contents of the non-financial statement to contain information on “(a) environmental matters (including the impact of the company's business on the environment).”  Following the approach of the Directive, there is no specific requirement for environmental reporting to include reporting on biodiversity impacts or natural capital impacts.The European Commission published guidelines to accompany the 2014 Directive on the disclosure of non-financial information, which do in fact refer to biodiversity and natural resources. For example, the guidelines suggest “environmental matters” may include the use and protection of natural resources and the related protection of biodiversity, and that KPIs may include impacts and dependences on natural capital and biodiversity. Nevertheless, as this guidance is not mandatory and the 2014 Directive itself and the 2016 Regulations are silent on the issue of natural resources and biodiversity, there is no legal requirement in the UK for the large companies, which are subject to the 2016 Regulations, to report on their impacts on biodiversity and natural resources.

The Dasgupta Review

Earlier this year, HM Treasury published “The Dasgupta Review” (2 February 2021) led by Sir Partha Dasgupta, featuring an independent global review on the Economics of Biodiversity. The Review stipulates that our current measure of economic success encourages society to pursue unsustainable economic growth. It asserts how we, as a collective human race, are destroying biodiversity as a result. Dasgupta encapsulates how, through the unification of economics and ecology, we can reexamine how we think, act and measure economic success in order to restore biodiversity.Dasgupta concluded that our demands on the natural world far exceed supply, placing biodiversity under great pressure. As our economies and livelihoods depend on nature as our “most precious asset,” this places future generations in danger. The institutional failure to recognise nature’s worth to society has ultimately been enabled by the ignorance of natural capital from economic perspectives.As a solution, Dasgupta proposes a measure of prosperity in favour of “inclusive wealth” which includes nature as an asset, as opposed to GDP. The Review emphasises that valuing and enhancing natural capital must hold more primacy, because “our economies are embedded within Nature, not external to it,” suggesting that we must address the deficiencies of the UK’s existing laws surrounding corporate biodiversity and natural capital reporting.

The government’s response to the Dasgupta review

The government has responded to the Dasgupta Review with a range of measures, some of which, as far as we understand, appear to be voluntary and others which may in due course become mandatory (but without any present timeframe commitment).In terms of voluntary measures, we have seen reference to three initiatives.First, and in response to the Dasgupta Review, the government announced that the Treasury and the Office for National Statistics would collaborate to improve the incorporation of nature into the UK’s financial accounting practices to develop a broader measure of “inclusive wealth,” incorporating natural, human and produced capital.Secondly, the government set up the Taskforce on Nature Related Financial Disclosures (TNFD), which launched on 4 June 2021, consisting of a range of different groups such as governments, regulators and financial and business consortia, which together constitute the TNFD Alliance. The “Taskforce,” at the centre of the Alliance, consists of 33 senior executives from financial institutions, corporates and market service providers, representing 16 different countries. The TNFD is led by the Co-Chairs, David Craig and Elizabeth Maruma Mrema.The TNFD is designed to complement the existing Taskforce on Climate-related Financial Disclosures (TCFD) and the TNFD’s objective is to provide a framework by 2023 for investors, banks, insurers and other similar companies to report and act on evolving nature-related risks, to “shift global financial flows towards nature-positive outcomes” and to align corporate reporting and financial spending to alleviate those risks. The TNFD also aims to create a standard for nature capital disclosures. Co-chair, David Craig, suggests that although compliance with the TNFD may initially be voluntary, mandatory disclosure requirements are the “ultimate aim.” Nevertheless, no timeline for the implementation of any mandatory TNFD disclosures has been confirmed.This approach thus far in addressing the Dasgupta Review is not entirely consistent with the House of Commons Environmental Audit Committee’s (EAC) report entitled “Biodiversity in the UK: bloom or bust?” published 30 June 2021.  Although suggesting that enabling financial systems to recognise the value of preserving biodiversity will not be an easy task (as “the interconnected, complex and non-linear nature of biodiversity risks makes it difficult to model”), the EAC still makes recommendations for the government to commit to legislate for mandatory disclosure of nature-related financial risks once the TNFD framework has been produced. It is therefore evident that the existence of the TNFD alone is insufficient without further legislative force.Thirdly, Natural England has launched an “Environmental Benefits from Nature Tool”. The tool, produced by Natural England to work alongside the Biodiversity Metric, applies ecosystem services values to habitats. This was designed to support the government’s commitment to expand net gain approaches to include wider natural capital benefits such as flood protection, recreation and improved water and air quality. The tool is purely voluntary but planning authorities may encourage or request its use.In terms of measures that are intended to become mandatory at some future point, we have seen reference to the introduction of “Sustainability Disclosure Requirements” (SDRs).These are discussed in the government’s recently published policy paper entitled “Greening finance, a roadmap to sustainable investing” (18 October 2021).  This paper reiterates Dasgupta’s belief that the financial system is crucial to achieving net zero and protecting the natural environment. The paper provides information on the introduction of the SDRs, initially announced in July 2021. In essence, the SDRs will require companies to make sustainability disclosures and report on environmental impact using a new UK “Green Taxonomy.” The SDRs will build on and “streamline” the requirements of the TCFD, covering corporate disclosure, asset manager and asset owner disclosure and investment product disclosure. The government has stated that the intention is to combat “greenwashing,” where firms make misrepresentations about their environmental commitments, so as to enable sustainability to be central to investment. The government also acknowledges that, beyond climate, the data needed to drive wider environmental objectives is less developed, but that this is gradually changing through initiatives such as the TNFD.According to “Greening finance, a roadmap to sustainable investing,” the “Green Taxonomy” will constitute a set of criteria that can be used to ascertain whether an economic activity may be regarded as “sustainable” in the UK. The “protection and restoration of biodiversity and ecosystems” is listed in the policy paper as one of the six environmental objectives of the “Green Taxonomy,” and the taxonomy itself may assist companies in understanding their environmental impacts. However, the policy paper provides little reference to biodiversity or natural capital and the details on the specific reporting requirements, scope and timing of these requirements are opaque.Therefore whether, when and the extent to which, these requirements will mandate reporting of impacts on biodiversity and natural resources, and by whom, is not at all clear.

The EU’s proposed approach to mandating corporate reporting in relation to impacts on the natural environment

In the meantime, the EU is taking concrete steps towards introducing a legally enforceable system of biodiversity and ecosystem corporate reporting. Recognising the shortcomings of the EU’s 2014 Non-Financial Reporting Directive (NFRD)(2014/95/EU), the European Commission has taken a step forward in terms of corporate sustainability reporting for the protection of the natural environment through a recently proposed EU Directive on Corporate Sustainability Reporting (COM/2021/189 final) published on 21 April 2021.The European Commission’s proposal envisages a new Directive which would expand the requirements of the NFRD in the following ways:

  • removing the current 500-employee threshold and extending the scope to all large companies and all companies listed on regulated markets (except listed micro-enterprises);
  • requiring that the reported sustainability information is subject to a limited level of audit assurance;
  • specifying in more detail the information that companies should report;
  • requiring reporting in line with mandatory EU sustainability reporting standards; and
  • ensuring that all information is published in companies’ management reports in a digital format.

Significantly, the proposal states that the new reporting standards will specify the information that companies are required to disclose in regard to environmental factors, including biodiversity and ecosystems. This is in contrast to the previous NFRD which, as explained above, only referred to biodiversity in its non-binding accompanying guidance. Since the UK is no longer bound by EU Directives, it remains to be seen how or whether the UK government will keep pace with these EU developments.

Important opportunities at COP26

Although the emphasis of COP26 rests primarily with climate change, it is impossible to deny the relevance that the natural environment and biodiversity assume in the process of curtailing climate change and reducing emissions. Alok Sharma, serving as president for COP26, reinforces that there is “no viable pathway to net zero” without “protecting and restoring nature on an unprecedented scale.”COP26 thus presents a crucial opportunity for the UK government to reconsider its approach to conserving and enhancing the natural environment and biodiversity, “set an ambitious direction for the next decade,”[3] and to align itself with the European Commission’s clear plans  for mandatory corporate reporting by a large range of companies of impacts on biodiversity and ecosystems.As the government’s response to the Dasgupta Review merely represents the “next step” and not the “final word” in the pathway towards a nature-positive future, there is hope that more is to be unveiled at COP26; “the next international milestone in sustainable finance.”[4]

[1] The Natural History Museum Biodiversity Inactness Index (BII) (September 2021) is an estimated percentage of the original number of species that remain and their abundance in any given area, despite human impacts. The BII is averaged across areas (countries, regions, or global) to give the remaining biodiversity across that area:[2] The National Biodiversity Network Trust State of Nature Partnership Report 2019[3] The Dasgupta Review (2021)[4] Greening finance, a roadmap to sustainable investing (18 October 2021), HM Treasury

If you would like to discuss anything regarding this article, please get in touch with Penny Simpson or Claudia Booth


The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.

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