Biodiversity law and regulation
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Under Article 7 of the draft Directive a company shall be required to take various actions to prevent potential adverse impacts in its own operations and those of its subsidiaries and established business relationships in the value chain, including: – in consultation with stakeholders, develop and implement a prevention action plan, with timelines for action and indicators for measuring improvement – seek contractual assurances from direct business partners to comply with the company’s code of conduct and prevention action plan, including by seeking assurances from partners (contractual cascading), with measures to verify compliance
The definition of due diligence under the draft Directive follows the comprehensive UNGP and OECD template for mandatory due diligence (mHREDD), rather than mere reporting obligations:
The due diligence process set out in this Directive should cover the six steps defined by the OECD Due Diligence Guidance for Responsible Business Conduct, which include due diligence measures for companies to identify and address adverse human rights and environmental impacts. This encompasses the following steps: (1) integrating due diligence into policies and management systems, (2) identifying and assessing adverse human rights and environmental impacts, (3) preventing, ceasing or minimising actual and potential adverse human rights, and environmental impacts, (4) assessing the effectiveness of measures, (5) communicating, (6) providing remediation. 223 The draft Directive targets both adverse human rights and environmental impacts. An adverse environmental impact specifically includes a violation of the obligation under Article 10 (b) of CBD to take necessary measures to avoid or minimise adverse impacts on biological diversity. 224 Biodiversity harm may also constitute a breach of human rights where there is harmful soil change, water or air pollution, harmful emissions, excessive water consumption or other impacts on natural resources, that impair food production, denies access to safe water, harms health or economic rights, or affects ecological integrity. 225 The draft Directive lays down due diligence obligations for a company’s own operations, their subsidiaries and their value chains (direct and indirect) where there is an “established business relationship” which means a “business relationship, whether direct or indirect, which is, or which is expected to be lasting, in view of its intensity or duration and which does not represent a negligible or merely ancillary part of the value chain.”
Article 8 requires companies to neutralise or minimise any actual adverse impacts, including by:
– payment of financial compensation – developing a corrective action plan with timelines for action and indicators to measure improvement For actual adverse impacts that cannot be brought to an end, the company shall refrain from extending or entering into new relations with the value chain partner and, where the law permits, temporarily suspend or (where the adverse impact is severe) terminate business relations. Article 22 of the draft Directive provides that EU Member states shall create a civil liability regime for failure to comply with the due diligence process under Articles 7 and 8 and an adverse impact that should have been identified, prevented, mitigated or brought to an end occurred and led to damage.
Nature-related financial disclosures and the “mainstreaming” of biodiversity risk assessment
In 2015 the Financial Stability Board (FSB) set out to integrate climate risk assessments into company reporting in order to provide decision-useful information for shareholders. The Taskforce on Climate- related Financial Disclosures (TCFD) published its recommendations in 2017 providing a global framework for climate-related financial disclosures. 226 According to its 2021 Status Report, TCFD now has 2,600 supporters globally, including 1,069 financial institutions, responsible for assets of USD 194 trillion, across 89 jurisdictions and nearly all sectors. 227 Thus far, nine countries have made progress in adopting legislation for mandatory TCFD-aligned disclosures, most notably the UK and New Zealand. 228
223 Ibid. 224 Convention on Biological Diversity, UN, 1992. 225 Proposal for a Directive of the European Parliament and the Council on Corpo- rate Sustainability Due Diligence and Amending Directive (EU) 2019/1937 (Annex), 23 February 2022.
226 Recommendations of the Task Force on Climate-related Financial Disclosures, TCFD, June 2017. 227 Task Force on Climate-related Financial Disclosures 2021 Status Report, TCFD, October 2021. 228 Ibid.
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