The importance of a proper assessment within the double materiality analysis

Double materiality and biodiversity: three recommendations for success

Double materiality assessment and biodiversity: three recommendations for success

Publication
23 Jan 2025

Biodiversity is a complex topic that organizations struggle to appreciate and understand. Since it was included as a topical standard – ESRS E4 – under the CSRD (Corporate Sustainability Reporting Directive). PwC research shows that many organizations feel unsure how to comply with the CSRD requirements on biodiversity. In this article, we provide three recommendations on how to do this effectively.

Double Materiality Analysis as a starting point

Complying with the CSRD requirements for biodiversity begins with a proper assessment within the double materiality analysis. Conducting a double materiality assessment (DMA) is part of adhering to the CSRD directive. This involves examining the influence that enterprises have on people and the environment, and vice versa, the impact of sustainability-related developments on enterprises.

Location screening on vicinity to nature-sensitive areas 

CSRD stipulates that regardless of materiality any organization needs to assess whether it has sites in or near biodiversity sensitive areas (e.g. Natura 2000). In case these sites exist, a disclosure is also mandated that describes whether these sites negatively impact these biodiversity sensitive areas and if additional mitigation measures to reduce this impact might be needed. Performing this analysis is mandatory for any company in scope of CSRD and provides valuable information to further assess biodiversity in the context of DMA. 

‘Few organisations have a complete quantitative overview over their biodiversity footprint’

Thijs IJsbrandijsenior manager Nature strategy at PwC Netherlands

Understanding the relationship with nature 

To effectively evaluate biodiversity as part of a DMA, it is important for organizations to understand their relationship with nature. Higher materiality is typically linked to sectors that have a higher impact (e.g. deforestation) or higher dependency (e.g. fertile soils) on nature.

The Taskforce on Nature-related Financial Disclosures (TNFD) has published a list of eight sectors (and eighteen subsectors) that typically have a strong influence on nature for clarity.

To further deepdive on nature impacts and dependecies, the following guidance and tools are of use: 

The Science Based Targets network (SBTn) methodology is primarily aimed at understanding impacts and setting targets. It offers a materiality screening tool that can be used to assess the expected relevance of different impact drivers (e.g. land use, pollution) on biodiversity for a specific sector.  
TNFD developed a four-step process LEAP (locate, evaluate, assess & prepare) that includes useful guidance that can be used to deep dive on organization-specific impacts and dependencies. 
ENCORE (Exploring Natural Capital Opportunities, Risks & Exposure) is a free online database that contains an overview of high impacts and dependencies per economic sector.  
The WWF Biodiversity Risk Filter is an interactive map that adds a geographical dimension to dependency on biodiversity and therefore enables analysis at country/regional level.

Three challenges and recommendations for conducting a DMA on biodiversity 

In supporting organizations to conduct their DMA on biodiversity, we see a number of common challenges arise. Below, we summarize some of the most prominent issues and add a recommendation on the way these can be navigated: 

The CSRD breaks topics down into sub-topic and sub-sub topics, see the image below. For instance, the topic of biodiversity is broken down into four sub-topics including direct impact drivers of biodiversity loss, impacts on the state of species, impacts on the extent and condition of ecosystems and impacts and dependencies on ecosystem services. These four sub-topics are then further broken down into sub-sub-topics.

The disadvantage of this breakdown is that it disregards the interconnected nature of biodiversity and the clear cause-and-effect nature. One of the main causes for ‘species global extinction risk’ is the impact driver ‘land-use change’. This makes assessing the materiality of individual sub-topics challenging.

Recommendation : cluster sub-topics

Assess the materiality by clustering sub-topics which are highly interconnected and where there is a clear cause-and-effect. One method of doing so is by individually reviewing the different impact drivers of biodiversity loss but clustering these with the impacts these drivers have on the state of species, the extent and condition of ecosystems and ecosystem services. This could, for example, result in the clustering and joint assessment of land-use change with impact on the extent and condition of ecosystems and desertification.

Biodiversity is interconnected with other environmental topics like climate, water & pollution. In DMA, however, organizations need to reach a conclusion on materiality on these individual topics.

Recommendation: focus on ESRS E4 

Focus explicitly on materiality of biodiversity impacts that are specific to ESRS E4 (land use (change), exploitation of natural resources and the introduction of invasive species). In case these impacts are deemed immaterial, organizations typically opt to

Label biodiversity as material, but make it part of other material topics through cross-references, for example, as part of climate change or pollution, or:
Label biodiversity as non-material and focus on the other environmental standards.

Keep in mind that recognizing a theme as material within multiple standards does not directly lead to the development of additional strategy, policy, or goals. This is simply a way to acknowledge that an impact driver (e.g GHG emissions) has an effect on both climate and biodiversity.

Few organisations have a complete quantitative overview of their biodiversity footprint and the relative contribution of different impact drivers or ecosystem service dependencies on this footprint. This can make it complex to reach an objective conclusion on the materiality of different elements underpinning biodiversity.

Recommendation : Structure impact and dependencies

In the case where quantified data is not yet available, we recommend mapping out which impacts and dependencies there could be. These can be assessed using fixed criteria to assess how large and widespread the impact is and to what extent the impact is reversable while also taking into account the dependency on the ecosystem service.

Applying a structured qualitative or semi-quantitative (e.g. 5-point scale) approach to the DMA ensures a consistent set of criteria is evaluated and ensures that decision making is properly documented in an audit trail.

During the scoring/evaluation of these criteria, it is highly relevant to perform proper research into the specific biodiversity impacts & dependencies of a sector. The tools listed above can support this, but there is also a wide range of (scientific) literature available that can be consulted. Think, for example, of the reports from the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) and the IUCN Flagship report.