Europe is, no doubt, a checker board in regards to environmental (and other) legislation and jurisprudence.
While the European Union is is hammering out the different fence poles related to its Green Deal and Green Taxonomies (read more on the excellent blog by Ohana Public Afairs Advisory) some other countries run ahead with their own locally applicable laws.
An example of which would be the (much questioned) German Due Diligence in the Supply Chain Act and the related loudly question, but not legally enshrined, Green Button labelling scheme.
Another country that walks its own approach is France: Grenelle I and Grenelle II – the latter specifying the former’s goals to facilitate implementation -, the 2015 energy transition law, followed by the 2019 Law on Energy and Climate and non-financial reporting by market players, and the respective 2021 implementing decree of that law’s Article 29 are probably the most known, or currently most interesting/relevant results.
The interesting ingredient about the newest French regulatory efforts: biodiversity.
In fact, while most industry and financial players were focusing on getting to grips with the current and immediate Climate Crisis, already back in 2019 the French law sets biodiversity reporting at the same priority level of climate reporting.
For that purpose, the French state created an ‘Haut Conseil’ (rough translation: senior advisory group to the president) that is asked to report on:
« 3° L’impact socio-économique, notamment sur la formation et l’emploi, et environnemental, y compris pour la biodiversité, de ces différentes politiques publiques.
(Engl: The socio-economic impact of public policy, specifically on education, jobs, and environment, therein included biodiversity)
Evidently, this means that in order to report, somewhere this reporting content needs to originate from. Hence, further in the same 2019 law, the following sections turn up:
- Art. L. 533-22-1.-I.-
[…] les sociétés de gestion de portefeuille incluent une information sur les risques associés au changement climatique ainsi que sur les risques liés à la biodiversité.
Engl: […] portfolio managers are will report information in regards to the risks associated with climate change as well as to the risks linked to biodiversity. - Art. L. 111-18-1.-I.-
Dans le respect des objectifs généraux de performance énergétique et environnementale des bâtiments […] favorisant la préservation et la reconquête de la biodiversité, soit tout autre dispositif aboutissant au même résultat […]
Engl: Respective the goals set out in regards to the energy and environmental performance of buildings […] favouring the preservation and regeneration of biodiversity, including any other disposition leading to the same outcome […]
The 2021 implementation act then goes on to list a range of reporting measures that are coming into force, such as:
- Reporting on strategic alignment with long-term goals in regards to biodiversity, with a 2030 horizon, and 5 year plans thereafter.
- Offering an analysis as to how (the investment) contributes to the reduction of the pressure and impact on biodiversity (aligned with key pressure areas outlined by the government’s scientific panel).
- Include an explanation of how biodiversity is measured in the investments and how that allows to measure the outcome targets given by the scientific panel.
- Specify what transition measures are taken in regards to the risk identified related to climate change and biodiversity.
- Include a physical exposure risk analysis with regards to risks stemming from climate change and biodiversity.
- And finally: elaborate a ‘negative risk’ documentation of any assets onto biodiversity.
Granted, most investors and asset managers possibly might be tempted to not even show such documentation to their clients – be they retail investors or indeed more institutional investors like pension funds. After all reporting just merely generates a piece of paper, and ink is very patient when it meets paper.
Yet: We all know how companies – not the least those in the financial industries – get nervous if they see not-so-flattering numbers on documentation that might potentially be seen and read by clients, and that have in principle to be made public. That in itself is a good thing – albeit also too little too late.
This all speeds up the challenge that there do not (really) exist any widely accepted reporting or measuring KPIs for biodiversity impacts in the business context.
Although – here the cart is put before the horse: the demand for reporting and KPIs is going to drive the creation of these, instead of actual action on the ground generating the outcomes and impacts and through that measurable results. Hence: invariably the measures and measurement methods will be initially of varying quality, but may gain meaningfulness over time – hopefully, and if all goes well.
While when it comes to carbon we at least have measuring protocols – imperfect as they may be – the same is not quite the case for biodiversity. Reporting pressure should at the very least add some fuel to their definition. Which at the same time hopefully would reduce the leeway given to the use of soft-only measure, or arbitrary measures with little actual meaning.
Such laws as these examples, do have a real effect in the field.
Albeit not necessarily the one imagined.
I do doubt that the above mentioned recent French regulation genuinely makes a positive impact in itself, i.e. triggers progress in the way we need it.
But the fact that they requires companies and instituions to get data-wise organised with regards to Biodiversity measures and measurement method, is not a bad outcome overall.
