Biodiversity loss: Regulatory trends in the UK and EU

The evidence on global biodiversity loss and its negative impact on ecosystems and economies is now clear. It is not surprising, therefore, that the attention of governments, central banks, regulators, businesses, and consumers on this issue is growing rapidly.

The still relatively recent milestone of agreeing the Kunming-Montreal Global Biodiversity Framework at COP 15 in December 2022 (see our previous blog post), commits signatories to take action and to be held to account. Businesses can, therefore, expect to see these commitments and the growing focus on nature manifest, at least in part, in increased regulation.

In this blog post we take a high-level look at some of the recent regulatory developments in the UK and EU, at what trends can be identified, and what businesses should be thinking about now.  

The UK

In the UK, considered to be one of the world’s most nature-depleted countries, the government has been vocal on nature loss and its intention to address it. The Environment Act 2021 provides a framework to restore natural habitats and increase biodiversity. It sets out a statutory duty requiring policymakers to have regard to the environmental principles policy statement in making policy. However, these principles are not rules and, therefore, cannot dictate policy decisions by ministers.

In addition, various measures under the Environment Act are still in the process of being implemented. For example, details for biodiversity net gain were only released in February this year and will not come into force until November 2023 for developments in the Town and Country Planning Act 1990 (unless exempt) and for small sites in April 2024.

Various other legally-binding targets required to be set under the Environment Act by 31 October 2022 were also delayed, but have now been published and came into force in January this year. These were accompanied by a raft of other documents published in the first quarter of 2023, including: 

• a Nature Markets Framework; 
• the updated 25-year environmental plan (the first ‘Environmental Improvement Plan’ as required under the Environment Act); 
• an updated Green Finance Strategy which now includes a significantly increased focus on nature; and 
• the 2030 Strategic Framework for International Climate and Nature Action.

In addition, the Financial Services and Markets Act 2000 (FSMA) was amended in June this year, with the changes coming into effect at the end of August, to require the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), in their regulatory principles, to take into account the need to contribute towards the achievement of the nature targets set out in section 5 of the Environment Act.

Whilst the steps taken above might suggest there is a tsunami of regulations on nature about to hit businesses, potentially even a step change in how to value natural assets and ecosystems such as forests and wetlands, it is not clear as yet whether this will be the case in the UK. 

In particular, the UK government has been very keen to stress that it intends to take a balanced approach when it comes to regulation so as not to overburden businesses with new requirements. There has also been a significant amount of criticism levelled at the UK government recently, in relation to both nature and climate change, that the actions being taken do not match the rhetoric and that the UK is falling behind other countries in both areas. 

Nonetheless, some regulation is coming. Based on the recent announcements by the UK government, this includes finalising delayed regulations on deforestation due diligence and a Green Taxonomy. The UK government consulted on a deforestation due diligence regime in late 2021 (see our previous blog post). The government published its response to the consultation in June 2022 and confirmed in the Environmental Improvement Plan 2023 that it is committed to implementing these regulations “at the earliest opportunity”. And in the Green Finance Strategy published in March this year, the government indicated it would consult on a Green Taxonomy by this autumn.

On corporate disclosures, the UK government is considering the implementation of the first two ISSB sustainability standards in the UK (see our previous blog post), which would be significant if implemented as those standards will go beyond climate-related disclosures.

The UK government has also announced that it is updating the Environmental Reporting Guidelines, although these are voluntary guidelines only.

In relation to the much-anticipated final version of the Taskforce on Nature-related Financial Disclosures (TNFD) framework which is expected to be published in September (see our previous blog post), the UK government has also announced that it will be considering in Q4 how these can be best incorporated into policy and the legislative architecture in line with Target 15 of the Kunming-Montreal Global Biodiversity Framework. Target 15 requires signatories to take legal, administrative or policy measures to encourage and enable business to, amongst other things, assess and disclose their risks, dependencies and impacts on biodiversity. 

In addition, for regulated entities, there is a notable increase in the regulatory emphasis on the need for entities to identify and manage broader environmental-related financial issues beyond climate, in particular nature.

We expect this trend to continue, with significantly more detail and focus to come.

The EU 

In contrast, the EU, which has also been vocal on biodiversity loss and its intention to address it, has been increasingly facing criticism and now some pushback on the basis of too much ESG regulation and of taking too much action too fast.

Having said that, the EU has already introduced or announced a number of regulatory developments in relation to biodiversity and nature in line with its EU Biodiversity Strategy for 2030. 

These include notably:

• a proposal for a nature restoration law. This proposed regulation, which would require recovery measures on 20% of the EU’s land and sea by 2030, rising to cover all degraded ecosystems by 2050, narrowly avoided being defeated at a recent vote by the European Parliament and now must pass through the final negotiation phases to agree the text before being adopted into law;
• the Deforestation Regulation, which introduces new due diligence obligations (see our previous blog post);
• the EU Taxonomy, a green classification system, which now includes technical screening criteria for the environmental objective of protecting and restoring biodiversity and ecosystems (see our previous blog post); 
• the Corporate Sustainability Reporting Directive (CSRD), which requires in-scope entities (including certain non-EU entities) to report on a wide range of sustainability issues according to the European Sustainability Reporting Standards (see our previous blog post). This includes, subject to the application of materiality tests, detailed reporting on biodiversity and ecosystems under (the still draft) ESRS 4, which (in line with TNFD) relates to impacts and dependencies as well as risks and opportunities and which extends (again subject to certain materiality tests) to an entity’s value chain; and
• the draft Corporate Sustainability Due Diligence Directive (CSDDD or CS3D), whilst although is still subject to negotiation, can be expected to require in-scope companies to conduct due diligence, report and take certain measures in relation to identification and prevention of actual or potential adverse environmental impacts, including in relation to biodiversity loss (see our previous blog post).

Whilst the pushback now taking place in the EU, as well as potential changes of governments in certain member states and the impending EU elections next summer, may result in a slowing of EU regulations, the ship has already sailed to a certain extent on a number of EU ESG regulations that have an impact on nature and biodiversity, and businesses need to be preparing now for these regulations which are complex and detailed.

In addition, for regulated financial entities in the EU, as with the UK, there has been a relatively nascent but clear increase in the attention being given by European regulators to the need for entities to identify and manage (as well as disclose) not only climate-related issues but also broader environmental issues, including biodiversity loss and risks associated with nature.

We do not see this trend reversing given the international attention and growing body of scientific evidence on biodiversity loss and its impacts, including financial impacts. Even without more regulation, the release of the final version of the TNFD framework in September as well as the other extensive work undertaken by the TNFD, including to identify data sources and consider appropriate methodologies, means that companies will face real pressures to take action and disclose on nature in a manner similar to that being done for climate-related issues. 

Forthcoming Linklaters materials 

We will be delving into more detail on the developments and regulations referred to above in relation to biodiversity loss and nature in the coming months. In particular: 

• how biodiversity and nature-related financial disclosures differ from climate-related financial disclosures;
• understanding the potential legal implications of biodiversity loss and impacts on nature, including directors’ duties;
• a deep dive into the TNFD framework when this is published in September;
• including biodiversity and nature in climate transition plans; and
• the growing focus on financial institutions and key issues.