The impact of nature related reporting requirements on SMEs by Sheila Stanley
If left unabated and unmitigated, the damage to ecosystem services could result in significant negative financial impacts on industries that are highly dependent on them. These include sectors such as forestry, agriculture, food, beverages and tobacco, fishery and aquaculture, construction, water utilities and electricity.
Concerns surrounding nature-related sustainability issues are coming through in the policy and regulatory arena as seen through the imposition of nature-related sustainability reporting requirements and the proposal of new laws to protect natural resources and nature. As these come into play, SMEs will also need to consider how this will affect their businesses.
Examples of nature-related dependencies vary between sectors.

These dependencies can give rise to negative impacts on nature cutting across the five areas of climate change, water use, resource use, pollution, and invasive alien species. (See Figure 2)

There is a two-year phase in for all disclosure requirements under E4 Biodiversity and Ecosystems for companies with less than 750 employees. While there are between one and three-year phase ins for certain disclosure requirements related to E2 Pollution, E3 Water and Marine Resources and E5 Resource Use and Circular Economy, the majority of disclosure requirements under these topical standards will be mandatory for the first cohort of companies reporting under the CSRD in 2025 based on their 2024 performance. Nature is currently being touted as the next climate change, with expectations that nature-related risks and opportunities will play a more prominent role when assessing business risks and opportunities.

As larger companies begin reporting on nature-related disclosures under the CSRD, supply chain expectations will change in tandem. Larger companies will expect their SME suppliers in the value chain to step up on their nature-related commitments. Much like climate reporting has captured SMEs in the value chain as part of Scope 3 GHG emission reporting, nature-related reporting will require SMEs to provide their large clients/customers with information on nature-related matters.
Other impacts SMEs would need to consider is access to equity and debt finance and insurance. Financial institutions that are reporting under the CSRD will also be required to consider the nature-related dependencies of the businesses they lend to invest in or insure.
A recently published Global Survey conducted by the GARP Risk Institute on nature risk management across financial firms worldwide reveals that 46% of the Boards of financial institutions surveyed have oversight of nature-related risks and opportunities, while another 48% are working or intend to do so.
As an illustration, let’s consider the construction sector as a high impact sector. The construction sector uses cement from the cement manufacturing sector for its construction activities. The cement manufacturing sector, in turn, uses sand to manufacture cement. The WEF has noted that sand is the second most exploited natural resource in the world after water and demand for sand mining for construction materials has tripled in the past two decades.
The high demand for sand is negatively impacting people and planet. For example, the United Nations Environment Programme (UNEP)’s 2019 Sand and Sustainability Report notes that marine sand dug up by the marine dredging industry is causing degradation to biodiversity and impacting the lives and livelihoods of coastal communities.
To achieve healthy soils, the EU has a proposed Directive on Soil Monitoring and Resilience in the pipeline which has classified sand as a protected soil.
Ahead of the Directive coming into force, SMEs in the construction value chain should consider how this proposed Directive will impact them. Some specific impacts they need to consider would be how banks will integrate nature-related risks into their loan/financing portfolio assessments and how insurance firms reflect nature-related risks in their insurance premiums.
- Understand the ESRS reporting requirements for nature-related sustainability matters.
- Build their internal capability by identifying nature champions in their organisation to develop their nature-related knowledge and capabilities. There are a number of free resources available from organisations such as the TNFD for this purpose.
- Familiarize themselves with the nature-related dependencies of the business. They can begin by identifying potential impacts that the business may have on nature. The National Biodiversity Data Centre of Ireland has a mapping tool that SMEs can use to generate a biodiversity report for businesses located in Ireland.
- Begin having conversations with clients reporting under the ESRS to understand their ask in relation to the nature-related topical standards, and what information they would require from their value chain partners.
- The biodiversity business case: Companies need ecosystems | World Economic Forum (weforum.org)
- What Are Ecosystem Services, and How Do They Help Our Planet? (nationalgeographic.org)
- EU at COP15 global biodiversity conference – European Commission (europa.eu)
- Donor countries commit to increase biodiversity finance (europa.eu)
- Nature and biodiversity – European Commission (europa.eu)
- COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT Accompanying the document Directive of the European Parliament and of the Council on Soil Monitoring and Resilience (Soil Monitoring Law)
- Nature restoration: Parliament adopts law to restore 20% of EU’s land and sea | News | European Parliament (europa.eu)
- Proposal for a Directive on Soil Monitoring and Resilience – European Commission (europa.eu)
- GARP Risk Institute, Global Survey of Nature Risk Management at Financial Firms 2024: A Discipline in its Infancy.
- TNFD in a box – TNFD
- Sand mining: how it impacts the environment and solutions | World Economic Forum (weforum.org)
- Proposal for a Directive on Soil Monitoring and Resilience – European Commission (europa.eu)
- National Biodiversity Data Centre – A Heritage Council Programme, Documenting Ireland’s Wildlife (biodiversityireland.ie)
