Letting environmental science inform prioritization of disclosures

The planet is a real and tangible stakeholder

Recent frameworks, such as the Taskforce for Nature-related Financial Disclosures (TNFD), and newly adopted standards, such as the European Sustainability Reporting Standards, are a big step in the right direction as they guide companies to think more thoroughly about their environmental impact. Yet, as noted in Chapter 2, ambiguities remain as to how the materiality of environmental impacts will be understood, assessed, and reported (in TNFD, ESRS and GRI). Furthermore, financial materiality still guides which environmental impacts companies are asked to focus attention on.

However, with six of nine planetary boundaries breached, the planet and the environment need to be considered as a real and tangible stakeholder, whose interests are also material if we want to avoid significant nature-related risks. Recent scientific research suggests a new structured way of capturing what is ‘environmentally material’ by identifying the most essential or relevant impact data needing to be disclosed at the level of individual operations or assets. These Essential Environmental Impact Variables (EEIVs) represent a limited set of proposed environmental disclosures grounded in the nine planetary boundaries.

The environmental dimensions covered by EEIVs are called ‘variables’ to emphasize that they build on a deep scholarly field of environmental monitoring and assessment. The environmental impact disclosures proposed by the EEIVs framework generally overlap substantially with the information already needed for companies to comply with reporting standards such as the European Sustainability Reporting Standards, the Global Reporting Initiative or the TNFD recommendations. Abiding by EEIVs would therefore not add to the existing reporting burden, but EEIVs offer a transparent and objective means to prioritize the most essential environmental dimensions to consider for specific sectors.

In doing so they provide a means to shift the burden of determining environmental priorities from companies to a scientifically grounded and transparent framework. They could also empower companies by guiding the collection and organization of precise, quantifiable, and actionable data that is ultimately needed for evaluating and addressing sustainability performance and environmental risks.

Essential Impact Variables are Material for the Environment

The concept of ‘Essential Variables’ is well-established in environmental science and has emerged from the need to streamline and standardize environmental monitoring by focusing on the most essential elements needed to describe complex environmental systems. Climate monitoring was one of the first fields to adopt this approach. Greenhouse gases represent an essential climate variable and this is a key reason why these emissions are now a standard measure for assessing climate impact. Essential Environmental Impact Variables (EEIVs) were developed to allow the systematic collection and reporting of data on the activities that drive the most essential environmental impacts – in other words the impacts of a given sector that are most material to the planet and the environment.

EEIVs encompass 15 disclosures grouped into three hierarchical levels, with varying needs for location-specificity (see Figure 3). Not all EEIVs are deemed relevant for all sectors. For more details of which EEIVs are relevant for a particular primary sector, see Table S1 in Supplemental Information of Wassénius et al 2024.

Level 1 represents information reported at the aggregate company level. Greenhouse gas emissions is the only information that can be reported at the headquarter level.

Level 2 represents information about the location and specific nature of operations at each site. This is reported for each location of operations.

Level 3 represents sector-specific information to be reported for each location. Level 3 variables are grouped into four general categories (inputs, resources, management, and events).

Essential environmental impacts align with existing disclosures but add transparent prioritization

Essential Environmental Impact Variables (EEIVs) align to various degrees with existing reporting requirements, such as the European Sustainability Reporting Standards (under the Corporate Sustainability Reporting Directive (CSRD)), but also the Global Reporting Initiative (GRI) and the Taskforce for Nature-related Financial Disclosures, making it relatively easy for companies to adopt these metrics without significant additional burden.

As mentioned above, many companies, particularly in extractive sectors with strong environmental regulations, are already required to disclose much of the data recommended by the EEIVs, thereby illustrating the feasibility of an environmental materiality approach existing alongside the conventional reporting.

Additional benefits provided by disclosing in line with what is environmentally material

Essential Environmental Impact Variables (EEIVs) offer a practical, transparent and science-backed way for companies and investors to understand and act on their most essential and absolute environmental impacts. By capturing complex system dynamics and providing a scientifically grounded prioritization of reporting, EEIVs offer a streamlined set of essential disclosures that capture what is most relevant from the perspective of the environment yet without adding to the burden of non-financial environmental reporting.

The prioritization support offered by the EEIVs is particularly useful for companies with supply chain links to primary production such as agriculture, mining, and forestry. For example, mapping supply networks using Level 2 EEIVs can highlight areas of impact for a company’s entire portfolio and can also identify key dependencies and associated risks. This supports decision-making that aligns with finite planetary boundaries.

The transparency afforded by large-scale implementation of EEIV reporting across the corporate universe would also improve the reporting of upstream scope 3-impacts – that is indirect impacts from operations not directly owned or controlled by the reporting organization. For example, if a company that sources from primary sector suppliers required its upstream supply chain to report using EEIVs, it would be able to assess how substituting suppliers (or demanding higher compliance from existing ones) might affect its scope 3 performance. Changing sourcing and improving scope 3 performance is a means for companies to differentiate themselves from competitors in a time where demands for climate and nature-related transition plans are growing. The current practice of using industry averages to assess scope 3 severely limits this ability for companies within a sector, with similar supply chains.