The European Sustainability Reporting Standards (ESRS), which detail the implementation of the CSRD, contain a broad definition of sustainable investment. This is the thrust of the Corporate Sustainability Reporting Directive (CSRD), which the European Council approved in November 2022, with the EU Green Deal providing the necessary legal framework. This reflects a significant paradigm change from requiring companies solely to play “defence” to directing them towards playing “offence” in combatting climate change-related systemic risks. Instead, corporations will be incentivised to make investments into ecological conservation and improvement. What the directive means in practice is that corporations will be encouraged to take action beyond a mere duty to uncover potential ecological or social misconduct. The World Bank has found that ecosystem degradation could reduce global GDP by up to 2.3% annually as soon as 2030.įor these reasons, the implications of reflecting natural capital funding on corporate balance sheets is far from an academic or abstract matter. And we are likely to experience the effects much sooner than expected. According to the World Economic Forum, around half of global GDP is at risk due to its dependence on nature. Such ecosystem conservation funding is urgently needed, as Earth’s natural capital is eroding at an alarming pace – and with that our future prosperity. A new directive from Brussels provides a basis on which natural capital funding undertaken by corporations could ultimately be reflected as an asset on balance sheets. May 17 - This could be a year of singular importance in the history of international accounting.
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