How to assess biodiversity in a Double Materiality Assessment

Biodiversity is one of the harder topics to handle in a Double Materiality Assessment. Impacts are often indirect, data is patchy, and the connection to financial risk is rarely obvious at the outset. Many companies assume it only applies if they own land, run factories, or source raw materials directly from nature. Under CSRD, that assumption is too narrow.

Biodiversity can become material through supply chains, sourcing regions, water use, pollution, land-use change, or ecosystem dependencies that sit several steps removed from direct operations. The point of a biodiversity assessment is to reach a conclusion that's documented and defensible, whichever way it lands.

What this guide covers: a practical ten-step process for assessing biodiversity within a DMA, including how to scope the assessment, identify impacts and dependencies, map sensitive locations, score materiality, and document the outcome for ESRS E4 reporting and assurance.

What does biodiversity mean in a Double Materiality Assessment?

In a Double Materiality Assessment, you assess biodiversity from two directions. Impact materiality looks at how the company affects nature: through land use, pollution, water extraction, supply chain sourcing, and so on. Financial materiality looks at how nature-related changes affect the company: through dependencies on ecosystem services, physical risks from ecosystem degradation, and transition risks from regulation or market change. These risks can affect cash flows (through higher costs or lost revenues), the balance sheet (through asset write‑downs or stranded assets), and the access to and cost of capital (through credit re‑ratings, higher borrowing costs, or tighter financing and insurance conditions).

Biodiversity covers more than species loss. Under ESRS E4, it includes ecosystems, habitats, ecosystem services, land and sea use, and nature-related dependencies across the value chain.

Biodiversity and ecosystems under ESRS E4

ESRS E4 was adopted as part of the European Commission's delegated act on ESRS standards. It requires companies to assess and, where material, disclose their impacts, dependencies, risks, and opportunities in relation to biodiversity and ecosystems.

ESRS E4 doesn't stand alone. It connects directly to:

• ESRS E1 (climate change), because ecosystem degradation and climate change reinforce each other.

• ESRS E2 (pollution), because chemical, air, and water pollution are primary drivers of biodiversity loss.

• ESRS E3 (water and marine resources), because freshwater and coastal ecosystems are biodiversity-critical.

• ESRS E5 (resource use and circular economy), because overextraction of natural resources drives habitat loss.

Assess biodiversity in isolation from these topics and you'll get an incomplete picture.

Why biodiversity is often overlooked

A few practical barriers explain why biodiversity is frequently underassessed:

• Biodiversity data is fragmented, location-specific, and often unavailable at the level of precision teams want.

• Impacts and dependencies typically sit upstream in the supply chain, outside direct operational control.

• Sustainability teams may not have the ecological expertise to translate nature-related issues into financial or reporting terms.

• Companies default to assessing only their own sites and miss the supplier and sourcing exposure that often carries the most risk.

Why biodiversity materiality matters for CSRD reporting

The DMA conclusion on biodiversity determines whether ESRS E4 disclosures are required. If biodiversity is material, the standard may require disclosure of policies, actions, targets, metrics, financial effects, and governance arrangements. If it isn't material, full ESRS E4 disclosure may not be needed, but you still have to document the conclusion.

A weak or incomplete assessment creates real risk. Assurance providers may challenge it. Investors and stakeholders may question it. And if the assessment later turns out to have missed a major impact or dependency, the credibility of the entire Sustainability Statement is at stake.

The process matters as much as the answer

A company that concludes biodiversity isn't material needs to show how it got there. A bare statement that biodiversity is "not relevant" is unlikely to satisfy auditors or investors under CSRD. The documentation should show:

• What was assessed (activities, value chain activities, geographies).

• Which stakeholders or experts were consulted.

• What assumptions were made where data was unavailable.

• Why the final judgement was reached and what evidence supports it.

That's the standard the ten steps below are designed to meet.

The ten-step process for assessing biodiversity in a DMA

Step 1: Define the scope

Start by deciding which business activities, legal entities, locations, and value chain stages the biodiversity assessment will cover. The scope should align with the broader DMA methodology and include three layers:

• Direct operations: offices, production sites, warehouses, construction sites, landholdings, water use, waste and emissions, and any sites near protected or biodiversity-sensitive areas.

• Upstream value chain: supplier and sourcing exposure across raw materials, agricultural inputs, packaging, textiles, chemicals, timber, and forest-linked products, and high-risk sourcing regions.

• Downstream value chain (where relevant): how products, services, or financed activities may affect biodiversity after they leave the company, including product disposal, infrastructure impacts, real estate development, and financed nature impacts.

Step 2: Identify biodiversity impacts

Impact materiality asks how the company contributes to biodiversity loss or ecosystem degradation. Impacts may be actual or potential, positive or negative, direct or indirect.

Assess whether the company contributes to any of the following:

Also assess positive impacts such as habitat restoration, regenerative agriculture, nature-based solutions, or biodiversity-positive site management. Don't overstate these without evidence.

For most companies, the most material impacts sit in the upstream supply chain through indirect exposure to land use, water systems, and agricultural inputs.

Step 3: Identify biodiversity dependencies

Dependencies are where financial materiality often begins. A company depends on biodiversity and ecosystem services when nature supports its operations, supply chain, or business model. When ecosystems degrade, those dependencies become financial risks. (For a worked example of how a real DMA plays out in practice, see our double materiality case study.)

Common ecosystem service dependencies include:

• Water availability and quality.

• Soil fertility and pollination (critical for food and agriculture).

• Climate and flood regulation.

• Coastal and marine ecosystem health.

• Raw materials, timber, crops, fibres, and natural ingredients.

• Waste absorption and water purification.

Some sector examples. Food and agriculture companies depend on soil health, pollination, and water. Apparel and textiles depend on cotton, water, and agricultural systems. Construction and real estate depend on land availability, water systems, and ecosystem constraints. Financial institutions carry indirect exposure through nature-dependent borrowers, assets, and sectors.

Dependencies can translate into supply disruption, higher input costs, permit delays, asset devaluation, insurance risk, and reputational exposure. These are financial effects, and they belong in the DMA.

Step 4: Map locations and biodiversity-sensitive areas

Biodiversity is highly location-specific. The same activity can have very different materiality depending on where it happens. Location mapping is essential for a credible assessment. Our Materiality Monitor shows how material topics shift by sector, country, and year, which helps when you're working out where your own exposure is likely to concentrate.

Map the following against biodiversity-sensitive designations.

Locations to map:

• Own operational sites and production facilities.

• Key supplier locations and high-risk sourcing regions.

• Major assets or financed projects where relevant.

What to compare them against:

• Protected areas and Natura 2000 sites.

• Key Biodiversity Areas (KBAs).

• Ramsar wetlands and UNESCO natural heritage sites.

• Water-stressed regions.

• Deforestation-risk areas.

• Habitats of threatened species and sensitive marine or coastal areas.

Where exact supplier locations aren't available, use country-level or regional risk screening, prioritise high-risk commodities, and document the assumptions. Screen with what you have and note what you couldn't confirm. Patchy data is no reason to skip the step.

Step 5: Assess nature-related risks and opportunities

Once you've identified impacts and dependencies, assess whether they create business risks or opportunities. Link biodiversity issues to strategy, operations, finance, and stakeholder expectations.

Risks to consider:

• Physical risks from ecosystem degradation (e.g. water scarcity, soil loss).

• Transition risks from regulation, policy, or market change (e.g. EU Nature Restoration Regulation, EU Deforestation Regulation).

• Litigation and liability risks.

• Supply chain disruption risks.

• Permit and licence-to-operate risks.

• Financing or insurance risks.

Opportunities to consider:

• More resilient supply chains with lower nature-related exposure.

• Better access to capital as nature-positive investment grows.

• Stronger stakeholder trust and social licence.

• Nature-positive product or service innovation.

Step 6: Engage the right stakeholders

You can't assess biodiversity with the sustainability team alone. The DMA should involve the people who hold the relevant operational, procurement, risk, and financial knowledge.

Internal teams to involve: sustainability, finance, risk management, procurement, operations, legal and compliance, real estate or facilities, investor relations, and product or sourcing teams.

External input to consider: biodiversity specialists, ecologists, suppliers, local communities, NGOs, investors, industry bodies, certification bodies, and assurance providers.

Useful questions to ask:

• Where do we interact with land, water, or natural resources?

• Which suppliers or materials carry nature-related risk?

• Which of our locations are close to sensitive ecosystems?

• What would happen if access to water, land, or key raw materials changed?

• Where are stakeholders already raising biodiversity concerns?

Step 7: Score biodiversity materiality

Apply the company's DMA scoring methodology consistently. Score biodiversity for both impact materiality and financial materiality, and keep the scoring evidence-based, though expert judgement is acceptable where data is limited.

For impact materiality, consider scale (how serious), scope (how widespread), irremediability (how hard to reverse), likelihood, time horizon, and exposure across the value chain.

For financial materiality, consider magnitude of financial effect, likelihood, time horizon, exposure across the value chain, and the link to strategy, cash flow, or access to capital.
Document why topics scored high, medium, or low, avoid false precision, and make sure you can explain the scoring logic to auditors and leadership.

Step 8: Decide whether biodiversity is material

Bring together the evidence from impacts, dependencies, risks, opportunities, location mapping, and stakeholder input. Decide whether biodiversity crosses the materiality threshold, and make the conclusion specific.

Possible outcomes include:

• Biodiversity is material at group level.

• Biodiversity is material for specific business units or geographies.

• Biodiversity is material through the upstream value chain only.

• Biodiversity is financially material but not impact material, or the reverse.

• Biodiversity isn't material based on current evidence.

The conclusion should be precise. A weak conclusion like "biodiversity is not material because we are a service company" is unlikely to survive scrutiny. A stronger conclusion documents the scope assessed, the evidence reviewed, the threshold applied, and any data limitations acknowledged.

Example of a defensible non-materiality conclusion: "Biodiversity was assessed across direct operations, procurement categories, and key supplier geographies. Based on current evidence, no biodiversity impacts or dependencies exceeded the materiality threshold. Supplier location data will be improved for the next reporting cycle."

Step 9: Document the assessment

Documentation is critical under CSRD. You need a clear evidence trail that explains how biodiversity was assessed and why the conclusion was reached.

What to document:

• Assessment scope and methodology.

• Data sources and screening tools used.

• Stakeholders consulted.

• Locations reviewed and value chain assumptions.

• Scoring criteria and materiality thresholds.

• Final judgement and rationale.

• Data limitations and improvement plan.

Assurance providers may test whether the process was robust. They may challenge missing value chain evidence or ask why biodiversity was included or excluded. Good documentation reduces that risk significantly.

Step 10: Translate the DMA outcome into ESRS E4 reporting

The DMA conclusion determines what ESRS E4 requires.

If biodiversity is material, prepare to disclose policies, actions and resources, targets, metrics, impacts, dependencies, risks and opportunities, and  financial effects where relevant.

If biodiversity isn't material, keep the assessment documentation, explain the conclusion if stakeholders or assurance providers ask, and commit to monitoring changes in operations, sourcing, regulation, and stakeholder expectations.

Either way, the DMA gives you a useful roadmap: which data gaps to close, which suppliers to engage, which locations to prioritise, and which policies or targets you may need in future reporting cycles.

Common mistakes when assessing biodiversity materiality

Even well-run DMAs can fall short on biodiversity. These are the patterns that come up most often.

(On that last point: how ESRS E4 and TNFD compare is worth understanding before you lean on a LEAP assessment for CSRD.)

Practical biodiversity DMA checklist

Use this as a quick reference during the assessment.

• Confirm CSRD scope and reporting timeline.

• Define the biodiversity assessment scope (direct operations, upstream and downstream value chain).

• Identify biodiversity impacts (direct and indirect, positive and negative).

• Identify ecosystem service dependencies.

• Map operational and supplier locations against biodiversity-sensitive areas.

• Assess nature-related risks and opportunities and connect them to financial effects.

• Engage internal teams (sustainability, finance, procurement, operations, risk, legal).

• Gather external input where needed (ecologists, suppliers, assurance providers).

• Score impact materiality and financial materiality using the DMA methodology.

• Reach a specific, evidence-based materiality conclusion.

• Document scope, methodology, data sources, assumptions, scoring, and rationale.

• Translate the outcome into ESRS E4 reporting or non-disclosure documentation.

• Build a data improvement roadmap for the next reporting cycle.

How Koan supports biodiversity materiality assessments

Biodiversity sits at the intersection of ecological complexity, regulatory obligation, and business risk. Getting the assessment right takes both sustainability expertise and a clear read on what CSRD and ESRS E4 actually demand. For more on how the reporting side fits together, see our guide to biodiversity metrics in sustainability reporting.

We work with companies to turn that complexity into clear, defensible reporting decisions. For biodiversity in a DMA, we can support:

• CSRD and ESRS E4 interpretation and scoping.

• Biodiversity impact and dependency mapping across the value chain.

• Location and supplier exposure assessment.

• Materiality scoring and documentation.

• Biodiversity reporting for the Sustainability Statement.

• Communication with boards, finance teams, and assurance providers.

If you're working through a biodiversity assessment or want a second opinion on an existing DMA, get in touch, we're happy to discuss where you are in the process.