ESRS E4 Biodiversity: Key Updates in the November 2025 ESRS Draft and What Companies Must Do
On November 30, 2025, The European Financial Reporting Advisory Group (EFRAG) released the final draft of European Sustainability Reporting Standards (ESRS). The draft reduces required data points by 61%, provides clearer materiality guidance, and gives companies more flexibility in how they conduct assessments.
While flexibility can be helpful, it can also create confusion. Here we clarify an important point about the Double Materiality Assessment (DMA) as it relates to environmental topical standards.
What is Double Materiality?
In a DMA, companies evaluate sustainability topics from two perspectives:
Impact Materiality: How the company’s activities impact the environment and society
Financial Materiality: How environmental and social issues affect the company's financial performance
DMA remains a core requirement of the ESRS.
With this updated draft, companies now have more flexibility in how they conduct their DMA. You can choose either a top-down or bottom-up approach based on what works best for your organization. However, the core purpose remains unchanged: understanding and documenting your process for identifying impacts, risks, and opportunities (IROs), then assessing which ones are material enough to warrant disclosure. Your company must explain the key methodologies, inputs, and assumptions you used to reach your conclusions.
The critical principle is that your chosen method must accurately represent your material IROs. As ESRS 2 IRO-1 states, companies must consider "relevant facts and circumstances to support the faithful representation of the undertaking's impacts, risks, or opportunities." Most importantly: "the level chosen shall not obscure material information."
DMA of Environmental Topics (E1-E5)
The ESRS topical standards cover environmental topics (E1-E5), social topics (S1-S4), and governance (G1). The fundamental principle for DMA is straightforward: if a topic isn't material to your company, you don't need to report on that topical standard.
Let's say your company completes a top-down DMA and finds biodiversity to not be material. Are you still required to conduct a location-based analysis?
Here's the key tension: while ESRS allows flexibility in your overall DMA approach, environmental topics require location-specific analysis. A purely top-down assessment that dismisses biodiversity without examining where you actually operate would likely fail an audit because it lacks the "reasonable and supportable evidence" the standards require.
For environmental standards, your materiality determination must account for geographic context – the actual places where your company operates or has impacts. This includes factors like:
Local air, water, and soil quality conditions
Water availability in water-stressed regions
The presence of threatened species and sensitive ecosystems in biodiversity-rich areas
Note that for social topics, the ESRS require your DMA to also consider local factors that could create or add to negative social impacts. This includes understanding the presence of human communities- particularly vulnerable populations such as Indigenous Peoples.
An activity that seems immaterial in one location might be highly material in another due to the local nature context. Your materiality determination for environmental topics cannot be generic – it must reflect geographic context.
How to Meet ESRS Auditing Requirements: 3 Key Principles for Environmental Topics
An audit will examine whether your DMA process meets three key principles:
Fair Presentation: Your sustainability statement must fairly present all material impacts, risks, and opportunities. If you have physical sites but didn't check their biodiversity context, your representation is incomplete and a potentially misleading representation of your actual or potential impacts.
Reasonable and Supportable Evidence: You must base conclusions on available evidence (without undue cost or effort). For biodiversity, if you have not completed any geographic assessment of biodiversity, your non-materiality claim lacks the necessary evidence required by the standards.
Disclosure of Methodology: You are required to disclose your DMA process, including methodologies, inputs, assumptions, and how you considered heightened risks in specific geographies. If your methodology skips geographical assessment for biodiversity, auditors may find it fundamentally flawed for this specific topic.
LEAP and ESRS E4 Compliance
The ESRS reference the first three steps of LEAP as a helpful example, though it is not a mandatory framework. However, the core function of LEAP, locating where you operate, evaluating the biodiversity context, and assessing your impacts based on specific geography, is essential for credibly determining whether biodiversity is material to your business. That said, we recommend using the LEAP process because it's the most comprehensive and straightforward way to meet the ESRS requirements. It provides a clear, structured approach that directly addresses the location-based analysis the standards require.
See our previous insight about ESRS E4 to learn more about the details of ESRS E4 and location-based assessment requirements.
Assessing Supply Chain Biodiversity Risk
Companies must report material information regarding their value chain. However, ESRS requirements acknowledge the difficulty of collecting direct data across the entire value chain and allow flexibility in the following ways:
Data Collection: Companies can use direct counterparty data or estimates based on practicability and reliability.
Estimates and Proxies: Acceptable sources include sector averages, sample analyses, peer data, spend-based data, and other proxies from internal or external sources.
Focused Scope: Companies need only assess areas where material impacts, risks, or opportunities are likely, not every possible value chain element.
Top-Down Approach: Value chain materiality assessments can use regional averages, sector data, or public information without direct input from value chain actors.
Timeline for ESRS Adoption
The draft ESRS are expected to become legally binding in mid-2026 or shortly after, with the passage of the EU Corporate Sustainability Reporting Directive. These would apply for reporting on the 2027 financial year (with reports published in 2028). Companies may adopt them early in 2026.
Why Start Now
Due to the complexity of nature topics, we have found that it takes companies three years to reach a level of confidence where they are ready to report meaningful insights. A basic assessment in the first year helps build fluency in nature risk and identify areas of measurement focus. A full TNFD assessment in the second year uncovers the full risk picture, enabling the first deployments of nature insights across the business. Expansion of the assessment to the supply chain and the development of nature targets and action plans happens in the third year, with companies positioned to publish regulatory-compliant nature risk disclosures.
Streamlining Your ESRS E4 Compliance with Dunya Analytics
Understanding the requirements is one thing, but efficiently meeting them is another. At Dunya Analytics, our platform is built specifically to address the location-based biodiversity assessment challenge that ESRS E4 presents – both for your direct operations and supply chain.
The ESRS references the first three steps of the LEAP process, which our platform automates for you:
Locate interfaces with nature
Evaluate the related impacts and dependencies on nature
Assess your associated risks or opportunities
Our platform handles the technical complexity of data collection and geospatial analysis, so you can focus on the strategic work of embedding the results in your business and developing appropriate responses.
Whether you are just beginning your ESRS compliance journey or refining your existing approach, we can help you meet the geographic context requirements with confidence.
Ready to get started? Contact us to learn more about how Dunya Analytics can support your ESRS E4 compliance or schedule a demo to see our platform in action.
Additional Resources
You can find the full Simplified ESRS on EFRAG’s website.
Check out the ESRS Knowledge hub, which launched on December 4, 2025: a new central digital platform that acts as a single entry point to all ESRS and related resources.
