Clifford Chance
European Parliament votes in favour of EU Nature Restoration Law: trilogue negotiations phase starts
On 12 July 2023, the European Commission proposal for a Nature Restoration Law was voted on by the Parliament which approved its own position text. The proposal will require Member States to put in place recovery measures that will cover at least 20% of the EU’s land and sea areas by 2030, and all ecosystems in need of restoration by 2050.
Background
"Our economy relies on nature. Thus, destroying nature means destroying the economy" (ECB, 2023).
A recent study of the European Central Bank found that, in the euro area, approximately 72% of companies (corresponding to around 3 million individual companies) are highly dependent on at least one ecosystem service (i.e., water, wood, crops, livestock, etcetera). At the same time, almost 75% of bank loans to companies in the euro area are granted to companies with a high dependency on at least one ecosystem service, leading to high credit risks for lending institutions. In addition, a study by the World Economic Forum in collaboration with PwC found that more than half of the world's economic output, $44 trillion of economic value generation, is moderately or heavily dependent on nature. Its loss and/or degradation therefore represents a significant risk to business and financial stability. On the flip side, according to the World Economic Forum, nature-friendly transitions could generate up to $10.1 trillion in annual business value globally and create 395 million jobs by 2030. Specifically, it follows from the impact assessment accompanying the proposal for the Nature Restoration Law that every euro invested in nature restoration leads to a return on investment of between 8 and 38 euros.
Many business leaders have recognised biodiversity loss as a serious material threat to business and, with two open letters sent in 2022 and 2023, urged European institutions to adopt regulations promoting nature protection, restoration, and sustainable use of natural resources, with clear implementation roadmaps.
The Proposal for a Nature Restoration Law: state of play
The proposal for a nature restoration law (the "Proposal for a Nature Restoration Law" or simply the "Proposal") forms part of the EU Biodiversity Strategy for 2030, a key pillar of the European Green Deal that sets overarching targets for ecosystem restoration in the EU. Its goals are threefold:
(i) to contribute to the continuous, long-term, and sustained recovery of biodiverse and resilient nature across the EU’s land and sea areas by restoring ecosystems
(ii) to support the EU's objectives for climate mitigation and adaptation, and
(iii) to contribute to reaching the EU’s international commitments, such as the Global Biodiversity Framework (''GBF'') adopted on 19 December 2022 at the 15th Conference of the Parties to the Convention on Biological Diversity (''COP15'') by 196 state-parties (including the EU)1.
The Proposal sets multiple binding restoration targets and obligations across a broad range of ecosystems (including improving and re-establishing biodiverse habitats on a large scale, achieve an increasing trend for pollinator populations, and restoring marine habitats such as seagrass beds and sediment bottoms) and requires Member States to prepare and carry out national restoration plans aimed at reaching these targets.
The Proposal also specifies that the measures to be adopted should cover at least 20% of the EU's terrestrial and sea areas by 2030 and all degraded ecosystems by 2050. In this respect, the link with the GBF's targets is evident, as one of them is to conserve 30% of the world's lands, inland waters, coastal areas, and oceans by 2030 and to have restored (or have restoration underway of) 30% of degraded terrestrial, inland waters, and of coastal and marine ecosystems by 2030. Despite a reduction in that target, the Proposal is effectively converting a voluntary commitment into a legally binding obligation.
The Proposal's legislative journey has been relative short: it was presented by the Commission in June 2022 and on 20 June 2023, the Council adopted its general approach. On 12 July 2023, the Proposal survived a near defeat in the plenary session of the European Parliament, with 336 votes in favour, 300 against and 16 abstentions.
The positions of the Commission, the Council and Parliament are largely aligned, although some material specific obligations in the original Commission proposal were watered down and derogations were added to the text then adopted by Parliament: see the table below.
Some (non-exhaustive) differences between the Commission, Council and Parliament texts of the Nature Restoration Law
| Subject | Commission | Council | Parliament |
| Non-deterioration of areas of habitats that are subject to restoration measures | Result-based obligation | Result-based obligation to prevent significant deterioration | Effort-based obligation to prevent significant deterioration on a national level |
| Renewable energy plants, their connection to the grid, the related grid itself and storage assets | - | Overriding public interest that may be exempted from the requirement that no less damaging alternative solutions are available under Articles 4(8) and (8a) and 5(8) and (8a) | No changes to Council position |
| Binding targets for 'Annex I' habitat types to (i) improve them in areas where they are not in good condition and (ii) to re-establish them in areas where they are not covered | At least 30% by 2030 of the (i) area of each group of habitat types that is not in good condition and 30% of (ii) the overall surface needed to reach the total favourable reference area of each group of habitat types, 60% by 2040 and 90% by 2050 | At least 30% by 2030 of (i) the total area of all habitat types that are not in good condition and 30% of (ii) the overall surface needed to reach the total favourable reference area of each group of habitat types, 60% by 2040 and 90% by 2050 | Removal of binding targets |
| Availability of financial resources to implement restoration measures | - | Commission submits report one year after the regulation's entry into force with an overview of (i) available financial resources at EU level, (ii) funding needs, (iii) funding gaps and (iv) proposals to address the funding gaps | No changes to Council position |
| Submission and review of national restoration plans | Member States submit plans after two years of the regulation's entry into force for the period until 2050. Reviewed every ten years | Member States submit plans after two years of the regulation's entry into force for the period until 2032, subsequently for 2023-2042 and finally for 2042-2050. Reviewed before July 2032 and before July 2042 | No changes to Council position |
How does the proposed Nature Restoration Law interact with business's existing and future disclosure and due diligence obligations
The Nature Restoration Law will plainly create risks and opportunities for businesses operating in sectors directly impacted by the changes targeted by the Law (such as agriculture, fishing, forestry and extractive industries), but it is also likely to inform expectations on business under existing and prospective European due diligence and disclosure legislation, principally the Corporate Sustainability Reporting Directive (''CSRD'') and the Corporate Sustainability Due Diligence Directive (''CSDDD''). It will also likely inform compliance with the new draft framework for nature-related risk management and disclosure, recently published by the Taskforce on Nature-related Financial Disclosures ("TNFD")2 , and other disclosure standards, such as the ISSB3 .
First, the CSRD4 , which entered into force on 5 January 2023, requires all large companies and all listed companies (except listed micro-enterprises) to disclose information on what they see as the risks and opportunities arising from social and environmental issues, and on the impact of their activities on people and the environment5. In doing so, companies must comply with the European Sustainability Reporting Standards (''ESRS''), the first set of which is expected to be adopted in August 2023. Draft ESRS 4 specifically addresses corporate sustainability relating to biodiversity and ecosystems and requires companies to develop an understanding of their impacts on biodiversity and take actions to mitigate them, and to report such information provided that the topic meets a certain materiality threshold for the organisation. We expect the targets set by the Nature Restoration Law to set the backdrop for many companies' implementation of ESRS 4. Most obviously, companies will need to consider the consequences for them (both good and bad) of the achievement of those targets.
Second, the CSDDD6 , which still needs to be finally approved, aims to require in-scope businesses operating in the European market to undertake human rights and environmental due diligence in relation to their operations and value chains and to adopt and implement a climate transition plan aimed at restricting global warming to 1.5°C in accordance with the Paris Agreement7. Companies must also identify and, where necessary, prevent, end, or mitigate adverse environmental impacts of their own activities (and those of subsidiaries) and in their value chain, including biodiversity loss and ecosystem degradation8. According to the Parliament's text, the transition plan should also be implemented and be consistent with CSRD reporting requirements. This would bring the ESRS 4 back into play.
Third, the TNFD, which on 28 March 2023 released the final draft of its risk management and disclosure framework, is a backdrop for all the above European initiatives. It provides a framework for organisations to report on risks from biodiversity loss and ecosystem degradation, improving in turn the availability of data and information to enable organisations to integrate nature-related risks more accurately and reliably into their decision-making.
Conclusion and next steps
While the Proposal imposes specific obligations on Member States, it will impact business as well. Whilst that some businesses will suffer negative impacts, for others it will represent an opportunity. In any event, however, those businesses within the scope of sustainability related due diligence and disclosure regimes, will need to understand the impact of the proposed legislation and the targets it proposes to set. However, much of the practical impact for businesses in terms of restoration priorities, required action, geographical application and timing for individual sites might only be fully identified once national nature restoration plans are finalised. Given this may not happen until up to 3 years after adoption of the Regulation, businesses will need to keep abreast of national policy development in this regard.
Trilogue negotiations with the European Commission, Council and Parliament have now started with a view to reaching a final text of the regulation.
An early agreement is desired by the Council Presidency and also thought by a number of commentators to be feasible, since the positions of the three EU bodies are not far apart. If the trilogues are successful, the new Nature Restoration Law is likely to be approved before June 2024, when the Parliament elections are scheduled. However, if the negotiations prove unsuccessful, they will spill over to the newly elected Parliament, with consequent delays.
1See our client briefing on the GBF here.
2See, our client briefing on the April 2022 consultation on the TNFD here.
3The ISSB issued a consultation on its priorities for its next two-year work plan, including biodiversity as a potential subject for disclosure.
4See our Thought Leadership here.
5CSRD requirements are expected to be in place for financial years beginning on or after 1 January 2024 by large publicly traded entities that have more than 500 employees at the same time (i.e., entities already subject to the Non-Financial Reporting Directive) and by 2025 for other large companies. Small and medium-sized enterprises (SMEs) will also be subject to a reporting obligation starting in 2027.
6See our blog here.
7The new rules will apply to EU-based companies, regardless of their sector, including financial services, with more than 250 employees and a worldwide turnover over 40 million euro as well as to parent companies with over 500 employees and a worldwide turnover of more than 150 million euro. Non-EU companies with a turnover higher than 150 million euro, if at least 40 million was generated in the EU, will also be included
