IFRS S3 on Biodiversity: Early Strategies for Accountants to Measure and Disclose Nature-Related Impacts

The International Sustainability Standards Board (ISSB) has signaled its next major standard: IFRS S3 (Biodiversity, Ecosystems and Ecosystem Services). Building on IFRS S1 (General Requirements) and IFRS S2 (Climate-related Disclosures), the new standard will require entities to identify, measure, and report material biodiversity-related financial impacts. Although IFRS S3 is still in research and consultation, accountants must begin preparations now to integrate biodiversity risk into financial reporting alongside traditional financial metrics

1. Understand the Scope of IFRS S3

IFRS S3 aims to cover biodiversity-related risks and opportunities that affect an entity’s enterprise value. Key aspects include:

• Ecosystem Dependencies: 

  How operations rely on ecosystem services (e.g., water filtration, pollination).

• Ecosystem Impacts: 

  How business activities degrade or restore biodiversity (e.g., land use, emissions).

• Financial Implications: 

  Potential liabilities, asset impairments, and revenue shifts resulting from biodiversity changes.

Entities applying IFRS S1 are already directed to consider biodiversity when assessing material sustainability risks. IFRS S3 will formalize these requirements with specific disclosure and measurement criteria.

2. Embed Biodiversity in Materiality Assessments

A robust materiality process is the foundation for IFRS S3 disclosures. Accountants should:

1. Engage Stakeholders: 

   Collaborate with sustainability, operations, and risk teams to identify biodiversity dependencies and impacts across the value chain.

2. Map Ecosystem Services: 

   Inventory critical services (water, soil fertility, pollination) that support revenue-generating activities.

3. Assess Financial Materiality: 

   Quantify potential cost of service disruptions or regulatory fines—using scenarios to estimate impairment or additional provisions under IAS 36 (Impairment of Assets) and IAS 37 (Provisions) where relevant.

Documenting a clear, audit-ready materiality matrix ensures that biodiversity disclosures focus on the most financially significant topics.

3. Develop Data Collection and Measurement Capabilities

Unlike greenhouse gas emissions, biodiversity lacks universally agreed metrics. Early steps include:

• Select Proxy Indicators: 

  Adopt recognized biodiversity indicators (e.g., forest area loss, species count) from the Taskforce on Nature-related Financial Disclosures (TNFD) or Global Biodiversity Framework.

• Integrate Geospatial Data: 

  Leverage GIS tools to track land-use changes and habitat fragmentation on owned or managed sites.

• Monetize Ecosystem Services: 

  Apply valuation techniques—such as replacement cost or willingness-to-pay—to estimate the economic value of services lost or restored.

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Building a centralized data hub that combines operational metrics, external biodiversity data, and financial values is critical for consistent, repeatable measurement.

4. Strengthen Controls and Governance

Accountants must extend traditional internal controls to cover biodiversity data:

• New Control Points: 

  Validate ecosystem service data at source (e.g., meter readings, satellite imagery) before incorporating into financial models.

• Segregation of Duties: 

  Separate data collection, valuation, and reporting responsibilities to safeguard accuracy.

• Audit Trail: 

  Retain documentation for proxy selections, valuation assumptions, and stakeholder sign-offs to satisfy external audits.

Form an interdisciplinary Biodiversity Governance Committee—including finance, sustainability, legal, and operations—to oversee policies, controls, and disclosures.

5. Update Financial Reporting Processes

Bringing biodiversity into financial statements and notes requires:

• Chart of Accounts Adaptation: 

  Create new codes for biodiversity-related provisions, asset impairments, and restoration expenses.

• Disclosure Templates: 

  Develop note templates aligned with the anticipated structure of IFRS S3, covering governance, strategy, risk management, and metrics.

• System Enhancements: 

  Configure ERP or disclosure management systems to capture, tag, and report biodiversity data alongside IFRS S1/S2 information.

Early alignment with anticipated disclosure formats will reduce rework once IFRS S3 is finalized.

Conclusion

While IFRS S3 on biodiversity is still under development, proactive accountants can lay the groundwork today. By embedding biodiversity in materiality assessments, building data and valuation capabilities, reinforcing controls, and updating reporting processes, finance teams will be ready to comply seamlessly when the final standard is issued. Embracing IFRS S3 not only ensures regulatory compliance but also positions organizations as leaders in sustainable value creation.