Company directors who fail to foresee the impacts their companies have on nature, and the commercial risks those effects pose, can be held personally liable and fined, according to lawyers.
A new legal opinion advises that company directors need to identify anywhere their business is dependent on or has an impact on nature and consider the potential risks this poses to the company.
Failure to do this could make directors liable for breaching their duty of care and diligence under the Corporations Act, according to the advice.
Breach of directors’ duties under corporations law is punishable and penalties can include stripping of directorships, fines or legal action by third parties that have suffered financial losses.
An example of nature-related risk is the European Union’s decision to require companies not to import beef produced on land that has been deforested. That then poses a risk that companies selling beef linked to deforestation could lose access to a whole market.
Or, if Australian consumers were to decide they did not want to buy beef products linked to land-clearing, that could become a risk closer to home.
The opinion has been issued by barrister Sebastian Hartford-Davis and lawyer Zoe Bush and was commissioned by Pollination in collaboration with the Commonwealth Climate and Law Initiative.
Pollination is a climate change and nature investment and advisory firm, whose chief executive, Martijn Wilder, is also the chair of the federal government’s National Reconstruction Fund.
In 2016, Hartford-Davis and Noel Hutley wrote a seminal opinion – known as the Hutley opinion – that company directors had a duty under the Corporations Act to consider climate-related risk or face legal consequences. The new opinion finds a similar duty for nature-related risks.
“The key message for directors of Australian companies is it’s important they take steps to satisfy themselves now that they’ve thought about the relevance of nature-related risk and opportunities to their companies,” Pollination director Laura Waterford said.
“It’s not something that can be deferred.”
It comes after the taskforce on nature-related financial disclosures recently released a global framework aimed at ensuring that nature is considered alongside other types of risks. It also follows last year’s Cop15 biodiversity pact, in which 196 countries reached agreement on 23 targets aimed at protecting and restoring biodiversity.
On the sidelines of the global summit last year Australia and the United States announced they would work together to better measure the economic value of nature and reflect it in national accounts.
The legal opinion by Hartford-Davis and Bush advises that nature-related risks to a company should be foreseeable now given the amount of information already available about the extent to which economies depend on nature and the rate at which biodiversity was being degraded in Australia and internationally.
The opinion advises that directors who perceive that nature-related dependencies and impacts pose material risks of harm to a company must decide what action, if any, is to be taken. If the risks are considered to be material they should also be disclosed in accordance with continuous disclosure and periodic reporting requirements.
The opinion applies to both direct impacts a company’s activities might have on nature as well as indirect impacts through supply chains.
It advises directors could be liable for failure to consider physical risks where their companies are directly or indirectly dependent on nature for their prosperity. It also finds they could be held liable for failure to consider transition risks such as changes to regulation, consumer preferences, technology or laws associated with shifts towards more “nature positive” economies.
Wilder said the original Hutley opinion had been “hugely influential” in convincing corporate leaders to take climate change seriously.
“We fully anticipate this new opinion will have a similar impact when it comes to risks associated with nature,” he said.
“We are seeing the rapid emergence of nature positive alongside net zero as a critical part of the future corporate environment.”
Estelle Parker, the executive manager of the Responsible Investment Association Australasia, said investor interest in nature had “skyrocketed” in recent years.
She said company directors needed to know and properly assess the type and magnitude of nature risks facing their companies.
“The risk that nature and biodiversity loss poses to companies is becoming abundantly clear,” she said.
“It is an absolute no-brainer that companies should consider and disclose these risks, and that failure to do so actually contravenes the duties of directors.”
