Just as disclosure and management of climate-related risks is starting to become codified in many jurisdictions across the globe, attention is turning to nature-related risks. Nature-related risks can stem from climate risks but also encompass how ecosystems and environmental health pose unique challenges to companies. Recently, lawyers at investment advisory firm Pollination and the Commonwealth Climate Law Initiative made the case that directors in the UK have legal duties that may directly relate to nature-related risks. The paper describes nature-related risks as:
“Nature-related risks are the potential threats posed to an organisation that arise from its dependencies and impacts on nature. They include but are not limited to climate related risks. A company’s dependencies and impacts on nature can have significant effects on a company’s ability to operate successfully. A company which is dependent on nature in its operations and /or its supply chain will suffer where the underlying ecosystem on which the company depends is interrupted. Company operations that result in negative impacts on nature can cause the company financial loss, as well as damaging its reputation, goodwill and ultimately its share price. Financial institutions may face increased exposure where borrower companies suffer these types of losses.”
The authors then go on to argue that three distinct duties in UK law may tie into disclosure and management of nature related risks, specifically:
- The duty to promote the success of the company for the benefit of the members as a whole (s.172 CA 2006);
- The duty to act with reasonable care, skill and diligence (s.174 CA 2006); and
- The obligations on directors to disclose information about the company in its narrative reports.
My law degree comes from the States, so I can’t speak to these claims; however, these ideas point to interesting undercurrents in ESG. Nature appears to be the new emerging topic in ESG and opinions like this one seek to push it into the mainstream. The paper discusses the Taskforce on Nature-related Financial Disclosures (TNFD) which has been getting a lot of attention lately. The case could be made that the TNFD is today where the Taskforce on Climate-related Disclosures (TCFD) was not very long ago. If the topic of nature and biodiversity doesn’t fizzle out as ESG’s “flavor of the week” then nature disclosures could very well be the future.
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