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Companies could be held liable for nature-related risks, lawyers find
Company directors who fail to account for “nature-related risks” may be liable under Australian corporations law, a legal opinion found.
Naomi Neilson
In response to a framework released by the Taskforce on Nature-related Financial Disclosures, an opinion commissioned by Pollination Law and the Commonwealth Climate and Law Initiative (CCLI) said directors who rely on nature for success could face consequences if they do not consider, disclose and manage risks to the environment.
“Directors should cause management to put them into a position to consider the materiality of such risks, take advice on how they should be managed and disclosed, and protect themselves from personal risk and liability by informing themselves and taking action appropriate so as to engage available defences,” Mr Hartford Davis and Ms Bush said.
Considering Australian law, the authors found risks could arise from the impacts on nature, which courts would consider foreseeable.
Referring to the judgment in Vrisakis v ASIC, Mr Hartford-Davis and Ms Bush wrote that a court will balance the “foreseeable risk of harm against the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question”.
As such, directors should “at least” identify the nature-related dependencies and take care to consider the risk of harm.
Disclosure requirements form part of the directors’ duties because although section 180 of the Corporations Act does not explicitly and directly impose a duty to prevent a company from contravening the law, “directors owe a duty to exercise reasonable care and diligence to prevent the harm that a contravention of the law may cause”.
Pollination chief executive Martijn Wilder said company directors who are not considering their nature dependencies and the impact they may be having “should be worried about the risks they are taking on”.
“The days of being able to ignore nature-related risks or hope it never surfaces are gone,” Mr Wilder said.
Why nature-related risks are just as critical as climate-related risks
The response is based on a 2016 seminal opinion, authored by Noel Hutley and Mr Hartford Davis, that found company directors had a duty of care under the Corporations Act to consider climate-related risks.
Mr Wilder said the 2016 opinion was “hugely influential” in convincing corporate leaders to take climate risks seriously within the company.
“We fully anticipate this new opinion will have a similar impact when it comes to risks associated with nature,” Mr Wilder said.
“We are seeing the rapid emergence of a nature-positive alongside net zero as a critical part of the future corporate environment.
“The expectations placed on corporate leaders by investors and the broader community are changing in real time.”
CCLI non-executive director Sarah Barker added the original 2016 opinion had been “significant” in influencing the global perspective on the “intersection between climate change, corporate best interests and the exercise of due care and diligence”.
“This ground-breaking new opinion by Sebastian Hartford Davis and Zoe Bush extends the analysis to biodiversity loss and ecosystem breakdown, with the important conclusion that these issues are capable of presenting foreseeable risks to the best interests of a company – and should therefore be considered by directors,” Ms Barker said.
One of the major findings in the new legal opinion was that company directors who are directly or indirectly dependent on nature should be considering both the physical and transition risks, such as changes to regulation, consumer preferences, technology or laws associated with a transition into a more nature-positive economy.
Laura Waterford, from Pollination, said companies could be liable because their behaviour “makes them vulnerable” to activism or litigation that may be pursued by their shareholders.
“It could be that their exposure is to supply chain or operational disruptions because of physical nature-related risks,” she explained.
As an example, Ms Waterford said companies should consider the financial consequences of pollinator decline arising from the outbreak of the Varroa mite, an invasive pest that is fatal to bee colonies.
Directors could be held responsible for not considering the implications of these types of risks and should “immediately begin taking steps to protect themselves now” before courts get involved.
“Companies are going to need to better understand their supply chains, the totality of their impacts and dependencies on nature and have planning in place to mitigate the risks associated with those impacts and dependencies,” Ms Waterford commented.
Naomi Neilson
Naomi Neilson is a senior journalist with a focus on court reporting for Lawyers Weekly.
You can email Naomi at:
