Company directors could land in legal hot water over nature-related risks

Company directors could be held personally liable if they don’t consider the risks that come with relying on nature to make money.

A legal opinion published on Thursday follows one seven years ago that sparked a seismic shift in corporate Australia’s response to climate change risks.

In 2016, Noel Hutley SC and Sebastian Hartford-Davis found company directors who failed to manage climate risks could be held liable for breaching their duties under the Corporations Act.

In response, companies started integrating climate risks into strategic planning and disclosing climate-related information in financial reports.

Environment groups are hoping for a similar reaction after Sebastian Hartford-Davis and Zoe Bush said directors could also find themselves in legal hot water over nature-related risks.

The phrase is a catch-all for things companies need from nature to turn a profit.

They include large volumes of water mining companies require to extract valuable resources — volumes that might be more challenging to source as climate change escalates.

The term also includes impacts on nature, such as the vast deforestation caused by beef farming.

The European Parliament recently approved a deforestation law to ban beef and other commodities if linked to the destruction of forests.

The new legal opinion was commissioned by climate and nature investment advisory firm Pollination in collaboration with the Commonwealth Climate and Law Initiative.

“The original Hutley opinion has been hugely influential in convincing corporate leaders … to take climate risk seriously,” Pollination CEO Martijn Wilder said.

“We fully anticipate this new opinion will have a similar impact when it comes to risks associated with nature.”

The opinion argues that nature-related risks to a company should be regarded as foreseeable, given the mountain of information that exists about how dependent business is on nature.

Recent research by the Australian Conservation Foundation found that 49% of Australia’s GDP is moderately to highly directly dependent on nature.

Another ACF report published this week found that $260 billion – or 22% – of all outstanding Australian bank loans sit with sectors carrying high risks for the environment, including agriculture, property, energy and resources.

The Responsible Investment Association Australasia, which has endorsed the opinion, said the risks companies faced from nature and biodiversity loss were becoming abundantly clear.

“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,” executive manager Estelle Parker said.

Australian Conservation Foundation business and nature lead Nathaniel Pelle said the writing was on the wall for corporate Australia.

“We are about to get mandatory climate disclosure laws in Australia … and it is pretty certain we’ll get mandatory nature-related risk disclosure laws as well,” he said.

The international taskforce on Nature-related Financial Disclosures recently issued its framework to help shift financial flows away from entities that do damage to ones that are nature-positive.

The federal government — a funding partner of that task force — has promised to protect 30% of Australia’s land and waters by 2030.

It also supports target 15 of the Global Biodiversity Framework which seeks to force large businesses and financial institutions to monitor, assess and disclose biodiversity impacts.

Pelle said nature-related disclosures would be a complex challenge companies needed to get their heads around.

“They should get ahead of it,” he said.

“One because there’ll be a human resources crunch for all the people with skills in how to manage this stuff.

“And two, they’ll get to test the approach before it does become mandatory.

“It’s very, very complicated.

“It’s going to take a while to get right.

“Starting now … would be a very prudent business decision.”

This article was first published by AAP.