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Legal opinion - no surprise, directors do need to consider nature related risks

Steven Bowen

22 Mar 2024

The Commonwealth Climate and Law Initiative, together with Pollination, commissioned a legal opinion from a team of corporate and financial law barristers on the duties of UK company directors and the need to consider and assess nature related risks. For regular readers of our blogs, it will come as no surprise that the opinion concluded (our non lawyer wording):

Directors must consider nature related risks under English company law
Failure to do so could expose them to being personally liable
If they determine that nature related risks are material, they must assess and make decisions as to what action, if any, is to be taken and document their decisions
And perhaps most importantly - they should be disclosed in line with regulatory requirements at a minimum, and where there is an emerging market standard or investor expectation, directors should carry out voluntary disclosure.

Nothing in this opinion should come as a surprise to investors and board directors. As Jenni Ramos of the Institute points out, "this opinion is not a radical interpretation of UK company law, but a logical, authoritative and diligent elucidation of established legal principles, supported by comprehensive evidence".

This is, unsurprisingly, totally consistent with the direction of travel of the accounting standards from the IFRS, via the International Sustainability Standards Board.

The latest version, IFRS S2, is effective for annual reporting periods beginning on or after 1 January 2024. It requires an entity to "disclose information about climate-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term".

The direction of travel here is clear. Companies need to disclose information about how their business will be impacted, the likely consequences for their financial performance, and what they are doing to mitigate or prepare for these changes.

A recent report from Carbon Tracker suggests that many companies, indeed most companies, need to do more. We expect to see further pressure being placed on companies to comply, not just from sustainability professionals but from all investors.

And the risk to directors is real, as a recent blog on the action being taken against directors regarding claimed failures in relation to the construction of the Ostrołęka C coal fired power plant in Poland illustrate.

Link to blog 👉🏾 https://www.thesustainableinvestor.org.uk/sunday-brunch-good-faith-no-defence-for-lack-of-foresight/

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