We have known for a while that in many countries climate related risks should be considered by company directors. Now, in an Australian legal opinion commissioned by global climate/nature investment and advisory firm Pollination, in collaboration with the Commonwealth Climate and Law Initiative (CCLI) directors also have a similar obligation around nature related risks.
Specifically, the authors recommended that, as per their duties under the Australian Corporations Act, directors of Australian companies need to identify their company’s dependencies and impacts on nature AND consider potential risks these pose to the company. Failure on the part of a director to identify, manage and disclose material nature-related risks may lead to increased shareholder pressure and even litigation against personal assets of directors. Click on the image below for the article 👇🏾
This is perhaps more important than it seems at first read. Roughly half of Australia's GDP has a moderate to very high dependence on what are known as ecosystem services. This covers 'services' such as clean water, a healthy soil, natural pollination, and climate stability.
But, the obligation to 'identify and consider' looks like it goes beyond just writing a few paragraph's in a company report. To quote the opinion (emphasis is ours):
"In some cases, the duty of care and diligence will require a director to go further than merely considering risks. Some further action may be required. Where directors consider that nature-related impacts and/or dependencies pose a foreseeable risk of harm to the interests of the company, this does not necessarily require that the company cease any activities giving rise to that risk" ..... (but) "in determining whether a director has breached their duty of due care and diligence, 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”.
We have written on a related topic back in April 2023. In our blog we highlighted that in a world of climate and biodiversity "sticks and carrots", the law is a clear stick. But, we argue that the law is not just about action by governments and regulators. Climate and biodiversity litigation by private citizens and pressure groups is on the rise.
Companies and their directors need to make sure that they are acting with due care and diligence. As the legal opinion states, this does not mean ceasing a harmful activity. But it does mean carrying out a proper appraisal. Simply saying "we obey all local laws" is increasingly looking to be an insufficient response.
Link to blog 👇🏾
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Please read: important legal stuff.