Landmark new legal opinion: 'Nature-related risks and directors' duties under the law of England and Wales'
The Commonwealth Climate and Law Initiative (CCLI) and Pollination would like to share a landmark new legal opinion: 'Nature-related risks and directors' duties under the law of England and Wales'
Board directors could potentially breach their duties to their company by failing to consider or act on relevant nature-related risks, according to a new independent legal opinion.
The opinion was authored by a team of corporate and financial law barristers (high-ranking silks Sharif Shivji KC and Rebecca Stubbs KC leading Karl Anderson and Hossein Sharafi, with contributions from environmental law expert, James Burton).
The opinion concluded that nature-related risks (which encompass, but are broader than, climate risks) fall within existing financial risk categories and are increasing in political and commercial prominence with growing scientific understanding of the global state of nature decline. It explains how board directors could breach their duties under the Companies Act 2006 if they fail to identify and (where appropriate) mitigate latent financial risks arising from a company's unaddressed nature-related impacts and dependencies. That in turn could expose directors to increased shareholder scrutiny and legal consequences. Directors should document careful consideration of relevant risks to protect themselves from similar litigation to the ClientEarth v Shell case.
The opinion identifies a number of examples where nature-related risks can have material financial consequences for companies. This includes physical risks, such as a decline or collapse of ecosystems that underpin a company’s operating model, and transition risks, including shifting consumer preferences and legal requirements.
Professor Thom Wetzer, Associate Professor of Law and Finance at the University of Oxford, Founding Director of the Oxford Sustainable Law Programme and Trustee of the CCLI, said: "We increasingly understand the potential severity of nature-related risks for companies. Yet, directors commonly fail to appreciate the severity of these risks and thereby needlessly put their company at risk. This important report highlights what should have been obvious long ago: nature-related risks are not distinct from other financial risks, and should therefore be considered by directors in furtherance of their legal duties."
Read the legal opinion here and executive summary here, or attached. Further details are on our website.
