Introduction

The report examines how nature-related risks intersect with directors’ duties under the law of England and Wales. It highlights growing scrutiny from shareholders, investors, and regulators on how companies address dependencies and impacts on nature. These risks extend beyond climate issues and are becoming legally and financially significant. Directors are increasingly expected to consider nature-related risks when promoting their company’s success and exercising reasonable care, skill, and diligence under sections 172 and 174 of the Companies Act 2006.

Nature-related risks and their effects on companies under the law of England

Nature-related risks arise from a company’s dependencies and impacts on natural systems. The Taskforce on Nature-related Financial Disclosures (TNFD) defines these as potential threats stemming from interactions with nature. These risks include physical, transition, and systemic risks. For example, 55% of global GDP and 52% of UK GDP depend on biodiversity and ecosystem services, while 72% of UK lending relies on them. Companies face financial losses from soil degradation estimated at £1.2 billion annually and from declines in pollinators affecting crop yields and supply chains.

Companies may face civil claims for environmental harm, breaches of regulation, or reputational damage. English law recognises actions in nuisance, negligence, and breach of contract for environmental impacts. Regulatory obligations—such as under the Environmental Protection Act 1990 and the Environmental Permitting Regulations 2016—impose criminal or civil penalties for non-compliance. Reputational risk is also significant as investors increasingly demand environmental transparency; PwC projects that ESG assets will represent 21.5% of global assets under management by 2026. These risks apply to companies of all sizes, not just large corporations.

Nature-related risks and directors’ duties

Directors’ duties under sections 172 and 174 of the Companies Act 2006 require them to promote the company’s long-term success and act with reasonable care and skill. Section 172 obliges directors to consider the impact of their company’s operations on the environment, and failure to consider such impacts may constitute a breach. Section 174 imposes an objective standard of competence, requiring directors to maintain sufficient knowledge of the business and obtain expert advice where necessary.

Nature-related risks are relevant to these duties because they can materially affect a company’s financial performance, reputation, and compliance. Directors are advised to identify relevant non-trivial nature-related risks, assess their significance, take professional advice, and record their decision-making. Ignoring these risks may expose directors to claims of breach of duty. Case law, including ClientEarth v Shell plc (2024), illustrates the courts’ expectation that directors must show they have actively considered environmental risks.

Nature-related risks and disclosure

The UK disclosure regime, governed by the Companies Act 2006, Financial Reporting Council (FRC) guidance, and accounting standards, requires companies to report environmental and climate-related matters where material to understanding their performance or position. Quoted companies must disclose information on environmental matters, policies, and their effectiveness. Larger companies must also include non-financial and sustainability information statements, reflecting recommendations from the Taskforce on Climate-related Financial Disclosures (TCFD). Although TNFD recommendations have not yet been integrated into law, they are expected to influence reporting practices.

The FRC advises that disclosures on environmental matters should include a company’s reliance on natural resources, pollution risks, and potential impacts of climate change. Regulatory and market developments—such as the UK Government’s intention to align with TNFD recommendations and investors’ increasing expectations for biodiversity-related transparency—indicate a move towards broader nature-risk disclosure. While directors are generally protected from liability for inadvertent omission, serious failures to disclose may have reputational consequences.

Conclusions

The report concludes that nature-related risks can significantly influence corporate success and governance. Directors have legal obligations to consider and address these risks when making decisions under sections 172 and 174 of the Companies Act 2006. They should ensure nature-related risks are integrated into governance, risk management, and disclosure processes. Boards are advised to document deliberations, seek expert advice, and maintain transparency in narrative reporting. Failure to do so may expose directors to claims, sanctions, or reputational harm as expectations around nature-related accountability continue to rise.