Introduction

This legal opinion examines the duties of directors of Canadian for-profit corporations in relation to nature-related risks under the Canada Business Corporations Act (CBCA), comparable provincial legislation, and Canadian common law. It assesses whether such risks are foreseeable and potentially material, and how they intersect with directors’ fiduciary duties, duty of care, and disclosure obligations, including consideration of emerging international frameworks.

Relevant nature-related concepts and definitions

Nature-related risks are defined, in line with the Taskforce on Nature-related Financial Disclosures (TNFD), as risks arising from an organisation’s dependencies on nature and its impacts on nature. This includes exposure to biodiversity loss, ecosystem degradation, water scarcity, and regulatory responses. The report treats nature-related risks as multi-dimensional, cutting across operational, financial, legal, and reputational risk categories rather than constituting a single, isolated risk.

The current context

The report places directors’ duties within a context of accelerating biodiversity loss and increasing regulatory, investor, and policy focus. Globally, more than 50% of GDP is estimated to be moderately or highly dependent on nature and exposed to nature loss by 2030. Canada’s exposure is heightened by international trade and overseas assets. In 2023, 47% of Canada’s merchandise imports were intermediate goods, indicating reliance on global supply chains. Canadian mining assets abroad totalled approximately CAD 195.9 billion, representing 69% of total mining assets. Investor initiatives and public commitments increasingly signal expectations that companies identify, assess, and manage nature-related risks.

Foreseeability of nature-related risks

Applying Supreme Court of Canada jurisprudence, the report concludes that nature-related risks are reasonably foreseeable. These risks are well documented and present a real possibility of harm that a prudent director would not disregard. Regulatory developments, such as bans on environmentally harmful products, and project delays linked to environmental constraints demonstrate how nature-related impacts can become financially and operationally material. Comparable legal opinions from Australia, New Zealand, and the UK support the conclusion that nature-related risks now fall within the scope of directors’ duties.

Fiduciary duty and the duty of care

Under section 122 of the CBCA, directors must act honestly and in good faith in the best interests of the corporation and exercise the care, diligence, and skill of a reasonably prudent person in comparable circumstances. The report emphasises that the best interests of the corporation is a contextual and long-term concept, which may require consideration of environmental factors and stakeholder interests, including Indigenous rightsholders. The duty of care requires directors to be reasonably informed, make appropriate inquiries, identify significant risks, and ensure suitable governance and risk management processes. Directors may rely on the business judgment rule where decisions are made prudently and on an informed basis.

Materiality of nature-related risks

Nature-related risks may be financially material depending on a corporation’s sector, geographic exposure, and reliance on natural capital. The report notes that materiality should be assessed case by case, taking into account both financial materiality to investors and, prudently, impact materiality where long-term corporate value may be affected. Examples from insurance, manufacturing, and extractive sectors illustrate how regulatory change, supply-chain disruption, and environmental degradation can affect asset values, liabilities, and business continuity.

Nature-related corporate disclosures

Canadian securities law requires timely disclosure of material risks and material changes. Failure to disclose material nature-related risks may expose corporations and directors to statutory, regulatory, or civil liability. While impact-based disclosure is not yet mandatory, the report considers it prudent for directors to align disclosures with the TNFD framework and emerging Canadian sustainability standards where risks are financially material or reasonably expected to become so.

Best practices

The report outlines best practices for directors, including establishing processes to identify and assess nature-related risks, determining materiality, integrating material risks into enterprise risk management, and documenting decision-making. Directors are encouraged to rely on available information, engage expert advice where appropriate, consider sector-specific guidance, and account for impacts on key stakeholders. These practices support compliance with existing duties and help mitigate legal, financial, and reputational risks.