Introduction

Biodiversity loss is increasingly a global concern, with several events showing the negative economic impact. The report analyses the legal risks companies and their directors face regarding biodiversity loss. It provides guidance on ESG matters, particularly, the material financial risks and liabilities that arise when companies fail to address biodiversity concerns.

Legal analysis

The report examines the current laws that govern directors’ responsibilities and applies them to biodiversity risk. It suggests that company directors must discharge their duties in good faith, in the interest of the company, and with due care and diligence of a reasonable person in the relevant circumstances. The report provides practical guidance to directors and poses fourteen questions that companies and their directors should consider to comply with their legal obligations regarding biodiversity risk.

Jurisdictional spotlights

The report illustrates how the legal frameworks vary across jurisdictions. The report highlights the key obligations companies and their directors must adhere to in specified jurisdictions, including Australia, Canada, India, the United Kingdom, and South Africa. For example, the report notes that in Australia, directors must report information on relevant environmental risks, including biodiversity risk, in the company’s annual report. Similarly, Canadian Securities Administrators announce proposed regulations requiring climate-related disclosure by public companies, which may have relevance to future biodiversity disclosures by companies. Furthermore, the UK government has announced its intentions to enshrine mandatory climate disclosures for large companies in law and introduce voluntary disclosures for other companies. Therefore, the report suggests companies must understand the legal frameworks in the jurisdiction where they operate and consider the risks posed by biodiversity loss, specifically, to determine whether directors comply with their legal obligations.

Case studies

The report includes case studies that exemplify the influence of biodiversity loss on companies and their directors, especially companies operating in sectors such as agriculture and construction with extensive interactions with nature. These case studies illustrate the intersection of corporate operations, biodiversity loss, and governance. For instance, the Case Study on the Agricultural Industry notes regulatory measures, which includes minimum land management practices, that require companies to implement sustainable agriculture practices. This case study highlights that companies must consider the impact of their operations on biodiversity when discharging their duties.

Recommendations

The report recommends that companies should integrate the consideration of biodiversity risks in their decision-making processes to comply with their legal requirements as risk stewards. The authors suggest that investors should require disclosure of biodiversity risks and opportunities, embedded within company operations, as part of their due diligence process. Moreover, the report suggests that companies must develop biodiversity risk management plans, and material information disclosure should be done to stakeholders. Additionally, the report recommends that companies should consider the emerging disclosure standards and the definition of materiality provided by the International Accounting Standards Board to determine whether biodiversity risk is material to their financial statements.

Conclusion

The report emphasises that companies and their directors face significant legal risks and liabilities regarding biodiversity risk if they fail to comply with their legal obligations. It recommends that companies must consider the increasing risk associated with biodiversity loss and develop ecological transition plans to address these risks and deliver their duties.