Introduction

The report explores the emerging trends in nature-related litigation and its implications for the financial sector. Nature-related litigation includes cases concerning biodiversity loss, deforestation, ocean degradation, carbon sinks, and plastic pollution. A key trend identified is the rise of strategic litigation aimed at protecting broader ecosystems and nature’s ability to provide essential services. This shift from traditional environmental cases means financial institutions must account for nature-related financial risks, similar to climate-related litigation.

The report notes that biodiversity is declining at rates 10 to 100 times higher than historical averages, undermining ecosystem services critical to economies and human wellbeing. With the adoption of the Kunming-Montreal Global Biodiversity Framework in 2022, governments are under increasing pressure to reverse biodiversity loss, which may accelerate litigation efforts.

Examples of strategic nature-related litigation

The report identifies two key types of strategic nature-related litigation:

Litigation against states and public entities: Rights-based cases are becoming more common, particularly in relation to a “right to a healthy environment,” which is constitutionally protected in 100 countries. Examples include cases in Colombia and the Philippines, where litigants have argued that environmental degradation violates human rights. Some of these cases link biodiversity loss with climate change, making the climate-nature nexus a central theme.

Litigation against companies and financial institutions: Financial institutions and corporations are increasingly targeted in nature-related litigation, especially regarding their role in global supply chains contributing to ecosystem degradation. For example, a French supermarket chain and a credit institution were challenged for failing to prevent deforestation in the Amazon. Such cases highlight the growing importance of environmental and human rights due diligence. The report also cites cases in Brazil where a steel company was sued for contributing to illegal deforestation and climate damages through its supply chain.

Nature-related litigation and the interaction with legislation and governance

The report highlights that nature-related litigation is influenced by both national legislation and international agreements. For instance, the Kunming-Montreal Global Biodiversity Framework sets out global goals for biodiversity protection, and the report suggests that this framework could be used as a reference in future legal cases.

The NGFS also notes that corporate sustainability due diligence laws, such as the EU’s Corporate Sustainability Due Diligence Directive (CSDDD), are expected to drive more litigation. These laws establish clear responsibilities for companies regarding their supply chains, which could pose significant risks, especially when environmental harm is localised and easier to trace. This could affect financial institutions, as their clients may face increased litigation risks.

Relevance of nature-related litigation for the financial sector

Nature-related litigation poses several risks for the financial sector. These include physical risks (due to the degradation of ecosystems) and transition risks (arising from misalignment between business practices and policies aimed at protecting nature). Financial institutions, including central banks and supervisors, need to monitor these risks closely.

The report also discusses potential financial impacts, such as litigation costs, reputational damage, and changes in investor sentiment. For instance, litigation could lead to stranded assets if natural resources are legally protected or if companies face operational constraints due to environmental laws. Moreover, litigation based on supply chain due diligence could result in substantial costs for companies and their financial backers.

Conclusion and outlook

The report concludes that nature-related litigation will likely grow, driven by rising awareness of biodiversity loss and climate change. The financial sector must prepare for this emerging risk by incorporating nature-related risks into their decision-making processes. The NGFS recommends that financial institutions enhance their monitoring of these risks and align their strategies with international biodiversity and sustainability frameworks.

The report urges central banks, supervisors, and financial institutions to pay attention to legal developments in this area, as they could significantly impact financial stability. As strategic litigation evolves, it could shape future regulatory landscapes and redefine financial institutions’ role in protecting nature.