English company directors advised to consider ‘nature-related risks’

English company directors advised to consider 'nature-related risks'

Company directors should consider their company’s nature-related risks as part of their legal duties under the law of England and Wales, a legal opinion commissioned by Pollination Law and the Commonwealth Climate and Law Initiative (CCLI) has found.

Authored by a team of five barristers led by Sharif Shivji KC and Rebecca Stubbs KC, the opinion warns that failure to do so could expose directors to increased shareholder scrutiny and legal consequences under the Companies Act 2006.

Directors can document active consideration of these risks to protect from litigation like the recent ClientEarth v Shell case, it says.

Nature-related risks include, but are broader than, climate risks. They include 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.

The new legal opinion specifically examines how nature-related risks relate to directors’ duties to promote the success of the company and act with reasonable care, skill and diligence under sections 172 and 174 of the Companies Act 2006.

Ms Stubbs of Maitland Chambers, co-author of the opinion, said: “Our analysis demonstrates that nature-related risks are no different to any other risks faced by company directors. Directors are required to give consideration to all relevant risks facing their businesses.”

Martijn Wilder, CEO of Pollination, said: “This landmark opinion reiterates the need for boards to put relevant nature-related risks on their agendas and be able to demonstrate that they have given those risks proper weight and consideration in decision-making.”

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, added: “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.”

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