Company directors are required to consider nature, says legal opinion

“Nature-related risks are relevant to a company’s financial success and therefore to directors’ legal duties.”

Directors in England and Wales are required under law to consider their company’s nature-related risks, according to a legal opinion published today.

Commissioned by Pollination Law and the Commonwealth Climate Law Institute, the opinion is based on an assessment of the duties laid out in the 2006 Companies Act, which require directors to promote the success of the company and act with reasonable care, skill and diligence.

It claims directors must identify and consider the extent to which nature poses a risk to the business, and then “take steps to manage and mitigate these risks (where appropriate), which may include designing and implementing a framework for systematic risk management”.  

Authored by five barristers, led by Sharif Shivji KC and Rebecca Stubbs KC, the opinion warns that “a director can face significant consequences for breaches of these duties, including potential claims for damages or compensation”.

“Even in cases where it is difficult to quantify the loss the company has suffered, a director can face adverse consequences for the breach, such as termination of employment or a challenge to any remuneration or exit package,” it adds.   

Nature has become a growing focus for regulators, shareholders and standard-setters over the past 18 months.

Today’s legal opinion includes climate risk as a subset of nature-related risks. Other examples given include the collapse of ecosystems that underpin a company’s operating model, damage to assets from events such as flooding, shifts in consumer preferences, and new legislation.

“This opinion is not a radical interpretation of UK company law, but a logical, authoritative and diligent elucidation of established legal principles, supported by comprehensive evidence,” said Jenni Ramos, a CCLI lawyer specialising in corporate finance and biodiversity.

“It confirms that nature-related risks are relevant to a company’s financial success and therefore to directors’ legal duties.”

Similar opinions have previously been developed in New Zealand and Australia, and the CCLI has suggested that company law in Canada, India and South Africa also point to the same conclusion.