March 13, 2024

Legal opinion: Nature-related risks and directors’ duties under the law of England and Wales

Board directors could potentially breach their duties to their company by failing to consider or act on relevant nature-related risks, according to this legal opinion, authored by a team of corporate and financial law barristers (high-ranking silks Sharif Shivji KC and Rebecca Stubbs KC leading Karl Anderson and Hossein Sharafi, with contributions from environmental law expert, James Burton).

The opinion concluded that nature-related risks (which encompass, but are broader than, climate risks) fall within existing financial risk categories and are increasing in political and commercial prominence with growing scientific understanding of the global state of nature decline. It explains how board directors could breach their duties under the Companies Act 2006 if they fail to identify and (where appropriate) mitigate latent financial risks arising from a company’s unaddressed nature-related impacts and dependencies. That in turn could expose directors to increased shareholder scrutiny and legal consequences.

The opinion identifies a number of examples where nature-related risks can have material financial consequences for companies. This includes 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.