Directors have a duty to identify and manage nature-related risks to their businesses, including loss of pollinators, wildlife and wet land degradation, according to law firm Chapman Tripp.
In a legal opinion produced on a pro bono basis for sustainability initiative The Aotearoa Circle, Chapman Tripp partners Nicola Swan and Alana Lampitt said the requirement in the Companies Act for directors to exercise reasonable care and act in the best interests of the company were duties that had evolved with time and context.
Expectations of ‘reasonable care’ hinge on the economic, social, and regulatory context that directors find themselves in.
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Chapman Tripp said developments that could lead to changes in expectations for directors include increased regulatory protection of ecosystems and biodiversity, increasing sustainability obligations, and consumer interest in the corporate impacts on nature.
Examples of nature-related risk include the impact of kauri dieback on the tourism sector, and the financial implications of declining bee populations on businesses that are dependent on pollinators.
There could also be risk from the impact of soil degradation on agricultural businesses and the loss of wetlands and floodplains for sectors dependent those ecosystems for flood protection, such as real estate and infrastructure businesses.
The law firm warns business decisions made in ignorance of foreseeable nature-related risks that resulted in financial loss could be open to legal challenges.
“Those directors who have put in place processes to identify and manage material nature-related risks will be best placed to avoid those losses, and/or avail themselves of statutory defences,” Swan says.
“The key takeaway is for directors to make sure their businesses are conscious of their dependence on the natural environment, given the global biodiversity and climate crisis.
“This is an opportunity for our exporters to get ahead of the increasing focus overseas on supply chain transparency, and the regulatory pressure at home on better management of our natural capital.”
Swan said many primary industry businesses were already doing a good job. “Our big exporters are acutely aware of their dependence on soil and water quality, on the threats to biodiversity.
“If we get this right from an NZ Inc perspective, then we’ll do really well out of it. If we get it wrong, New Zealand has potentially more to lose than other economies which aren’t so heavily reliant on their on their primary industries.”
She said it was important the biodiversity crisis didn’t get totally eclipsed by the climate crisis and hoped the Aotearoa Circle opinion would help with that.
“I guess what this opinion is doing is saying ‘Keep your eyes focused on the twin challenges that we’re seeing in nature. We can’t just solve climate and think that’s enough, when our primary sector is so heavily dependent on all of those underlying basic environmental inputs we take for granted’.”
The amount of environmental work put on directors and businesses is on the up, with the first full year of mandatory climate-related disclosures underway (driven by an earlier Aotearoa Circle legal opinion) and a members’ bill going through parliament which will enable directors to consider the environment, ethical behaviour, and the treaty.
The Companies (Directors Duties) Amendment Bill, introduced by Labour MP Dr Duncan Webb seeks to clarify that the best interests of a company don’t need to be read through the lens of shareholder primacy, and that other factors can be considered.
Webb’s bill has drawn criticism from both political persuasions. Those on the right consider it either unnecessary or “Marxist”; those on the left say it doesn’t go far enough and distracts from meaningful change.
But it did spark the idea that a complete review of the 30-year-old legislation was necessary.
Chapman Tripp’s Roger Wallis and Michael Arthur submitted against the bill, saying, “In our view, the bill at best adds nothing to the existing law of director duties and at worst may be a distraction when comprehensive reform is needed in this area.”