Australian Companies Face New Liability for Nature-Based Risks

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Australian companies and directors could face legal action if they fail to identify and account for nature-based risks, according to a new opinion backed by lawyers and environmental groups, released Thursday.

Directors could be held personally liable for breaching their “duty of care and diligence” under the Australian Corporations Act by not identifying and disclosing nature-based risks. The most egregious violations of director duties can carry large fines or lead to being disqualified from managing a company.

One of the lead authors, Sebastian Hartford-Davis, is known for a 2016 opinion alerting boards of legal consequences for failing to consider climate-related risks — a caution that anticipated a similar warning from Australia’s lead regulator. Since updated, that opinion has been “hugely influential” among corporate leaders, according to investment and advisory firm Pollination, which commissioned the new legal opinion with the Commonwealth Climate and Law Initiative.

“The purpose of the opinion is really a signpost to company directors to say that this issue is probably relevant for you today,” Pollination Director and lawyer Laura Waterford said in an interview. “There needs to be proper governance, proper information gathering, proper consideration of all the ways that nature-related risk might manifest and be relevant for a company.”

Companies and investors are becoming increasingly aware of risks posed by non-traditional business considerations, like deforestation, water stress, pollution or species loss. At a United Nations conference in Montreal in December, 195 countries set targets to stop and eventually reverse nature loss. Earlier this year, a group of 40 senior executives from financial institutions, corporates and market service providers published guidelines to help companies identify and disclose associated risks.

About half of Australia’s gross domestic product depends on nature to at least a moderate degree. For example, the recent outbreak of a deadly parasite ravaged bee populations in Australia and around the world. That, in turn, affects agricultural products that rely on the pollinators.

Residential or commercial construction also depends on nature for building materials or land for development. Tourism, apparel and the construction industries are also highly dependent on nature.

In many of those industries and among investors, “nature-related risks are increasingly being thought about at executive and board levels as really material,” Kristy Graham from the Australian Sustainable Finance Institute said in an interview. “But there are risks and dependencies across many different other parts of the economy that people haven’t necessarily thought about.”