Why nature’s future underpins the future of business

The Kunming-Montreal Global Biodiversity Framework adopted last December at COP15 aims to halt and reverse biodiversity loss by 2030, and features 23 non-legally binding targets for States. Target 15 concerns tools that enable businesses to assess and disclose biodiversity-related risks throughout their own operations and value chains.

Such tools are taking their legal shape. The Taskforce on Nature-related Financial Disclosures (TNFD) spent two years developing its nature-focused international corporate disclosure framework, finally released in September 2023. Much like the TCFD framework and ISSB standards, the TNFD framework is expected to be incorporated into some national regulatory frameworks in the coming years. The UK government has signalled its intention to implement the TNFD framework into domestic legislative architecture, in line with Target 15.

At a regional level, the EU has already introduced mandatory nature-related reporting obligations under the Corporate Sustainability Reporting Directive (CSRD), by obliging companies to report in line with the European Sustainability Reporting Standards (ESRS). Some of the ESRS integrate aspects of the TNFD's guiding approach, including the specific ESRS on pollution, water and marine resources, and biodiversity and ecosystems.

Certain jurisdictions have therefore underscored the need for companies to tackle the twin risks of climate change and biodiversity loss in an integrated way. Both risks are embedded into the architecture of the TNFD, which is built around the TCFD's 11 recommended disclosures, but through a nature lens. Strategic litigants are also requiring companies to view both risks in tandem.

An increase in strategic litigation that attempts to connect biodiversity loss with climate change is expected in some jurisdictions, with such claims focusing on corporates' duties to adequately manage nature-impacts in recognition of either a biodiversity-climate nexus, and/or biodiversity-human rights nexus. For example, in Australia, a new claim was brought in November 2023 by a shareholder against a financial institution, seeking the production of internal risk management documents relating to both climate change and biodiversity loss.

In some jurisdictions, directors could face allegations of personal liability for breaching their duty of care and diligence for failing to adequately manage nature-related risks (as recognised by the October 2023 Australian legal opinion referred to in the main report). In November 2023, the European parliament and Council reached an agreement on the revised directive on "the protection of environment through criminal law", which provides that strict criminal sanctions could be imposed (including prison sentences) on companies and/or directors complicit in "offences comparable to ecocide". The EU's Deforestation Regulation, targeting forest protection for specific commodities, is already in force.

The explosion of "greenwashing" litigation against companies in the past year points to a new potential frontier of "nature-washing" claims. The European parliament and Council are close to finalising the revised consumer protection directive on "unfair commercial practices" (UCPD) which has been frequently deployed in recent years as the legal basis for greenwashing claims before European domestic courts and consumer protection authorities. The revised directive expressly prohibits companies from making unsubstantiated generic 'green' claims such as "nature's friend" about their products or services.

Greenwashing accusations have also been levelled against companies relying on carbon credits, allegedly in place of direct greenhouse gas emissions reductions. In a previous FT Moral Money Forum report, we commented on how the voluntary carbon market has been met with controversy due to concerns around integrity and the end-use of credits. The voluntary biodiversity credit market (VBM) is evolving gradually — for example, New Zealand recently launched a consultation on a proposed biodiversity credit system, and carbon markets standard-setter Verra, released its biodiversity credit standard for consultation. The VBM could expose companies to similar litigation and reputational risk, if they rely on unsubstantiated or exaggerated biodiversity credits claims in their corporate disclosures or consumer-facing adverts.

Although a rare breed to-date, biodiversity-related shareholder resolutions are set to feature more prominently at future AGMs. In some jurisdictions, shareholder scrutiny is expected to increase across all industries, as Nature Action 100's 'eight key sectors' from which target companies will be drawn include:

• Biotechnology and pharma
• ChemicalsHousehold and personal goods
• Consumer goods retail
• Food production
• Food and beverage retail
• Forestry and paper
• Metals and mining

White & Case LLP has partnered with the Financial Times on the publication of its Moral Money Forum reports, which explore key issues from the ESG debate. This article has been reproduced with permission from the Financial Times.

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