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A new legal opinion by Chapman Tripp for The Aotearoa Circle advises that prudent directors and businesses should be starting on the path to identify, assess and manage nature-related risks, particularly if they depend on the environment for their business model.
Chapman Tripp was engaged to provide the legal advisory opinion on director duties to manage nature-related risk by The Aotearoa Circle, which is a unique partnership of public and private sector leaders, formed to restore natural resources and ensure sustainable prosperity for future generations.
The opinion seeks to highlight current and anticipated regulatory and market trends to allow directors on the boards of New Zealand businesses that are particularly reliant on natural capital to stay “ahead of the curve” as new frameworks, regulations and expectations emerge globally and locally.
“Thriving nature, which includes well-functioning ecosystems and healthy biodiversity, represent the foundations of Aotearoa’s nature-based economy,” said Vicki Watson, Chief Executive of The Aotearoa Circle. “It is those systems which The Aotearoa Circle was founded to protect and restore, so this advice is central to our vision.”
Globally, the threat to nature (particularly biodiversity loss) is an emerging crisis – one that has the potential to outstrip the impact of the climate crisis. As a result, regulation and markets are moving rapidly to adopt “nature positive” approaches, including through New Zealand’s Resource Management Act reforms and European Union supply chain requirements, new reporting frameworks such as the Taskforce on Nature-related Financial Disclosures and voluntary corporate initiatives. Nature-based risk management is therefore emerging internationally as the next area that companies – and their directors - will need to be across.
Chapman Tripp Partner Nicola Swan said “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 regulatory pressure at home on better management of our natural capital.”
The legal opinion advises that New Zealand company directors are required to ensure that their businesses are identifying “nature-related risks" where these are foreseeable and material for their businesses, and equally take any such risks into account in their decision making. Whether they are foreseeable and material for a particular company will be impacted by anticipated domestic and international regulatory change that prioritises protection of nature, the degree of understanding of the risk, their dependence on the environment, and stakeholder expectations.
Swan says, “It is clear that the main risk to directors comes from not identifying or underestimating the potential impact of nature-related risks.”
Business decisions made in ignorance of nature-based risks that result in financial loss may be open to challenge in the future.
“Our opinion is focussed on supporting directors and businesses to better prepare for a future where existing duties will be applied to emerging issues, such as the biodiversity crisis. For example, the opinion includes straightforward questions that directors can ask of their businesses to get the ball rolling,” said the opinion’s co-author, Chapman Tripp Partner Alana Lampitt. “We are currently in a phase where many corporates are developing and refining climate-related risk management tools and governance processes. Applying a nature-based risk lens will allow those tools and processes to be future proofed for emerging investor, consumer and legal expectations.”
Matt Whineray, NZ Super Fund Chief Executive Officer and past Co-Chair of The Aotearoa Circle’s Sustainable Finance Forum said, “This is a timely piece of work which recognises the criticality of natural resource dependencies and impacts for companies. The climate crisis is integrally related to the biodiversity crisis and both represent a significant threat to economy and society, requiring our urgent attention.”
Vicki Watson said, “This awareness of risk, and tools to assess it, has the dual benefit of protecting nature for future generations as well as ensuring the enduring success of the organisations that directors help govern.”
Jane Taylor, professional director and Guardian at the Aotearoa Circle welcomed the opinion, saying, “This legal opinion helpfully outlines emerging legal obligations in a rapidly evolving global and local context. I encourage Aotearoa Circle leaders to utilise the conclusions as a tool to help restore nature and build resilience into their business.”