The new opinion follows the ‘Hutley Opinion’, released in 2016 by Noel Hutley and Sebastian Hartford-Davis, which found an obligation existed for directors when it came to considering and responding to climate-related risk.
The original Hutley Opinion, and supplementary opinions that followed it, have been extremely influential, both in Australia and globally – leading to a heightened awareness of climate-related risk, its implications for business, and the obligation for company directors to respond appropriately.
We expect this new opinion by Hartford-Davis & Bush to have a similar impact when it comes to nature-related risks.
What does the Opinion say?
The idea that underpins the ‘Hartford-Davis & Bush Opinion’ is simple – as Australia’s ecosystems are under threat, and our economy depends to a material degree on those ecosystems, it stands to reason that nature-related risks have the potential to cause harm to the interests of Australian companies.
Any director who is not acting to identify and appropriately manage material risks will be exposing themselves to potential legal consequences for breaching their duties.
What are nature-related risks?
The Taskforce on Nature-related Financial Disclosures defines “nature-related risks” as “potential threats (effects of uncertainty) posed to an organisation that arise from its and wider society’s dependencies and impacts on nature”.
Nature-related risks can manifest in numerous ways, depending on the activities carried out by a company, the locations in which they operate and the characteristics of their supply chains. A decline or collapse of ecosystems that are relied upon to help produce a company’s products or deliver its services can lead to supply chain disruptions or reduced productivity.
Tightening environmental regulations related to land clearing or pollution; shifting consumer sentiment as the negative impacts of a product or brand on nature are made public; shareholder activism or even activist litigation could also have material financial consequences for a business.
What are some practical examples of nature-related risks at play?
One example identified in the ‘Hartford-Davis & Bush Opinion’ relates to shifting investor expectations in relation to a company’s impacts on biodiversity: Australian Ethical Super divested from Lendlease in March 2023, due to the potential impact on ecosystems of its new housing development in Mount Gilead, NSW.
Another example relates to the potential financial consequences of honey bee population decline arising from an event like the recent outbreak of an invasive pest in Australia, the varroa mite, which is the most serious pest for honey bees worldwide.
The impact of varroa mite, the Opinion notes, could “seriously reduce the positive impact of honey bees as pollinators of a range of horticultural, broadacre crop and pastoral plants … This is not just a risk to companies involved in honey-production. It also impacts those with direct and supply chain dependencies on pollination services from honey bees, such as agriculture and food and beverage.”
How should directors respond?
In order to discharge their duties under the Corporations Act 2001 (Cth) (Corporations Act), directors should at least identify their company’s dependencies on nature and impacts upon it, taking care to consider the potential risks this might expose the company to.
Companies are required to disclose nature-related dependencies and impacts that pose a material risk of harm to the company in its directors’ report and corporate governance statement. They may also be required to disclose nature-related impacts that do not pose a material risk of harm in certain circumstances.
Download a copy of the Opinion at the top of this page to find out more about nature-related risks and the duties of company directors in Australia.
The opinion was commissioned by Pollination and CCLI, and written by Sebastian Hartford-Davis and Zoe Bush. Pollination Law was the instructing law firm.
For more information, please contact:
Laura Waterford, Director
Veda FitzSimons, Associate Director
Olivia Back, Associate