EVOLUTIONARY OR REVOLUTIONARY? Nature-related risks: a new meaning for the duty of care and diligence

“Nature-related risks may increasingly be relevant to both the content of the duty (of care and diligence)… and the objective standards by which directors will be measured when they are accused of breach of duty.”ⁱ

With the ink not yet dry on the climate reporting legislation, the broader thrust of the Federal government’s expanding regulatory environment is revealed by the Nature Positive Plan. This will likely usher in a broad suite of new regulation on matters that have been almost entirely peripheral on many corporate agendas. Consequently, responsibility for protecting the resources on which business, the economy and the population thrive, dramatically changes the context for the duties of the 21^st century director.

This presents boards and broader organisations with the opportunity to be early adopters in best practice response to climate reporting legislation, particularly as Australia lags other nations.

Climate-related financial disclosures mandated through the Corporations Act 2001 (Cth) are the first tranche in an expanding suite of new regulation for business. Internationally, the natural capital agenda released in June 2024 by The Taskforce on Nature-related Financial Disclosures (TNFD), expands corporate disclosure responsibility to include biodiversity loss and ecosystem degradation from corporate activities.

Directors might be surprised to learn that they already have a duty under existing law to consider nature related risks, according to a recent legal opinion.ⁱⁱ This is hardly business as usual in most boardrooms and while this opinion is yet to be tested, it is only a matter of time before the courts will follow with a reassessment of directors’ duties to specifically include these responsibilities.

The draft Sustainability Standards developed by the AASB require disclosure of the company’s governance, strategy, risk management and metrics or targets initially relating to greenhouse gas emissions, expanding to scope 3 emissions from the second reporting year onwards, with short, medium and long-term assessments of the future impact of climate-related risks on cash flows, revenues and asset values.

This new regime requires a dramatic shift in the corporate strategic mindset to address the complex and interlinked issues in far more depth than traditional concepts of corporate responsibility have typically required. Boards should consider whether a more holistic approach to environmental stewardship at a corporate strategic level would better prepare their company to address the challenges of separate legislative instruments.

To assist boards and management with the transformation required, frameworks and models that address the three-dimensional nature of the economic, environmental and social aspects of corporate social responsibility have been a feature of academic accounting literature for well over 30 years and do not require reinvention.ⁱⁱⁱ They provide traction for the concepts to be addressed in environmental reporting frameworks and direction in developing the required evidence base.

Directors Australia challenges directors to prepare themselves for the most dramatic change in governance and director responsibilities in over half a century. Our ‘5Ps’ key content focus areas for boards (purpose, people, planet, protection and productivity) are the key to unlocking a new agenda to enable open and informed discussion of the issues and pathways to resolution.