Nature calls: the legal imperative for biodiversity in the boardroom

With the impact of biodiversity loss and damage estimated to potentially trigger between $28 - $53 billion in additional costs to governments*, Herbert Smith Freehills considers the increasing pressure on business leaders to address biodiversity in the Boardroom.

In a series of articles to be published by members of the firm's ESG practice to mark the launch of the Taskforce on Nature Related Financial Disclosures' (TNFD) framework, Herbert Smith Freehills will address the risks Corporates face from the decline in biodiversity and ecosystem services. The articles will highlight how governments across the globe have made commitments to incorporate nature, biodiversity and ecosystems into domestic disclosure regimes. Additionally, they will demonstrate how the new TNFD framework is intended to ensure market participants integrate nature-related risks and opportunities into their strategic planning and risk management decisions.

The articles are also being released against a backdrop of data from the World Bank which suggests that, without action to halt biodiversity loss, countries can expect to lose between 7 – 10 percent of GDP.

The articles, collectively forming 'The Legal Imperative to Price In Biodiversity: a toolkit for Corporates' offer a lens through which corporates can reflect on, and make adjustments to, business models and activities. They help businesses to test whether they would stand up to scrutiny and draw attention to risks to operations and supply chains, finances, reputation, liability and risks from the transition to nature-positive outcomes.

Rebecca Perlman, partner and head of ESG (UK, US and EMEA) at Herbert Smith Freehills, says: "The challenges facing nature, biodiversity and ecosystems – and their impact – are, in general, not as well understood as those posed by climate change. So, although voluntary at present, organisations should be under no illusion that new nature-focused reporting frameworks, such as the TNFD, are likely to follow a similar trajectory to the Taskforce on Climate-related Financial Disclosures framework, with regulatory adoption expected around the world."

The toolkit highlights areas for organisations to focus on. These include:

• exploring the levels of understanding and skills business leaders have relating to biodiversity dependencies
• recognising the extent to which policies and procedures are in place, or need adjustment, to appropriately report on biodiversity-related risks, impacts and opportunities
• understanding the extent to which businesses have assessed the impact of their operations on nature and analysed appropriate changes.

It also highlights how the UK government is searching for ways to bring nature into the accounting process by treating it as an asset, with the intention of changing investment priorities and behaviour.

Perlman adds: "The TNFD framework is an important early step in developing a standard approach to assessing and disclosing nature-related impacts, risks and opportunities. Businesses will by now be well-aware that with enhanced disclosure, comes greater scrutiny and increased appetite amongst regulators to take enforcement action where organisations are deemed to fall short." 

The toolkit goes on to suggest that compliance with such frameworks will require a shift in mindset towards ‘environmental stewardship’. Through a questionnaire exploring over 30 considerations, it encourages organisations to provide training, assess current procedures against sustainability standards and ensure contingency plans are in place should products and processes be impacted by changes to the ecosystem.

Perlman concludes: "By engaging with stakeholders, businesses can better understand concerns raised about the biodiversity impacts of their activities and take more effective action to address these concerns."

Chapters 1 and 2 of the Toolkit can be downloaded, for free, here.

* figure from 'Nature Loss and Sovereign Credit Ratings' report from the Beckett Institute for Public Policy at the University of Cambridge, June 2022.