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Australian company directors exposed to nature-related risk: new legal opinion

Under the Australian Corporations Act, nature-related risks are within the scope of directors’ duties to act with care and diligence, according to a new legal opinion dated 24 October 2023. 

Authored by Sebastian Hartford-Davis and Zoe Bush, the opinion ‘Nature-related risks and directors’ duties’ concluded that nature-related risks to a company should be regarded as foreseeable now, given the large amount of information already available about economic dependency on nature and the rate at which it is being degraded in Australia and globally.

The authors recommended that directors of Australian companies need to identify their company’s dependencies and impacts on nature and consider potential risks these pose to the company. Failure on the part of a director to identify, manage and disclose material nature-related risks may lead to increased shareholder pressure and even litigation against personal assets of directors.

The opinion was commissioned by global climate and nature investment and advisory firm Pollination in collaboration with the Commonwealth Climate and Law Initiative (CCLI), with Pollination Law acting as the briefing law firm.

In 2016, a seminal opinion written by Noel Hutley SC and Sebastian Hartford-Davis, advised that Australian company directors had a duty under the Corporations Act to consider climate-related risks or face legal consequences. CCLI Non-executive Director Sarah Barker said the new opinion would be powerful in elevating the significance of nature in board rooms around the world.

“The Hutley Opinion was significant in influencing global perspectives on the intersection between climate change, corporate best interests and the exercise of due care and diligence. This ground-breaking new opinion by Sebastian Hartford-Davis and Zoe Bush extends the analysis to biodiversity loss and ecosystem breakdown, with the important conclusion that these issues are capable of presenting foreseeable risks to the best interests of a company – and should therefore be considered by directors, with due care and diligence”