As the world grapples with the twin crises of biodiversity loss and climate change, future-facing governance and leadership will see companies evolving to respond to market and regulatory expectations. To assist directors in discharging their duties and complying with the evolving regulatory landscape, directors can adopt governance practices that are forward-looking, adaptive, and appropriately address nature-related risks and opportunities as a financial consideration.

• A fundamental shift in mindset is required. Directors and executives must move beyond viewing nature as a peripheral concern or non-financial externality and recognise it as a core business issue that is directly linked to financial performance. This requires embedding climate and nature into many aspects of corporate strategy, from investment decisions and supply chain management to product development and marketing. Leaders must be equipped with the knowledge and skills to navigate the complex and interconnected challenges of nature-related risks and opportunities, as well as increasingly demanding regulatory requirements. In some instances, this will include investment in nature-based solutions and natural capital.
• Capacity building is crucial for boards to effectively discharge their functions. This includes understanding a base level of the science of biodiversity and nature, the legal and regulatory frameworks, the financial implications of ecosystem decline, and the opportunities faced by their companies. The Accountability Accelerator, AccountAbility, and the Climate Governance Initiative have jointly published a helpful resource to support boards to navigate the various guidance materials available: Board Pocket Guide: Nature and Climate Action (2024).[8] Boards should ensure they are diverse, curious, and active, with access to a range of expertise, including environmental science, law, finance, and stakeholder engagement.
• Future-facing leaders must be multilingual across a number of core intersecting business issues, such as nature, climate, cybersecurity, artificial intelligence, diversity, and economic uncertainty. They must be willing to challenge the status quo, take bold actions, and lead by example. This includes setting ambitious nature strategies and targets, investing in nature, and collaborating with supply chain partners, investors, governments, and civil society to drive systemic change.
• Transparency and accountability are key pillars of future-facing governance. Companies and their boards must be transparent about the financial risks arising from their impacts and dependencies on nature, as well as the steps they are taking to mitigate them. Stakeholders, including investors, customers, regulators, and employees, are increasingly demanding greater and more consistent disclosure of nature-related risks. Regulators and accounting standards bodies globally are working to respond to this demand, resulting in a proliferation of sustainability reporting requirements globally.

Nature and the ecosystem services it provides – from water supply to pollination to soil to flood mitigation to climate regulation – is the bedrock on which the global economy depends. Yet it has historically been undervalued, and externalised, in commercial decision-making. Now, the natural capital on which the economy depends has been depleted and degraded to the extent that it is increasingly scarce. We now know that an estimated 55% of global GDP (equivalent to an estimated $58 trillion) is highly or moderately dependent on nature.[9] As one example of this at the national level, damage to the natural environment – whether freshwater scarcity, soil degradation, deforestation and biodiversity loss, plastics and synthetic chemical pollution – has recently been linked to a potential 12% reduction to UK GDP, larger than the hit to GDP from the global financial crisis or Covid-19.[10]

Now, the tide is turning. In 2022, 188 countries agreed to new biodiversity goals and targets under the Global Biodiversity Framework, fuelling momentum towards a global agenda for nature and biodiversity.[11] At the same time, nature is emerging as a fundamental consideration in corporate governance and risk management, driven by increasing scientific, market, and regulatory recognition of the financial materiality of natural capital and the ecosystem services it provides.[12]

Companies are beginning to understand that their impacts and dependencies on nature makes them vulnerable to physical, transition, and systemic nature-related financial risks, but also introduces new commercial opportunities. Investors, too, now identify the importance of natural capital and the material portfolio-level risks posed by the nature loss crisis. At least 500 companies have committed to disclosing their nature-related issues to investors and stakeholders in line with the Recommendations of the Taskforce on Nature-related Financial Disclosures, including publicly listed companies representing over $6.5 trillion in market capitalisation and financial institutions with $17.7 trillion in assets under management.[13]

It is estimated that approximately 50,000 companies will need to disclose against the EU’s Corporate Sustainability Reporting Directive (CSRD),[14] which comprises significant reporting requirements for nature (e.g., climate, water, soil, biodiversity and ecosystems), including 10,300 non-EU companies.[15] This is accompanied by forthcoming obligations under the Corporate Sustainability Due Diligence Directive (CSDDD), which includes a duty for large companies to identify and address actual or potential adverse environmental and human rights impacts in their own operations, those of their subsidiaries, and in their supply chains.[16]

Similarly, more than 20 jurisdictions, representing over half the global economy by GDP, are taking steps towards introducing disclosure requirements aligned to the International Sustainability Standards Board (ISSB) standards.[17] The ISSB standards comprise a climate-related disclosure standard (IFRS S2) and a broader sustainability-related disclosure standard (IFRS S1). The latter extends to all sustainability-related risks and opportunities that could reasonably be expected to affect an entity’s cash flows, its access to finance or cost of capital over the short, medium or long term (for example, biodiversity, ecosystems, and ecosystem services).[18] Note that the UK Government has announced it is aiming to endorse reporting standards aligned to IFRS S1 and IFRS S2 in 2025.[19]

Going one step further, future-facing firms are integrating nature-related considerations into their strategies and setting science-based targets for nature,[20] recognising that proper consideration of nature risks and opportunities is now a financial necessity.

These developments have significant implications for company directors as the ultimate risk management functionaries. As identified by the Network for Greening the Financial System (NGFS), the coalition of central banks and financial supervisors, and the Grantham Research Institute on Climate Change and the Environment, a potential trend may emerge concerning shareholder claims against directors alleging breaches of company law directors’ duties for failing to identify and mitigate company exposure to nature risks.[21] Similarly, the Commonwealth Climate and Law Initiative (CCLI) observes that biodiversity loss can present foreseeable and material financial risks and opportunities to individual companies, not just the wider economic and financial system, thus placing the issue in the remit of company law directors’ duties in a number of jurisdictions globally.[22]

Two recent landmark legal opinions commissioned by Pollination and the CCLI, one in the UK and one in Australia, conclude that company law directors’ duties include, at the least, the responsibility to identify the company’s nature-related dependencies and impacts, as well as consider the potential risks these might pose to the company, and (in some cases) to take mitigation actions accordingly.[23] This is relevant to the duty of skill, care, and diligence and the duty to promote the success of the company.[24] Directors should also consider whether the company should be disclosing nature-related risks it has identified in accordance with their statutory disclosure obligations.

This analysis highlights that a director who properly identifies and manages their company’s nature-related risks will generally be promoting the success of the company. While it will necessarily vary on a case-by-case basis, directors who take practical steps to identify and manage any nature-related risks and (if necessary) disclose those risks will be more likely to discharge the duty of skill, care, and diligence required from them in their role as director under company law. In contrast, directors who fail to consider nature-related risks, and in some cases fail to take appropriate steps to mitigate them, may be exposed to claims that they have acted in breach of duty.

Chapter Zero and the CCLI recently published an overview of the UK legal opinion on its website with more detailed guidance on implications for NEDs: UK Legal Opinion: Nature-Related Risks and Directors’ Duties - What NEDs in England and Wales Need to Know (2024).[25] The Net Zero Lawyers Alliance has also recently published a discussion paper arguing that under existing principles of investor fiduciary duties, preserving and maximising financial returns on investment means actively pursuing climate mitigation and mitigation of the nature loss crisis.[26]

Additionally, directors and senior management are responsible for ensuring compliance with new regulatory sustainability reporting obligations arising under the CSRD, CSDDD, and ISSB-aligned frameworks. Importantly, this goes beyond simply disclosing that there is a sustainability-related risk (e.g., nature) and requires disclosure of the integration of such risks into business strategies and commercial decision-making over the short, medium and long term.

In the context of sustainability-related reporting, liability may also arise for misleading disclosure.

There is an increasing understanding that firms acting on nature can also seize commercial upside and opportunities as a result of this work, in addition to mitigating exposure to risk. The Taskforce on Nature-related Financial Disclosures classifies nature-related opportunities as follows and provides illustrative examples:[29]

Figure 1: Nature-related opportunities & examples (adapted from the Taskforce on Nature-Related Financial Disclosures).[30]

There are clear examples of how acting on nature can present new revenue generating opportunities and reduce operating costs, many of which can easily be quantified and valued. Analysis by the World Economic Forum estimates that 15 systemic transitions aligned with the global nature positive movement could present annual business opportunities worth $10 trillion by 2030.[31] This includes $3.6 trillion in food, land, and ocean use, $3 trillion in infrastructure and built environment, and $3.5 trillion in energy and extractives.[32] Understanding, valuing, and making decisions on the basis of nature-related opportunities is key to effective board governance for successful businesses in the face of global ecosystem decline.

Additionally, investing in natural capital is gaining momentum as an opportunity to secure strong, diversified returns that can be insulated from market fluctuations and inflation.[33] Public and private finance is increasingly being allocated to natural capital, including in regenerative approaches for real assets, technology solutions, nature markets, and nature-based solutions.[34] For example, Climate Asset Management, the dedicated natural capital asset management company formed as a joint venture between HSBC Asset Management and Pollination, recently announced it has secured commitments in excess of $1 billion for natural capital projects.[35] Similarly, the UK Infrastructure Bank (now the National Wealth Fund) has announced investments into nature-based solutions in the UK, including £12 million for its first natural capital transaction.[36]

The role of board leadership in driving this change cannot be overstated. The integration of nature into corporate governance is not just a moral or ethical imperative; it is a strategic necessity for ongoing business success. As the financial materiality of nature becomes increasingly understood, companies that fail to adapt risk being left behind. On the other hand, those that embrace strategies that align with global nature positive ambition and the Global Biodiversity Framework will be well-positioned to thrive in the new economy.

There are specific actions that NEDs can take to mitigate exposure to potential claims that they have failed to discharge their company law directors’ duties with respect to nature risk. In this regard, directors should:[45]

1. Identify and actively consider the extent to which the company faces nature-related risks arising from its impacts and dependencies on nature. In some scenarios, independent expert advice will help in understanding the character, scope, and severity of those risks. This can and should be accompanied by the identification of nature-related commercial opportunities.
2. Assess and evaluate those risks and the potential they have to cause harm to their company. Toolkits such as the Taskforce on Nature-related Financial Disclosures Recommendations may be instructive and having a defined approach to assessment of materiality will be essential, in particular where CSRD and ISSB requirements apply.
3. Manage and mitigate nature-related risks where this is considered appropriate. This could include setting science-based targets and taking action, such as aligning investments with a nature positive economy and/or directly investing in nature-based solutions in line with the mitigation hierarchy to: (1) Avoid and Reduce pressures on nature loss; (2) Regenerate and Restore so that nature can recover; and (3) Transform underlying systems in which companies are embedded to address the drivers of nature loss.[46] Any associated claims made about these efforts should be underpinned by robust and defensible evidence, and be communicated accurately and transparently, to ward off potential consumer protection and greenwashing claims. It is important to note that businesses and financial institutions can align their investments and practices with a nature positive economy and society, by halting and reversing nature loss as outlined by Global Biodiversity Framework. However, organisations should not claim that they “are” or are aiming “to be” nature positive; they can only contribute to outcomes that are aligned to a nature positive economy.
4. Disclose those risks in line with legislative and regulatory requirements. It is also open to directors to give broader voluntary disclosure, such as under the Taskforce on Nature-related Financial Disclosures Recommendations (see Chapter Zero’s and TNFD’s Taking TNFD to Your Board (2024)) or a double materiality approach, if that is deemed to be suitable in discharging their duties (e.g., to meet emerging market standards or investor expectations even where regulations may require disclosure on a single or financial materiality basis).
5. Document a director’s decisions and the reasons behind them. While activist litigation and shareholder actions have to date focused on climate change, there is evidence to suggest that claims on the basis of nature and biodiversity are the next frontier.[47] Whatever steps a director takes should always be properly documented to provide a degree of protection against such claims.

The future of corporate governance lies in recognising and valuing the fundamental role of nature in business. By understanding and managing nature-related risks and opportunities at the board level, and by adopting future-facing governance practices, companies can protect their bottom lines, respond to growing regulatory and market expectations, and contribute to a more resilient business, economy and society. The challenge is significant, but the commercial opportunities for those who respond appropriately are substantial.

Directors must ensure they have the right knowledge and mindset in the boardroom to discharge their duties, to hold the executive to account. Beyond capacity building for directors, boards should consider how they can bring a deeper knowledge of nature risks and opportunities into their deliberations. Finding individuals with the relevant deep nature expertise – whether it be water, biodiversity, soil health, or plastics – and who can frame it for the strategic and commercial context is not easy. It may mean looking for individuals who bring a different set of career experiences, such as NGOs, academia or professional services, or from non-traditional sectors where nature matters have been prominent.

Such individuals can act as advisors, perhaps as part of an advisory group or special committee to the board, or even as a non-executive Director. ‘Faith In Nature’, a UK based beauty brand have created a non-executive director with a specific remit to represent nature in the boardroom, fulfilled by an expert with expertise in legal and nature matters.[48]

As well as technical knowledge and skills, mindset is crucial. Korn Ferry’s view is that businesses need leaders who can lead for impact, and exhibit the characteristics of Enterprise Leaders. This is the ability to perform and transform, and focus on the short and long term, knowing how to pivot and switch between each mode. Such leaders are purpose driven, courageous, work across and beyond individual businesses, have high self awareness, and can deliver impact through connections and inclusion. They have an integrative mindset, able to balance tensions and multiple perspectives.

Directors need to ensure the executive is set-up to address nature risk and opportunities, and can access the talent and skills required. This means ensuring accountability for nature related matters is clear in, and across the executive – not just with a Chief Sustainability Officer – and that there is appropriate in-house capability being built. External advisors can help provide deep technical expertise, and help in baselining and initial strategy and target setting, but capability will need to integrated into how the organisation operates on an ongoing basis. This will go beyond reporting and data matters to fulfil disclosure requirements, and touch other functions, for example supply chain and procurement, R&D and innovation, or operations and production. Finding talent which can bring relevant nature expertise that can be applied in practice may mean looking for non-traditional backgrounds, considering team design, and developing individuals with non-nature related backgrounds to be able to acquire nature-related skills.

AUTHOR: Mark Lancelott, Senior Client Partner, Korn Ferry

Notes

1. Green Finance Institute, Assessing the Materiality of Nature-Related Financial Risks for the UK (2024).

2. Shivji and Stubbs, Nature related risks and directors’ duties under the law of England and Wales (2024) (UK); Hartford-Davis and Bush, Nature-related risks and directors' duties (2023) (Australia); Wildner., A. & Dolmans, M., Sustainable Fiduciary Duties - The time has come for financial fiduciaries to adapt to the new climate reality, Net Zero Lawyers Alliance (2024) (investor fiduciary duties).

3. Howden and Pollination, Through the Wilderness: The Role of Insurance in Unlocking Nature Finance (2024).

4. Vicarelli, M., et al., On the cost-effectiveness of Nature-based Solutions for reducing disaster risk, Science of the Total Environment (2024) 947; The White House, Opportunities to Accelerate Nature-based Solutions (2022).

5. World Economic Forum, New Nature Economy Report II: The Future of Nature and Business (2020).

6. Freshminds, How sustainability and talent acquisition are linked: The future of work is green (2023).

7. Chapter Zero and The Green Finance Institute, Taking TNFD to Your Board (2024).

8. Accountability Accelerator, AccountAbility, and the Climate Governance Initiative Board Pocket Guide: Nature and Climate Action (2024).

9. PwC, Centre for Nature Positive Business (2023), building on analysis published in World Economic Forum, Nature Risk Rising (2020).

10. Green Finance Institute, Assessing the Materiality of Nature-Related Financial Risks for the UK (2024).

11. United Nations Convention on Biological Diversity, Kunming-Montreal Global Biodiversity Framework (2022); UNEP, COP15 ends with landmark biodiversity agreement (2022).

12. Network for Greening the Financial System, Nature-related Financial Risks: a Conceptual Framework to guide Action by Central Banks and Supervisors (2023).

13. TNFD, Over 500 organisations and $17.7 trillion AUM now committed to TNFD (2024).

14. PwC, Global CSRD Survey (2024).

15. London Stock Exchange Group, How many companies outside the EU are required to report under its sustainability rules? (2023).

16. European Commission, Corporate Sustainability Due Diligence (2024).

17. ISSB, Jurisdictions representing over half the global economy by GDP take steps towards ISSB Standards (2024).

18. As part of its 2024-2026 work plan, the ISSB is considering whether it should pursue standard-setting for disclosure requirements for certain sustainability-related risks and opportunities to meet the information needs of investors, including those associated with biodiversity, ecosystems, and ecosystem services.

19. UK Government, UK Sustainability Reporting Standards (2024).

20. Science-based Targets Network, Leading the way: Insights from SBTN’s corporate target validation pilot (2024); SBTN announces first companies publicly adopting science-based targets for nature (2024).

21. NGFS, Nature-related litigation: emerging trends and lessons learned from climate-related litigation (2024); Grantham Research Institute on Climate Change and the Environment, Global trends in climate litigation: 2024 snapshot (2024).

22. Commonwealth Climate and Law Initiative, Biodiversity Risk: Legal Implications for Companies and their Directors (2023).

23. Shivji and Stubbs, Nature related risks and directors’ duties under the law of England and Wales (2024) (UK); Hartford-Davis and Bush, Nature-related risks and directors' duties (2023) (Australia).

24. UK: Companies Act 2006, sections 172 and 174; Australia: Corporations Act 2001 (Cth), section 180.

25. Chapter Zero and CCLI, UK Legal Opinion: Nature-Related Risks and Directors’ Duties - What NEDs in England and Wales Need to Know (2024).

26. Wildner., A. and Dolmans, M., Sustainable Fiduciary Duties - The time has come for financial fiduciaries to adapt to the new climate reality, Net Zero Lawyers Alliance (2024).

27. BloombergNEF and Taskforce on Nature-related Financial Disclosures, When the Bee Stings: Counting the Cost of Nature-Related Risks (2023).

28. White House, Fact Sheet: The Economic Challenge Posed by Declining Pollinator Populations (2014).

29. Adapted from TNFD, Recommendations of the TNFD (2023) and associated sectoral guidance.

30. Adapted from TNFD, Recommendations of the TNFD (2023) and associated sectoral guidance.

31. World Economic Forum, The Future Of Nature And Business (2020).

32. World Economic Forum, The Future Of Nature And Business (2020).

33. Nuveen, A guide to investing in natural capital (2022).

34. Pollination, Nature Finance Focus (2023)

35. Climate Asset Management, Climate Asset Management secures commitments in excess of $1 billion for natural capital project (2024).

36. UK Infrastructure Bank, UK Infrastructure Bank announces first natural capital transaction (2023).

37. IKEA, IKEA launches 2030 forest agenda (2021).

38. IKEA, IKEA launches 2030 forest agenda (2021).

39. IKEA, Sustainability Report FY23 (2023).

40. CISL, Nature-related finance risk: Use case – Land degradation, UK farmers and indicative financial risk (2022).

41. CISL, Nature-related finance risk: Use case – Land degradation, UK farmers and indicative financial risk (2022)

42. Defra, United Kingdom Food Security Report 2021: Theme 2: UK Food Supply Sources (2024).

43. House of Commons, Environment, Food and Rural Affairs Committee, Soil health (2023).

44. CISL, Nature-related finance risk: Use case – Land degradation, UK farmers and indicative financial risk (2022).

45. Adapted from Shivji and Stubbs, Nature related risks and directors’ duties under the law of England and Wales (2024).

46. Science-based Targets Network, Act (2023).

47. Grantham Research Institute on Climate Change and the Environment, Global trends in climate litigation: 2024 snapshot (2024).

48. Faith in Nature, What would Nature say? (2022).

AUTHOR
Thea Philip, Associate Director, Pollination

CONTRIBUTORS

Pollination
• Sarah Barker, Managing Director (Pollination Law)
• Dr Carter Ingram, Managing Director
• Annick Paradis, Executive Director
• Phoebe Roberts, Executive Director (Pollination Law)

Chapter Zero
• Vicky Moffatt, Chief Executive Officer
• Jo de Vries, Content Partnerships Director
• Madeleine Bertie, Programme Director
• Jo Murray, Communications Director

Korn Ferry
• Mark Lancelott, Senior Client Partner

Non-executive director reviewer
• Zoe Howorth, Chapter Zero Fellow and
Non-Executive Director at AG Barr PLC
and Paragon Banking Group PLC