Directors of Canadian for-profit corporations are now required to add Nature-related risks to their risk-assessment responsibilities for the corporation. To do so, they are not required to be an expert scientist or activist, as published by the Commonwealth Climate and Law Initiative (CCLI) that was co-authored by Lisa DeMarco and DT Vollmer at Resilient LLP. Most importantly, ignoring these risks is no longer legally defensible, and in fact, inaction can expose boards to a wide range of legal action.
They note that Directors of Canadian for-profit corporations, and also non-profit corporations, can start considering this new responsibility by looking at the impact the company’s operations has on Nature, and the Indigenous rights on traditional territories. Indigenous rights are deeply rooted in their people’s relationships to the land and its ecosystems. and are constitutionally protected. “They must be respected – regardless of political or market pressures.” The purpose of this duty is to also encourages more sustainable practices by corporations.
The legal opinion provides guidance on the legal obligations of directors of Canadian for-profit corporations in relation to nature-related risks and outlines how such risks fall within directors’ legal duties under Canadian law, as stated below:
Nature-related risks fall within core legal director duties. Under the Canada Business Corporations Act, directors must oversee foreseeable and material nature-related risks under established duties of care and loyalty. This includes physical (e.g. wildfires), transition (e.g. regulation), and systemic (e.g. ecosystem collapse) nature-related risks.
Inaction could expose boards to liability. Directors who fail to identify or respond to material nature-related risks could face a wide range of legal action including claims for breach of duty, shareholder or creditor lawsuits, regulatory enforcement for misleading disclosure, greenwashing and consumer protection claims, negligence or nuisance suits, and liability for failing to respect Indigenous rights.
Governance expectations are rising. Directors are not expected to be environmental experts, but they must be reasonably informed. Courts will expect boards to demonstrate a reasoned, informed, and well-documented approach to nature-related risks.
Overseeing these risks is both a legal and strategic imperative. Effective governance means understanding the corporation’s nature-related dependencies and impacts, engaging relevant stakeholders and Indigenous rightsholders, and integrating nature into boardroom decision-making.
Nature loss affects every business and must therefore move from the margins to the centre of boardroom thinking. This legal opinion gives directors a solid legal basis to integrate nature in their decision-making – regardless of political headwinds or short-term market pressure”. Read the Executive Summary with the full text of the legal opinion available on the CCLI website.
To meet this new responsibility, there is help for Directors.
This new responsibility for Directors increases the awareness of the company’s exposure to possible Nature-related disasters that can no longer be ignored as an unlikely “act of god” event. In fact, severe weather events are becoming more severe and happening more frequently. This new responsibility is an opportunity to incorporate into conversations and studies these issues that can no longer be ignored because to do so will cost too much.
Reducing nature-related risks can also result in improved productivity and lower operating costs for the company. If mitigating measures are not implemented, years of profit can be wiped out in one event. Insurance companies, for example, are looking more carefully at nature-related costs that can result in higher premiums, or no insurance.
Nature-related risks are not dissimilar to the current risk-assessment responsibilities of a Director of a Canadian corporation, according to the list provided by AI. What is interesting is that already AI has included the nature-related risks as “environmental liabilities”, and it is listed third, after “statutory liabilities under corporate legislation”.
Consulting companies like KPMG and SMV Energy Solutions are offering their services to assist companies in building climate resilience by having a holistic approach. Now that Directors of for-profit Canadian companies are required to assess Nature-related risks, this new assessment will be beneficial in the long run by making Canadian companies more resilient and productive. This new-found resiliency will also minimize the risk exposure to unexpected political risks as well.
Sharolyn Mathieu Vettese
President
SMV Energy Solutions
www.smvholdings.com
SMV Energy Solutions provides simple smart solutions that conserve energy