The rise and fall of nature

The Sustainable Business Council and Climate Leaders Coalition partnered with the Environmental Defence Society to deliver the 15th Climate Change and Business Conference. Over 650 people attended in person plus hundreds more online to support the drive to reduce carbon emissions, empower vulnerable communities, grow the focus on nature, ensure a just transition, and embed the business practices and government regulations to deliver on these changes.

Chapter Zero NZ hosted “A kōrero on managing a climate strategy” as part of the conference and have prepared governance “outtakes” for those unable to attend the conference.

Long treated as a separate issue, climate change discussions are no longer complete without recognition of nature and environmental impacts, risks, opportunities and dependencies. And so it was during the two-day Climate Change and Business Conference that, in addition to a dedicated session on “Nature Capital Management”, the natural world featured strongly throughout.

Nature and climate crises are two sides of the same coin. The changing climate is impacting on habitats, which in turn is intensifying the impacts on nature. And in the same way that climate change creates risk for businesses, there is inherent risk in our dependencies on ecosystem services such as freshwater and land.

Nature also presents opportunities – delivering solutions to help tackle climate change such as planting trees, restoring coastal wetlands and integrating nature into urban areas – as well as economic opportunities.

“The threat to nature and the environment from human activity, particularly biodiversity loss, is emerging globally as a “twin challenge” to climate change, requiring an informed response from business, particularly those businesses that are reliant on natural resources.”

Nicola Swan, Partner, Chapman Tripp

The term ‘nature capital’ recognises that every element of nature has a value – from our national identity as a clean green country, through to the reliance businesses have on everything from building materials, minerals and fibre to pollination of crops, waste decomposition and climate regulation.

Biodiversity loss and ecosystem collapse has been a mainstay in the top five of the World Economic Forum’s (WEF) global risks reports. To highlight the extent of business dependency, in 2020 the WEF undertook research that shows US$44 trillion of economic value generation – over half the world’s total GDP – is moderately or highly dependent on nature and its services.

While nature capital underpins all economic activity in New Zealand, sectors such as primary production, tourism and manufacturing are particularly dependent. Nonetheless, companies can still have hidden dependencies throughout their supply chains.

In 2021, Taiwan experienced its worst drought in a century resulting in a shortage of microchips (or semiconductors). Taiwan is the leading producer of semiconductors – used in anything from medical equipment to cars, rockets and mobile phones – but with water restrictions in place, the normally water-hungry production of semiconductors was impacted. Reliant on seasonal rainfall that is becoming less reliable, water restrictions are in place in Taiwan once again this year, but long-term solutions and mitigations are critical.

Disclosing impacts on nature

It was timely that at the end of day one of the conference the final recommendations from the Taskforce on Nature-related Financial Disclosures (TNFD) were released.

The framework which aligns with the Taskforce on Climate-related Financial Disclosures, has been designed to integrate reporting on climate and nature with financial reporting. The recommendations position nature-related risks alongside other business risks (operational, financial, climate) to help shift capital investment to activities with nature-positive outcomes.

A cornerstone of the TNFD is the LEAP – locate, evaluate, assess, prepare – strategy for evaluating nature-related risks. While disclosure is voluntary, it provides a framework and, more importantly, a reminder of the duties of directors and a call to action to address harm to nature and the resultant economic risks.

It is also an invitation to consider the opportunities, with the WEF identifying US$4.5 trillion per year by 2030 associated with nature-positive transition activities such as plant-based meat, sustainable aquaculture and reforestation. Demonstrating the business case for nature-related mitigations, opportunities and innovations alongside the risks will also help discussions with shareholders and stakeholders.

With employees, consumers and stakeholders increasingly aligning decisions with their values, reporting helps to support businesses’ license to operate. In the Kantar 202 Better Future Report, 66% of respondents said they would stop buying products or using services from irresponsible or unethical companies. 69% said businesses were not doing enough to reduce their environmental impact. In the 2023 Deloitte Global Gen Z and Millennial Survey, roughly two in five of respondents said they have turned down work due to ethics concerns.

Directors’ duties

Chapman Tripp provided a legal opinion to The Aotearoa Circle in March 2023 on directors’ duties to manage nature-related risk and impact on nature capital.

The opinion highlighted current and anticipated regulatory trends, locally and globally, and in accordance with the duties to exercise reasonable care (s 137) and in the best interests of the company (s 131), to identify foreseeable and potential material nature-related risks that could affect their companies. Ultimately, the advice is aimed at supporting directors and businesses to prepare for the rapidly emerging recognition of the criticality of nature resource dependencies and impacts.

“In a case asserting a director had breached s 131 in New Zealand for failure to properly consider nature-related risks to the company, the court would likely need to assess whether the director had sought to assess these risks so that they could form an informed view about whether a particular course of action was in the company’s best interests or not.”

Chapman Tripp, New Zealand director duties to manage nature-related risk and impact on natural capital.

With short-term pressures such as inflation, talent retention, geopolitical instability and cyber-risk continuing to dominate boardroom discussions, directors need to find the balance between strategic focus and operational oversight, and short-term and long-term drivers and pressures. Integrating nature with existing climate discussions, frameworks, planning and assessments will support more comprehensive and cohesive decision-making by boards.

Considerations for boards:

• Understand director duties, obligations and legal risks.
• Enhance nature literacy – become familiar with the key concepts of nature capital.
• Identify nature-related data, capability and capacity gaps within your organisations.
• Evaluate the business dependencies on nature and the inherent risks of degradation, shortage or loss of access, and mitigations.
• Understand your organisational impacts on nature, and mitigation measures.
• Consider your supply chain exposure and nature-related risks.
• Identify opportunities and nature-positive solutions.
• Build natural capital into risk management and strategic planning processes.