49
Liability risk: a type of nature-related financial risk
B I OD I V E R S I T Y L I A B I L I T Y R I S K
-RELATED FINANCIAL RISKS
The threat of litigation for climate change and other environmental harms is evolving rapidly. In view of the urgency of the climate crisis and the perceived slowness of governments to act, citizens have taken to the courts with high profile support and serious funding. In the years since the 2015 Paris Agreement, the number of climate cases globally has more than doubled, to over 2,000 in 39 jurisdictions (see Clyde & Co’s series of reports on Climate Liability Risk). 253 These cases are setting new precedents and inspiring other actors to use the law as a tool in the global fight to mitigate and adapt to climate change. As the next most urgent planetary boundary, and with rising standards of care, it is likely that biodiversity litigation will be the next frontier in strategic litigation. A majority of the biodiversity cases brought to date have been against governments or public bodies under environmental, planning or human rights law. 254 With an enhanced understanding of biodiversity loss and accounting, socialisation of the materiality of biodiversity risk to corporations, and mandatory new due diligence regimes, this is set to rapidly change. The growing awareness of nature-related risks in financial markets will give rise to heightened standards of care. With increasing obligations to trace and identify environmental impacts through due diligence regulation and disclosure standards, companies will have the necessary knowledge, control and foresight to be held liable for failures to prevent or mitigate biodiversity loss.
Biodiversity litigation is any legal dispute at the national, regional or international level that concerns conservation of, sustainable use of and access and benefit-sharing to genetic resources, species, ecosystems and their relations. 255 Already, biodiversity-focused litigants are coming to the fore. For example, the public interest law non-profit Earthjustice launched a new biodiversity law centre in July 2021; the Biodiversity Defense Program “fights to reshape our relationship to lands, water, and wildlife everywhere by confronting the major drivers of the decline in nature, including habitat destruction and over-exploitation of wildlife”. 256 Another organisation, Conservation Litigation, was set up in 2020 bringing together legal scholars and conservationists and is actively looking at the question “How can we sue for biodiversity?” with a particular focus on Indonesia and Brazil. 257 Environmental law firm ClientEarth has 25 active cases defending wildlife and habitats. 258
Source: Dasgupta Review
A FRAMEWORK FOR BIODIVERSITY-RELATED LIABILITY RISKS FOR FINANCIAL MARKETS
Liability risks arising from the transition to a sustainable or regenerative economy
a. Failure to manage or adapt to biodiversity-related economic transition risks from policy, regulation, technology or shifts in stakeholder preferences b. ‘Anti’ biodiversity regulation claims disputing the validity or application of biodiversity-related regulation
The Commonwealth Climate and Law Initiative (CCLI), an international legal thinktank, has proposed a framework of biodiversity-related liability risks that sets out three high-level categories and 10 sub-categories of biodiversity- related liability risks. 259 These categories delineate the types of liability that may arise from or which will be driven by biodiversity loss and their impacts on financial markets.
Liability risks arising from misrepresentation of biodiversity risks or ecosystem impacts
Liability risks arising from physical or ecosystem impacts of biodiversity
a. Market misrepresentation of material biodiversity- related risks in mandatory securities or other regulatory filings b. Promotional misrepresentation or “greenwashing” of biodiversity-related impacts or credentials in advertising or promotion c. Financier, advisor or auditor liability for investee or client misrepresentations under 3A-3B above.
a. Direct impact through failure to prevent biodiversity loss or ecosystem consequences b. Indirect enablement through failure to prevent biodiversity loss or ecosystem consequences c. Failure to manage or adapt to biodiversity-related physical risks or ecosystem dependencies d. Failure to comply with regulatory requirements associated with biodiversity loss or ecosystem protection e. Financier or advisor liability for investee conduct under 1A-1D above
255 Anne Peter and Guillaume Futhazar, Biodiversity Litigation, Max Planck Institute, 2021. 256 Dean Scott and Stephen Lee, Earthjustice Goes on Offense With Biodiversi- ty Litigation Center, Bloomberg Law, 1 July 2021; Earthjustice Biodiversity Defence Program. 257 Elizabeth Alberts, ‘Conservation litigation’ tries to put a true price on wildlife crime, Mongabay, 10 June 2021; Conversation Litigation. 258 DefendingWildlife & Habitats, ClientEarth.
253 Climate change risk and liability report 2021, Clyde & Co, 29 October 2021. 254 Sarah Barker, Ellie Mullholland and Temitope Onifade, The emergence of fore- seeable biodiversity-related liability risks for financial institutions A gathering storm?, Commonwealth Climate and Law Initiative, August 2020.
259 Sarah Barker, Ellie Mullholland and Temitope Onifade, The emergence of fore- seeable biodiversity-related liability risks for financial institutions A gathering storm?, Commonwealth Climate and Law Initiative, August 2020.
Made with FlippingBook flipbook maker