Advised Nature Impacts

A guest post from The Perplexed Pangolin

The Uncertain Solicitor, in their June post, described Kate Raworth’s challenge to the legal profession (at the March Global Alliance of Impact Lawyers summit) to contemplate how lawyers could contribute to creating a regenerative and distributive economy.

In June the Legal Charter 1.5 was launched by a group of large commercial/corporate law firms. The second of its eight principles is to support the development of a robust methodology to measure advised emissions, including a collective commitment to acknowledge the impact of matters they advise on, develop means to identify and monitor such matters and use that to inform their work with clients.

The Perplexed Pangolin sees an elephant in the room here. Whilst acknowledging the critical urgency of the climate crisis and the need for lawyers to speedily up their game in tackling this, the accompanying nature crisis must not be ignored. If nature has to wait for lawyers to first figure out how to measure their advised emissions and agree to do so, it may be too late. Biodiversity loss is occurring at a rate 10 to 100 times higher than that of the past ten million years. An oft cited complaint in the face of the nature crisis is that there are too many different potential indicators, it is much more complicated than emissions measurement and that everyone is too busy dealing (or not dealing) with the climate crisis to be able to start dealing with the nature crisis. After all, that’s just a conservation issue, is it not? It belongs to environmental law, not commercial law, right?

Wrong.

The elephant in the room now looks more pangolin shaped. Research suggests that the COVID-19 pandemic was linked to biodiversity loss. What happens if we reach net zero only to find that we have, whilst doing so, wiped out so many irretrievable species that ecosystems are dangerously unbalanced? International experts say that we cannot address the climate crisis without addressing the nature crisis.

Nature has been widely recognised to pose a material risk - and potentially a systemic risk - to the entire financial system (as per the World Economic Forum,  Network for Greening the Financial System, World Bank and OECD). Studies undertaken by banks in the Netherlands, Malaysia, France and Brazil found high levels of exposure of their national financial sectors to companies that were highly or very highly dependent on ecosystem services. This is now being explored by the Bank of England and European Central Bank. The extent of nature loss has been well documented by WWF’s Living Planet Report (which found that global wildlife populations have plummeted by 69% on average since 1970). The effect of nature loss on the global economy was comprehensively explored by the Dasgupta Review.

Why is nature risk now seen as a financial issue? Biodiversity, a characteristic of nature, is the variability amongst living things that provides balance and resilience to ecosystems.  Businesses benefit from those ecosystems – freely currently – through the likes of replenishing stocks of natural resources, pollination of flora and water purification. These are commonly now known as ecosystem services to fit into the prevailing economic mindset. The functioning of the global economy and the actors within it depend upon ecosystem services. 44 trillion US dollars of economic value generation (over half of global GDP) is moderately or highly dependent on ecosystem services. All companies have some level of direct or indirect impacts and dependencies on ecosystem services, creating risks and opportunities for them. For example, biodiversity loss may disrupt ecosystem services, in turn affecting a company’s access to critical goods and services. A company’s impacts on nature may affect its own dependency on ecosystem services or lead to reputational or legal risks with and from other parties that depend on those ecosystems that it has impacted. Litigation on this topic has already started to emerge.

The Law Society acknowledged the implications of biodiversity loss for the legal professions in a June 2022 report. Arguably many of the principles and recommendations set out in the Law Society’s guidance on climate change could be applied to nature risks. In the wake of December’s COP15 deal for the Kunming-Montreal Global Biodiversity Framework (GBF), lawyers are already starting to recognise this as they prepare updates for their clients on incoming ISSB standards, the EU’s Corporate Sustainability Reporting Directive, Forest Risk Commodities Directive and proposed Corporate Sustainability Due Diligence Directive, Taskforce on Nature-related Financial Disclosures (TNFD) and Target 15 of the GBF. Under Target 15, States committed to require large and transnational companies and financial institutions to monitor, assess and disclose biodiversity risks, dependencies, and impacts through value chains and portfolios. Having seen how the Paris Agreement was operationalised for business, lawyers can envisage how it will follow much faster for the GBF. Implementation of the GBF by states could create transition risks for companies and financial institutions to the extent that their activities are not already Kunming-Montreal aligned. Lawyers should be equipped to advise their clients on such risks and how they might be mitigated.

The newly released World Benchmarking Alliance’s Nature Benchmark found that 97% of companies have yet to commit to a nature-positive trajectory by 2030. The Perplexed Pangolin wonders what the Law Students for Climate Accountability would find if they were to measure the nature impacts of law firms. Climate change is only the third biggest of five anthropogenic drivers of nature loss, the others being (in order of impact):

·       changes in land and sea use;

·       direct exploitation of organisms;

·       air, land and water pollution; and

·       invasive species.

So for law firms to only consider the climate impacts of their advice would be potentially shortsighted and slow. Truly responsible and innovative action would be to measure the impact of their advice on all five of the above drivers. This would address other sustainability targets being discussed internationally, such as the High Seas Treaty, proposed UN plastics treaty, circular economy and food systems.

If law firms were required to make TNFD disclosures, they would need to disclose not only their dependencies but their impacts on nature (‘double materiality’) and how they manage risks and opportunities arising from them. Therefore, not only should law firms acknowledge their advised nature impacts, but actively consider how their advice could mitigate such impacts. This could include incorporating clauses such as those provided free by The Chancery Lane Project. Such acknowledgement does not require detailed measurement to begin with, just quantitative consideration of how each transaction or piece of advice impacts nature. When the system to measure advised emissions is eventually designed, it can be done so with room to add the measurement of nature impacts. This can follow once the TNFD and Science Based Targets for Nature are embedded within corporate practices and indicators for ‘nature positive’ are agreed.

If law firms can demonstrate strong leadership in the nature positive transition they can retain employees, play their part in addressing systemic risk and avoid their clients being left with stranded assets or shortsighted business strategies based on extractive, non-regenerative supply chains.

(Note: the pangolin is threatened by poaching and deforestation and is the most trafficked mammal in the world (for its skin, scales and meat). Its eight species range from Vulnerable to Critically Endangered. Pangolins were once thought to be the intermediate hosts of COVID-19, but this is now in doubt.)