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Biodiversity loss to become 'material risk' for global businesses by 2024

Open-access content Tuesday 15th March 2022
Biodiversity loss to become 'material risk' for global businesses by 2024

Businesses may soon struggle to access financial services as requirements to protect biodiversity raise significant liability and litigation risks over the next two years, Clyde & Co has warned.

In a new report, the global law firm highlights how a plethora of wide-ranging value chain due diligence standards are coming to the fore, and will be in place in many jurisdictions by 2024.

The Taskforce on Nature-related Financial Disclosures (TNFD) framework will be trialled this year, and investor pressure will likely lead to adoption, with mandatory reporting regimes to follow. 

Further action will take place at the Convention on Biological Diversity’s COP15 in China later this year where countries are expected to agree to '30x30' targets to preserve and protect 30% of land and sea by 2030. 

Concerted policy action is expected to increase law and regulation in this area, which is set to become the next big environmental, social and governance (ESG) challenge for global businesses.

Clyde & Co partner Nigel Brook said: “Businesses will see new physical, regulatory, market and reputational risks – all of which are compounded by the hyper-connectivity of global value chains.

“The consequences of not managing these risks will play out in terms of inability to attract finance, do deals and ultimately in damage to market value.

“Insurers will face scrutiny of the biodiversity risks and impacts of their underwriting and investments. Biodiversity loss will lead to write-downs and write-offs in impacted business lines, increasing claims and rising premiums.”

The EU's proposed Directive on corporate sustainability due diligence is expected to be adopted later this year, and will require companies with significant turnover to understand whether value chain activities are having an adverse impact on biodiversity.

These duties will extend to any part of a value chain where there is an “established business relationship”, not just direct suppliers, with companies required to take action to prevent, mitigate or end adverse impacts. 

Member States will have two years to implement the Directive, with harmonisation expected by 2024, and national administrative authorities empowered to levy fines for non-compliance.

“Companies that fail to anticipate the scale of the transition to a sustainable economy will find themselves exposed to liability risk,” Brook continued.

“Businesses will need to stay nimble and anticipate incoming investor and regulatory pressures, as well as rapidly changing procurement priorities for value chain partners.”
 

Image credit: Shutterstock

Author: Chris Seekings

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