Invest now or pay later: Reducing nature-related legal risk
Businesses are facing increasing scrutiny over their environmental impact. This scrutiny isn't just from the public or consumer activists but from a growing body of regulations, laws and legal precedents that are making sustainability an essential aspect of corporate strategy. If trends continue, ignoring the environment will become costly.
Growing legal and compliance requirements
Europe is leading the charge in regulatory measures with the Corporate Sustainability Reporting Directive (CSRD), the Environmental Crime Directive, the Environmental Due Diligence Regulation (EUDR), and the forthcoming Ecodesign for Sustainable Products Regulations (ESPR), among others. These regulations underscore a global shift towards mandatory disclosures and increased accountability for environmental impacts. Countries outside Europe, like Japan with its creation of other effective area-based conservation measures, or OECM, certification and the UK with its Biodiversity Net Gain requirement, are also setting precedents, highlighting a worldwide trend towards environmental governance.
Table 1: Biodiversity-related regulations
| Regulation | Region | In Effect | Overview |
|---|---|---|---|
| CSRD | EU | 2023 (companies’ FY 2024 reporting published in 2025) | Requires all large companies and all listed companies to disclose information on what they see as the risks and opportunities arising from social and environmental issues, and on the impact of their activities on people and the environment. |
| Environmental Crime Directive | EU | 2023 (member states have until 2025 to transpose the rules into national systems) | Contains an updated list of criminal offenses that lead to an ecosystem being destroyed and is therefore comparable to ecocide. Company representatives could be held personally responsible for environmental crimes, punishable with imprisonment, potential fines and compensation for restoration. |
| EUDR | EU | 2023 (operators and traders have until 2025 to implement rules) | Guarantees that the products EU citizens consume do not contribute to deforestation or forest degradation worldwide. Any operator or trader who places related commodities on the EU market, or exports from it, must be able to prove that the products do not originate from recently deforested land or have contributed to forest degradation. |
| ESPR | EU | TBD (2022-2024 working plan in place) | Establishes a framework to set ecodesign requirements for specific product groups to significantly improve their circularity, energy performance and other environmental sustainability aspects. Includes a new “Digital Product Passport” that will provide information about products’ environmental sustainability. |
| OECM Certification | Japan | 2023-2030 | As part of Japan’s “30by30” target adopted at the UN Biodiversity Conference (COP15), the OECM certification system confirms that sites meet the specified definition of land and water resources and pursue biodiversity conservation. |
| Biodiversity Net Gain | UK | February 2024 | An approach to development that ensures development has a measurably positive impact (‘net gain’) on biodiversity, compared to what was there before development. Developers must deliver a Biodiversity Net Gain (BNG) of at least 10%. This means property development will result in more or better quality natural habitat than there was before development. |
Businesses face legal scrutiny
The recent passing of the EU Environmental Crime Directive illustrates the gravity of the situation. It sets a clear precedent: environmental negligence is not just a regulatory breach but a criminal act. Directors and CEOs can now be held personally accountable for offenses such as large-scale forest fires or widespread pollution of air, water and soil, with penalties extending to significant fines or imprisonment. Similar legislation is being considered in the UK and Australia.
“Nature-related risks to a company should be regarded as foreseeable, given the large amount of information available about economic dependencies on nature.” - Australian legal opinion regarding required company responsibility to disclose and consider TNFD-related risks
These emerging legal opinions indicate a future where directors are held to the same standards of accountability for environmental harm as they are for financial misconduct. Recent cases, like those involving Bayer and 3M, demonstrate the tangible impact of environmental litigation on a company's bottom line and shareholder value.
Bayer: Foregoing company growth to pay for harmful chemical lawsuits
At Bayer’s recent 2024 Capital Market’s Day, the company shared how its free cash flow is being absorbed by ongoing litigation cases related to environmental and health damages from its synthetic chemical products. These damages were EUR 6.6 billion in 2023, totalling EUR 13 billion in the last 5 years with over 50,000 cases still outstanding. Its investor dividend has been cut by 95% and strategic options, such as investing in growth areas, have been put on hold. This case shows how chemical and petrochemical companies might face additional investor scrutiny due to higher perceived risks associated with their products and services.
3M: Paying now for past “forever chemicals” contamination
3M recently reached a $10.5 billion lawsuit settlement regarding its liability for PFAS contamination, also known as “forever chemicals,” into local waterways. The Environmental Protection Agency (EPA) describes these substances as persistent, bioaccumulative and toxic, with pollutants linked to environmental damage and negative human health impacts, such as cancer and infertility. The company’s share price declined by 66%, partly due to continued liability concerns that could reach up to $25 billion. Chemical waste has been found in high concentrations around multiple 3M facilities in the US, including a factory in Minnesota where the state claims there is a 100-square-mile underground plume of leaked PFAS. Other companies, including Bayer, Dupont, Chemours, Corteva, and Kidde-Fenwal Inc are facing costs for PFAS-related liabilities, even leading to bankruptcy in the case of Kidde-Fenwal Inc, a subsidiary of Carrier Global Corp.
Increasing public scrutiny is raising the risk of legal action
The trends towards transparency extends from legal matters to the attention of the wider public. The recent launch of Climate Court, a website cataloging news regarding climate-related lawsuits, helps educate readers on identifying greenwashing and corporate environmental negligence. Consumer-centric platforms, such as ecowiser and Environmental Working Group’s Consumer Guides offer critical evaluations of how brands perform on other sustainability standards, such as carbon footprint, deforestation risk and safety to human health.
These platforms are accumulating data and insights in order to better evaluate and compare companies and their environmental and social impacts. The Network for Greening the Financial System (NGFS), which supports collaboration among central banks and financial regulators and has previously reported on climate-related litigation trends, also emphasizes the need for greater transparency and data on climate change. It offers a working directory that includes hundreds of metrics, raw data, and data source links. Similarly, the global non-profit think tank InfluenceMap, through its FinanceMap and LobbyMap platforms, presents climate-related metrics for the asset management sector and monitors lobbying on climate policy by corporations and industry associations worldwide.
Technology and data analytics are key to understanding and mitigating environmental risks. The future of business is one where transparency, accountability and environmental stewardship are not just a value-add, but required. With the right tools and a proactive approach, businesses can navigate this evolving landscape, turning potential risks into opportunities for innovation and leadership in sustainability. Get in touch today to learn more about how Dunya Analytics can help companies measure their biodiversity risk in accordance with TNFD requirements, thereby aligning their operations with both current and emerging regulations.
