When we think about environmental risks, climate change is typically the number one topic driving boardroom discussion. However, investors, regulators and civil society are increasingly paying attention to the broader concept of nature-related risks. These encompass the risks that stem from the loss of biodiversity and ecosystems, deforestation, water scarcity and soil quality depletion. Crucially, nature risks are not separate from climate risks, they are deeply intertwined. For example, deforestation not only destroys biodiversity but also accelerates climate change by reducing natural carbon sinks, creating a circular effect where the integrity and function of natural systems degrade and disappear. In other words, failure to mitigate and reverse impacts on climate and nature creates systemic risks for businesses.
The financial and insurance sectors are on the frontline of integrating nature-related risks into corporate risk frameworks. Asset managers and banks are increasingly aware that their portfolios are exposed to industries dependent on natural capital, such as agriculture, fisheries and forestry. Insurers are also recalibrating underwriting models to reflect rising risks linked to biodiversity loss and ecosystem collapse – from flood and wildfire risk to supply chain disruptions.
Initiatives such as the Taskforce on Nature-related Financial Disclosures (TNFD) are pushing for greater transparency and standardised reporting, much like the TCFD did for climate. TNFD adopters are identifying their impacts and dependencies on nature, assessing exposure to risks such as water scarcity or pollinator decline, and integrating these into credit risk assessments, investment screens and insurance pricing. Importantly, investors are beginning to recognise that companies failing to account for these risks may be mispriced, representing material financial exposure.
Despite this progress, there are still challenges in embedding nature-related risks into corporate governance. Unlike carbon accounting, where methodologies are mature and standardised, biodiversity and ecosystem metrics are fragmented and often lack comparability. Global supply chains add further opacity, making it difficult for companies to map and quantify their dependencies on nature.
Regulation is now closing these gaps, albeit unevenly. The EU’s Corporate Sustainability Reporting Directive (CSRD) and its accompanying European Sustainability Reporting Standards (ESRS) now require large companies to disclose material impacts, risks and opportunities (IRO’s) related to biodiversity and ecosystems – signalling that nature risks are no longer optional in corporate reporting and in investors capital allocation decisions. Likewise, the EU Deforestation Regulation (EUDR) will impose strict due diligence obligations on companies placing cattle, cocoa, coffee, palm oil, rubber, soy and wood and their derivatives on the EU market. These commodities will need traceability and proof that products are not linked to deforestation or forest degradation. These frameworks mark a step change, that companies failing to address nature-related risks may not only misprice exposures but also face direct regulatory non-compliance penalties.
However, outside of the EU, regulatory requirements are patchy. Many boards still treat nature issues as peripheral and immaterial. This is where lawyers play a crucial role. They can help directors understand that nature risks, like climate risks, are foreseeable financial and legal risks falling squarely within fiduciary duties. They can also guide companies through new compliance regimes such as the CSRD, ESRS, and EUDR, helping design governance and disclosure systems that meet evolving legal standards. Beyond compliance, lawyers are essential in structuring contracts, financing arrangements and supply chain due diligence frameworks that proactively manage ecosystem-related exposures, reducing litigation and reputational risk.
Nature-related risks are no longer nice-to-have. Legal, financial and regulatory pressure is pushing them firmly into the realm of core business risk. Businesses that fail to grapple with nature risks may face regulatory scrutiny, litigation and reputational harm, on top of financial losses. Those that proactively integrate nature considerations into governance and strategy, by contrast, will be better positioned to secure investment, manage risk and deliver long-term value. For lawyers, the task ahead is clear: help translate complex environmental risks into legal obligations, robust governance and enforceable standards that safeguard both businesses and the ecosystems on which they depend.
Tom Mason | Biodiversity Lead and Associate Director at Nature Positive