Understanding Nature Risks: Practical Guidance For Canadian Directors

By Klara Iochem, Communications and Development Manager, Commonwealth Climate and Law Initiative (CCLI)

In an increasingly complex risk environment, Canadian corporate boards are expected to consider how their companies depend on, impact, and are exposed to nature. A new legal opinion commissioned by the Commonwealth Climate and Law Initiative (CCLI) and authored by Resilient LLP confirms that nature-related risks fall within directors’ existing duties under Canadian law.

Nature may not yet be front of mind. From cyber threats, tariffs, carbon footprint reduction, and evolving disclosure rules, board agendas are full. Yet the rapid degradation of ecosystems now presents operational, financial, and legal risks that boards cannot afford to overlook.

If they do overlook these issues, directors could end up in court.

What are nature risks and why are they so important?

Nature risks may have been traditionally viewed as peripheral sustainability matters.

Yet nature is foundational to most businesses’ activity. Canadian ecosystems provide an estimated CAD 4.9 trillion in services annually ¹— from pollination and flood protection to water filtration and carbon sequestration.

The degradation of these ecosystems presents four broad categories of risk for companies:

• Physical risks, such as wildfires, droughts, or flooding.
• Transition risks, including new regulations, investor expectations, or market shifts away from nature-intensive business models.
• Legal risks, arising from legal requirements, claims, or actions linked to physical and transition risks, and a company’s impacts on nature.
• Systemic risks, where broader ecosystem failure affects supply chains, operations, or market stability.

Nature and climate risks are deeply interconnected. Climate change accelerates nature loss through rising temperatures, extreme weather, and altered ecosystems. Healthy ecosystems help regulate the climate by absorbing carbon, maintaining water cycles, and moderating temperatures. In short, biodiversity loss makes the effects of climate change worse, and vice-versa.

Boards are advised to understand nature-related risk as part of an integrated, not separate, governance landscape.

What are directors’ duties regarding nature risks?

Canadian law does not impose new statutory duties specific to nature. Instead, the oversight of material and foreseeable nature-related risks falls under existing duties under the Canada Business Corporations Act (CBCA)² — and similar provincial statutes.

1. Fiduciary Duty

Directors must act honestly and in good faith in the best interests of the corporation. Courts have interpreted this to include long-term value, environmental considerations, and the interests of stakeholders, including Indigenous rightsholders.

Where a company’s operations depend on or affect nature, directors should:

• Identify and assess nature-related dependencies, impacts, and transition risks.
• Consider whether these risks are material to the company’s long-term success.
• Factor in the company’s nature-related impacts on stakeholders and ecosystems.

2. Duty of Care

Directors must exercise the care, diligence, and skill of a reasonably prudent person. The opinion concludes that ignoring nature-related risks would not meet this standard in today’s legal and commercial context.

To meet their duty of care, directors should:

• Be informed about material nature-related risks.
• Ensure that systems exist to identify and manage those risks.
• Consider both current and emerging risks in board oversight processes.
• Balance nature considerations alongside other relevant corporate interests.

The business judgment rule may protect some decisions, but only where boards show they undertook a reasoned, informed, and documented process.

What are the potential legal consequences?

Directors who fail to address nature-related risks that are foreseeable and potentially material, expose themselves and the company to several types of legal claims:

• Claims for breach of fiduciary duty, including shareholder lawsuits, particularly if nature risks contribute to financial losses or value impairment.
• Negligence claims in tort, for harm arising from failure to manage foreseeable risks, including environmental harm or supply chain disruption.
• Disclosure-related claims, if material nature risks are omitted or downplayed in regulatory filings — including potential greenwashing allegations.
• Claims relating to Indigenous rights, where corporate operations affect Indigenous lands without proper consultation or consent processes.

Beyond litigation, failing to identify and effectively manage nature-related risks can lead to regulatory penalties, project delays, loss of access to capital, and reputational damage.

What about Indigenous rights?

Directors must consider how company operations affect lands, waters or resources that fall within Indigenous territories or impact Indigenous Peoples' cultural or ecological interests.

• Directors must meaningfully consult and engage Indigenous communities early in the planning of nature-impacting activities.
• Projects impacting Indigenous communities and their lands should incorporate Traditional Ecological Knowledge (TEK), address environmental concerns, and provide equitable local benefits.
• Free, prior and informed consent (FPIC) principles and, where relevant, Indigenous laws and protocols should be adhered to.
• Failure to address these considerations is likely to result in economic and reputational harm.

Engagement with Indigenous rightsholders and community is not only a legal requirement; it also offers opportunities including access to government procurement projects, long-term partnerships, and improved project outcomes.

What do investors expect?

A growing body of evidence shows that investors expect companies to manage and disclose nature risks:

• 74% of Canadian retail investors are concerned about biodiversity loss.³
• 63% of institutional investors, representing over CAD 4.5 trillion in assets, are integrating nature into decision-making.⁴
• The Canada Pension Plan Investment Board (CPPIB) now explicitly includes “nature” in its proxy voting principles.

Boards that fail to demonstrate credible nature risk management may face divestment, shareholder resolutions, or limited access to capital. Investor sentiment is itself a transition risk — and boards are expected to respond accordingly.

Practical Steps for Directors

Canadian law does not require directors to become environmental scientists. It does, however, require that boards take reasonable and prudent steps to oversee nature-related risks as they would any other strategic or operational risk.

Directors can meet their obligations by:

• Becoming informed about the class of nature-related risks relevant to the company’s operations. This may involve director education, external expert advice, and regular updates from management.
• Ensuring governance and oversight systems are in place to identify the company’s dependencies on nature and impacts on natural ecosystems. These systems should include processes to assess the materiality of nature-related risks and opportunities.
• Overseeing risk management strategies that consider both immediate and long-term nature-related risks — including physical, transition, legal, and systemic risks — as part of enterprise risk management (ERM) and scenario planning.
• Incorporating sector-specific standards⁵ and comparisons, particularly in sectors that are highly nature-dependent or have a significant environmental footprint, such as energy, mining, agriculture, forestry, real estate, insurance, and consumer goods.
• Engaging with key stakeholders, including investors, Indigenous rightsholders, customers, suppliers, and regulators. Oversight should ensure that relevant interests and traditional knowledge are considered in decisions impacting nature.
• Documenting deliberations and decision-making processes, especially where material nature-related risks have been identified or discussed. Proper records enhance legal protection under the business judgment rule.

Asking the right questions

The TNFD, in partnership with the CCLI, Chapter Zero, Competent Boards and Green Finance Institute, recently released a guide for board directors titled: Asking Better Questions on Nature.⁶

It details 12 questions directors need to ask at board meetings and to company management to discharge their duty and manage nature-risks. These questions allow directors to access the information they need to ensure nature-related issues are integrated into governance, strategy, risk management, and capital allocation.

Key takeaway: Understanding your company’s relationship with nature is essential

Nature risks present another layer of complexity within an already demanding risk oversight landscape. The legal opinion warns that where nature-related risks are foreseeable and potentially material (as they will be for many businesses), they fall within directors’ legal duties.

Many boards are still missing a structured approach to integrating these issues into governance and risk processes. This is not about creating new processes from scratch. It’s about expanding the lens of corporate governance to reflect a more complete operating environment — one where nature underpins long-term commercial value and resilience.

Disclaimer: This publication is for educational purposes only and does not constitute legal advice. The CCLI and this publication’s author make no representations or warranties regarding its contents and accepts no liability for any loss arising from reliance on it. Readers should seek independent legal advice tailored to their specific circumstances.

The Commonwealth Climate Law Initiative (CCLI) is a global legal insights and stakeholder engagement initiative examining the legal basis for company directors and investors to address climate change and nature risks. We take a multidisciplinary approach to develop legal research and practical tools to help boards meet governance obligations and mitigate liability risks.

 

12 Questions Directors Should Ask

Gaining an overview of nature's relevance to our business

1. How and where does our business depend and impact on nature?
2. How do our dependencies and impacts on nature give rise to potential financial and non-financial risks?
3. How do our dependencies and impacts on nature generate potential opportunities for the organisation?
4. What is the interplay between our nature- and climate-related dependencies, impacts, risks, and opportunities? 

Integration nature into decision making

1. How are we assessing and measuring our potentially materal nature-related dependencies, impacts, risks, and opportunities? What data are we using and generating?
2. How are we engaging with our value chain and Indigenous Peoples, Local Communities, affected and other stakeholders to understand their views and respect to our nature-related issues?
3. How does management integrate nature into short- and long term decision-making?

Understanding the external context: Market, standards, regulations and investor expectations

1. How do we expect our understanding of nature-related issues to change over time in our sector and in the markets and locations in which we operate?
2. Are we up to date with shifting regulatory developments, both voluntary and mandatory, industry standards and investor expectations across the jurisdictions that we operate?

Organisational competence on nature-related issues

1. Does the board and senior management team have the requisite skills and experience to adequately manage the organisation's nature-related issues?
2. Are the organisation's skills and capabilities on nature-related issues, including assessment and learning, being institutionalized for the long term?

Board reflection

1. Are we confident that we are fulfilling our legal duties in relation to nature across the jurisdictions in which we operate? What evidence do we have that we are doing so?

 

 

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¹Molnar, M., et. al. Ecosystem Services; Chapter 5 in Canada in a Changing Climate: National Issues Report (2021), (eds.) F.J. Warren and N. Lulham, Government of Canada, Ottawa, Ontario, 271.
²Canada Business Corporations Act, R.S.C., 1985, C-44
³Responsible Investment Association, Canada, RIA Investor Opinion Survey, (2022). 
⁴Millani, Semi-Annual ESG Sentiment Study of Canadian Institutional Investors (February 2024), p. 3. 
⁵TNFD, Set of sector guidance, January 2025 
⁶TNFD, Asking Better Questions on Nature – For board directors, May 2025