• F4B

What are the biodiversity related legal liability risks for financial institutions?

There is growing concern among central banks, regulators and financial market participants about the financial risks associated with a loss of biodiversity and ecosystem services. However, the extent of these liability risks and their financial materiality to individual market actors, sectors and economies has yet to be examined in detail.

"Development of the [case] law … does not come like a bolt out of a clear sky. Invariably the clouds gather first, often from different quarters, indicating with increasing obviousness what is coming"

Lord Justice Nicholls, Re Spectrum Plus Ltd (in liq) [2005] 2 AC 680, [33

F4B worked with the Commonwealth Climate and Law Initiative to explore the nature and extent of litigation and legal risks related to biodiversity. The report "The emergence of foreseeable biodiversity-related liability risks for financial institutions: A gathering storm?" proposes a framework by which biodiversity-related legal liability risks should be considered by financial sector supervisors and participants.

Risks might come from environmental law claims but also from commercial, tort and other laws and can be associated with physical impacts, transition to sustainability or misrepresentation.

The report argues that financial institutions should not only consider the direct risk of facign litigation but also the risk of being impacted by litigation involving their clients through credit, investment and underwriting risks and systemic risks if biodiversity-related liability risk is of a sufficient magnitude across sectors or geographies.

Read the report