COP15: Biodiversity and Litigation Risks

This article is part of a thought leadership series we’re producing in the run up to the Convention on Biological Diversity (CBD) 15th Conference of the Parties (COP15). Read the introductory article here.

Introduction

In earlier articles in this series, we discussed how biodiversity is becoming a key ESG theme for governments and businesses. All companies will have to start assessing the potential negative effects of their activities on biodiversity. For multinational corporations with complex value chains this will be a challenge and with the development of a (soft) legal framework around biodiversity, there’s an increasing risk that companies will face litigation on biodiversity issues.

In this article, we discuss the key drivers for biodiversity litigation.

Strategic litigation and success of climate change litigation

NGOs active in the field of biodiversity have shown they’re ready and willing to engage in strategic litigation relating to biodiversity.¹ That should come as no surprise. Strategic human rights and climate change litigation against private companies has surged in the past few years. The successful case against Shell in the Dutch courts is one of the most striking examples.² The first wave of strategic litigation focused on governments’ climate change commitments. Now a second wave of climate litigation is aimed at major emitters of greenhouse gases, such as energy companies. As the first wave led to world-wide successes and the second wave is having some success in jurisdictions like the Netherlands, we expect to see a third wave of strategic litigation focusing on issues other than climate, including biodiversity.³ Scientists involved in biodiversity have seen the success of climate litigation and recognise the potential of strategic litigation in the field of biodiversity.⁴

Litigation around biodiversity differs from climate litigation in the sense that biodiversity claims have a more local nature. While CO2 emissions from any country contribute to global climate change, this is different for biodiversity. For example, biodiversity loss in the Amazon is first and foremost caused by deforestation in the Amazon. This may render it more difficult for claimants to bring proceedings in European or North American courts, unless they succeed in establishing a nexus between companies established in Europe or the US and harmful activities abroad. Examples from human rights litigation and environmental litigation show that claimants are increasingly successful in expanding the scope of parent company liability or piercing the corporate veil – as proved by the successful litigation by Milieudefensie (Friends of the Earth Netherlands) against Shell. Although the case related to oil spills in three small villages in the Niger delta in Nigeria, the proceedings led to global headlines.⁵

In addition to these civil proceedings against businesses, we are seeing an increase in proceedings against governments relating to biodiversity. Governments have traditionally assessed the impact of industrial activities on biodiversity as part of licensing procedures, and there is an increasing number of parties willing to challenge the granting of permits and other consents where they feel biodiversity impacts have been measured and assessed incorrectly. As the protection of biodiversity is increasingly being regulated by governments, it is to be expected that more challenges on the basis of biodiversity concerns will be brought.

Sustainability due diligence as driver of biodiversity litigation

When biodiversity loss occurs in countries where litigation is less likely to succeed, claimants will try to find a way to seek jurisdiction in states that are more open to claims around biodiversity. This could be the country of the seat of a multinational corporation linked to the biodiversity loss. In this respect the European Commission legislative proposal for Corporate Sustainability Due Diligence Directive (CSDDD) is extremely important.⁶ The proposal introduces due diligence obligations for large European and non-European companies modelled after the soft law standards of the United Nations Guiding Principles on Business and Human Rights (UNGP) and the OECD Guidelines on Responsible Business Conduct (OECD Guidelines). They comprise an obligation to identify the risk of negative effects on human rights and negative environmental effects, to implement the findings with a view to prevent and decrease such infringements, to control the implementation and to communicate about this.⁷ The same elements are included in the proposal of the Commission. A company must:

• develop a due diligence policy in respect of human rights and environmental effects;
• identify negative effects on human rights;
• prevent, mitigate or minimize actual and potential negative effects;
• to devise a complaints mechanism;
• to monitor this entire process and implement adjustments where necessary; and
• to report on this entire process.

The annexes to the proposal include a list with human rights conventions and environmental conventions that are classified as “negative effects,” which must be included in the due diligence process. This includes an infringement of article 10 of the Convention on Biological Diversity, which entails the obligation to take measures in respect of the use of natural resources to avoid or minimize negative consequences for biodiversity. This means that biodiversity loss forms a part of the due diligence obligations under the CSDDD.

The European Union has also agreed on a deforestation regulation.⁸ Under the regulation, companies are not allowed to bring specific products that are linked to deforestation – including beef, soya, wood, cacao and coffee – onto the European market. Essentially, this means that it will be forbidden to cut down forests to produce these products. Parties trading in these products have to carry out due diligence to make sure the Regulation is complied with.⁹

These legislative proposals, if enacted, create independent obligations around biodiversity for European parent companies. The proposal for the CSDDD even includes an explicit obligation for Member States to enable civil liability actions for breach of the due diligence obligations in the proposal. It is likely that this will lead to an increase in civil biodiversity litigation.

A good example of the type of litigation we anticipate is the case that Brazilian and Columbian NGOs brought before a French court against the French supermarket chain Casino concerning the sale of beef linked to deforestation of the Amazon. The claimants’ argument is that Casino had breached its due diligence obligation by buying meat from a party known to actively contribute to deforestation.¹⁰

Another approach NGOs and other claimants might take to biodiversity litigation is through greenwashing. The Taxonomy Regulation provides for a “dictionary” of sustainability claims, and also contains a description of business activities that provide a positive contribution to biodiversity recovery, and may therefore be considered sustainable by financial institutions.¹¹ Financial institutions have to indicate that these sustainable investments comply with the do-no-significant-harm principle, that is that they don’t inflict significant harm in the light of the environmental targets of the EU. They also have to show how they assess sustainability risks, including risks of loss of biodiversity, in their financial decisions.

Biodiversity will also become part of the Corporate Sustainability Reporting Directive (CSRD) to replace the Non-Financial Reporting Directive (NFRD), which was formally adopted on 28 November 2022 and will enter into force in 2024. Although the reporting standards are not yet known – EFRAG has recently released a first draft – ¹² the proposal makes it clear that there will also be reporting obligations with regard to biodiversity.¹³

On the basis of the Taxonomy Regulation and the CSRD, claimants could try and bring actions around misrepresentation of material, biodiversity-related risks in (financial) reporting, such as a prospectus or annual reporting. Public statements such as advertisements or annual reports giving a misleading representation of the company’s performances in terms of biodiversity could lead to greenwashing claims.

In many jurisdictions, the government's supervisory role is not limited to merely monitoring compliance with specific obligations and regulations, but also concerns more broadly defined duties of care in environmental legislation. For example, the Dutch law on environmental management contains a general duty to take care of the environment. Violation of that duty of care could form a basis for enforcement actions by supervisory authorities. This will usually first be in the administrative law sphere, but criminal enforcement is also a possibility in many jurisdictions. We are seeing an increasing willingness by supervisory authorities to start investigations and enforcement actions on the basis of such broadly defined duties of care.

What should business do to mitigate risk?

A first and necessary step is developing expertise on biodiversity and the potential impact this has on the business, and vice versa. For large listed companies this could be an independent position in the ESG or sustainability team. Smaller companies will have to ensure their sustainability specialists are trained in the field of biodiversity. The first soft law standards show it’s the explicit intention of board of directors, higher management and the audit and risk committees to integrate aspects of biodiversity in their decision-making; so they should also know what’s expected of the company at this level.

The legal department will have to analyse which obligations around biodiversity will be in force over the next few years. Even if there are no direct obligations on a company under the European legislative proposals, it’s highly likely that the company will still have to deal with this. For example, because the obligation to identify and prevent negative biodiversity effects is included in contracts with parties governed by the CSDDD, or because financiers or investors want to see an active biodiversity policy in the context of their own obligations.

All companies have to map the potential negative effects of their activities on biodiversity. For multinational corporations with complex value chains this will be challenge. With the growth of legislation and soft law in the next few years, companies need to start as early as possible with this.