With nature-related losses estimated at some US$7 trillion compared with just US$200 billion invested in nature-positive activities, the 35-to-one ratio is fuelling growing concern among nature experts about the future.
These fears are particularly acute in Africa where 62% of GDP is moderately or highly dependent on nature.
Now Dorothy Maseke, head of secretariat at the African Natural Capital Alliance (ANCA) and lead, nature finance at Financial Sector Deepening (FSD) Africa, is stressing the importance of scaling nature-positive investments.
Her call for greater investment comes after the Commonwealth Climate and Law Initiative (CCLI), FSD Africa and ANCA published Directors’ Duties and Nature-Related Risk in Africa, analysing existing legal and governance frameworks in three of Africa’s leading economic hubs: Kenya, South Africa and Nigeria.
It found that across all three, directors must consider nature-related risks, including biodiversity loss, water scarcity and land degradation, as part of their duty of care and duty to promote the success of the company.
Directors who fail to do so may be exposing their companies (and themselves) to legal, financial and reputational consequences, while those who proactively integrate nature into their strategies are better positioned to capture long-term value and strengthen business resilience, concludes the report.
More specifically, the report found:
- 62% of Africa’s GDP is moderately or highly dependent on nature.
- A nature stress test covering five African banking systems found that cumulative expected credit losses could rise by up to 21% by 2050 without nature-positive action.
- In South Africa, 35% of corporate bank lending is concentrated in highly nature-dependent sectors.
- Existing company law and governance frameworks in Kenya, Nigeria and South Africa already provide a basis for directors to identify, assess and manage financially material nature-related risks.
The report also sets out a practical roadmap for boards and regulators. It recommends that businesses identify where they depend on and affect nature, ensure boards have access to the right expertise, integrate nature into strategy, risk management and capital allocation, and prepare for evolving disclosure requirements. It also provides regulators with a basis for strengthening governance expectations, supervisory frameworks and nature-related stress testing.
Maseke said “We need the highest echelons of power to understand what they need to do and to make the right decisions. Directors’ duties are one of those levers, making sure we are moving away from nature-negative businesses and towards more positive outcomes.”
She explained that the paper is not the first to have been published and that it follows papers written both on a global and regional basis. But all agree there needs to be a shift away from nature-negative business towards positive investment.
The regulators will be a large part of this, encouraging directors through legislation to have a duty of care towards nature. Maseke said the Kenyan and Nigerian governments are already fairly aggressive in their stance on this and company directors in each country now have very clear duties in their business choices.
Both countries are also set to adopt accounting standards S1 and S2 which lay out the clear direction of travel towards business taking a more sustainable approach to their investments and operations.
Maseke said it is important to note that climate risks fall within directors’ duties of care already and this is being extended to nature. “Countries like Australia, New Zealand, the UK, Canada and the Philippines have already changed their directors’ duties in this way,” she said.
There is also a clear warning for directors in terms of direct liability, she suggested. “Litigation exposure is increasing, particularly for oil and gas businesses where we are already seeing claims against business.”
But she stressed this is not just a matter of the stick, there is also a carrot in terms of opportunity for businesses who move first in this space.
“Proactive companies are better placed to attract capital,” she said, “and they will also find their social licence to operate is much more straightforward.”