Varroa mite parasites provide lesson for company directors

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The tiny varroa mite, the parasitic scourge of the world’s bee population, seems an unlikely catalyst for litigation against corporate directors.

Yet a legal opinion published in Australia has highlighted the threat posed by the mites as an example of the nature-related risks that board members need to consider as part of their duties. Directors who fail to do so could be found liable for breaching their duty of care and diligence under Australia’s Corporations Act. 

It seems unlikely that there will be any class actions launched over the varroa mite, which emerged on Australia’s shores last year and triggered a lockdown of bee hives.

But the legal opinion says that left untreated, the varroa mites will kill all honey bee colonies across Australia. “This is not just a risk to companies involved in honey production. It also impacts those with direct and supply chain dependencies on pollination services from honey bees, such as agriculture and food and beverage,” it says.

The Australian legal opinion was commissioned by investment and advisory firm Pollination Law alongside the UK-based Commonwealth Climate and Law Initiative, an international legal research company, and echoed a similar warning issued to New Zealand companies this year by law firm Chapman Tripp that businesses needed to identify and not underestimate nature-risk. More jurisdictions, including the UK, are expected to issue opinions over time as the Antipodean lawyers spur a global discussion.

A precedent for the focus on nature was Australia’s “Hutley Opinion” issued in 2016 that argued company directors were liable to disclose and manage climate risk. That opinion, which shares an author with the new nature-risk guidance, has proved globally influential and its impact in Australia is palpable. The number of top Australian listed companies now reporting against climate-related financial disclosure guidelines hit 75 per cent in March compared with only 10.5 per cent in 2017, according to data cited by the legal opinion. 

Pollination Law anticipates a similar trajectory for nature-risk compliance after the international framework by Taskforce for Nature-Related Financial Disclosures was launched in New York in September. The TNFD provides guidelines for companies to frame their response to climate change and nature-related risks.

In Australia, which has been ravaged by bushfires, floods and extreme heat in the past three years, sectors that have a direct dependence on nature include agriculture, forestry, fisheries, construction and water services. These account for almost 16 per cent of gross domestic product, according to the Pollination Law legal opinion. 

But it is those industries that seem less exposed directly but are nonetheless dependent on nature for their supply chains — such as mining, chemicals, aviation, real estate and tourism — where boards need to think about how those risks feed into their obligations. Reputational risk could also come into play if a company gets on the wrong side of a natural disaster, causing investors to turn on the company.

Rohitesh Dhawan, chief executive of the International Council on Mining and Metals, told the FT’s Mining Summit in October that the sector had treated nature as its “garbage bin” in the past. “Why are we in this mess in the first place? Because we treated nature as something different from the economy,” he said. Dhawan added that the mining sector is learning that an investment in natural capital “will pay dividends” and that TNFD provides the framework for that discussion. 

Pollination Law anticipates that a “pincer move” of increasing regulation around nature protection and the risk of litigation will force company directors to quickly adapt and that the bar for TNFD requirements will rise over time. 

Those fearing an onslaught of class actions over nature obligations should, however, note that there has been no successful litigation against Australian company directors based on the Hutley Opinion’s views around climate duties. This reflects the moves that boards have made to adapt and how the bar for prosecution is high. 

A high-profile case in the UK High Court this year against the directors of oil company Shell by environmental groups claiming that they had breached their legal duties to properly manage the “material and foreseeable” risks from climate change nonetheless shows there is appetite. That legal attempt failed but it highlighted how considering environmental risks should be second nature for boards.

nic.fildes@ft.com

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