The role of contracts in tackling nature risk

Embedding sustainability into contracts helps organisations achieve climate goals. Can the same be said for nature goals? Last year we conducted exploratory research to look at the role of legal contracts in tackling nature risk and driving nature-positive action across industries.

Companies need practical tools to build resilience in an increasingly volatile world and meet rising nature-related obligations. The recent UN Biodiversity Conference (COP16) underscored the urgency of implementing the Kunming-Montreal Global Biodiversity Framework (GBF), signaling a shift toward stronger nature-focused regulations. As legal frameworks evolve, businesses must proactively integrate nature-positive strategies to stay ahead of regulatory changes and sustainability commitments.

As part of this research, we engaged with a diverse range of stakeholders across multiple sectors—including food and beverage, the built environment, and financial services. Our discussions spanned professionals from various disciplines, including lawyers, directors, and sustainability experts, to gain insights into how different industries are responding to these challenges.

For the purposes of our research and this article, we refer to definitions of nature, nature loss and nature-related risks used by the Taskforce on Nature-related Financial Disclosures (TNFD).

In this article, we share what we learned about the obstacles to and opportunities for nature-positive contracting in the current landscape, and our insights on what is needed to unlock further action.

Obstacles to nature-positive action

Our research uncovered a range of obstacles to nature-positive action in the current landscape. 

1. Understanding of nature risk as a business risk is still limited: Although businesses increasingly recognise that nature risk is a business risk, many have yet to assess their specific nature-related impacts, dependencies, and the resulting risks and opportunities. As a result, nature is not being fully integrated into strategic decision-making or contractual arrangements.

Companies with a greater dependence on nature—such as those in the built environment and food and agriculture sectors—or those with extensive land holdings are generally more advanced in addressing these issues. However, the challenge spans all industries, with limited resources, skills, and board-level leadership identified as key barriers to progress.

2. Action on nature lags behind and sometimes competes with action on climate: In some organisations, the prevailing sentiment is that they have “only just got their heads around climate” and they are not yet prepared to focus on nature. 

A common issue is that attention and resources are committed to action on climate instead of action on nature. This suggests a need for greater resource allocation for action on nature and, when appropriate, more integrated strategic planning given the interconnectedness of these issues.

3. Awareness of contracts as a tool for nature-positive action is limited: Nature is often viewed primarily as a regulatory compliance issue, to be handled by environmental or planning lawyers. This is because many environmental considerations are governed by strict regulatory frameworks and standards at the project level, such as those related to environmental permitting, waste management and planning regulations.

For others, nature is assumed to be an ESG issue falling solely within the purview of sustainability teams. In each case, the perceived relevance of commercial contracts as a tool for nature-positive action is limited. 

4. The pathway to nature-positive contracting is often non-linear: Board-level buy-in is generally the fastest, most effective route to adoption of nature-positive business and contracting practices across an organisation, but it is not always the starting point. Often initiatives originate in sustainability teams and involve legal, finance, procurement and sales teams before being put to the board for approval.

There might be different levels of preparedness for action on nature across different functions within an organisation, and efforts can be siloed and fragmented, which delays progress. Accelerating action requires strong channels of communication, collaboration and co-ordination across organisations.

Opportunities for nature-positive contracting

While we acknowledge some of the potential challenges, businesses have opportunities to leverage contracts for nature-positive action.

1. Supply chain transparency is top of the agenda: Companies face growing pressure to monitor, assess, and disclose environmental and social impacts in their supply chain. This includes corporate sustainability regulations like the Regulation on Deforestation-free Products. Moreover, market standards and frameworks like the IFRS Sustainability Standards and The Taskforce on Nature-related Financial Disclosures, contribute to rising expectations of investors, shareholders and customers.

Unsurprisingly, most companies are primarily focused on leveraging due diligence processes and supply contracts to help them get information from their supply chain and comply with their reporting and due diligence requirements. For example, incorporating contractual requirements that enable the tracing of deforestation in agricultural commodity supply chains.

For many companies, this is not new work but rather involves scaling up existing processes and infrastructure for data collection, audit and reporting. Despite this, our research indicates that many companies are still at an early stage in their journey towards transparency.

2. Sustainable sourcing requirements and practices are increasing: As companies gain better visibility into their nature dependencies, impacts, risks, and opportunities, many are actively implementing targeted management and mitigation strategies to address key risks in their supply chains.

The main approach that emerged in our research was the strengthening and widening of sourcing requirements and practices in procurement contracts to reduce negative impacts on nature and facilitate nature-positive action. 

Examples of sourcing requirements and practices being used by participants include:

• requiring suppliers to set nature goals and targets
• setting obligations to improve the recyclability of raw materials supplied
• entering into long-term supply contracts with farmers to support more nature-positive farming practices

Many participants emphasised the importance of supplier engagement and collaboration to support suppliers in complying with such requirements.

3. Nature governance is moving into the boardroom and beyond: Directors are increasingly recognising the importance of governance to the strategic management of nature risk, largely due to increasing mandatory governance requirements and investor and shareholder expectations. Nature governance is also moving out of the boardroom to involve a wider range of teams and individuals within organisations. 

Examples of nature governance mechanisms being used by participants include: 

• goal, KPI and target-setting for nature at board-level
• allocating responsibility for delivering against nature commitments to functions across an organisation
• linking executive and employee compensation to performance to incentivise delivery

More ambitious examples include enshrining nature protection in a company’s articles of association and putting nature on the board. None of the participants referred to nature transition plans, although a few referenced nature as relevant to climate transition plans.

4. Finance is trickling into nature-positive business: A few participants described how their organisations use contractual arrangements to finance or invest in nature-positive practices across their operations and supply chains, although instances of this were rare. 

Examples of this include:

• granting loans to business partners for the development of recycling technologies and recycled materials to innovate sustainable products 
• investing in other technologies to reduce the impacts of operations on nature, improve efficiencies, and reduce costs (for example, technologies to improve water efficiency and reduce the impacts of farming on nature)
• providing financial incentives in supply contracts with farmers to support the transition to regenerative farming practices and strengthen the security of supply

Creating content to support nature-positive contracting 

Our research shows that nature-positive contracting practices are already emerging. The potential of these practices to help companies tackle nature risk and scale nature-positive action across industry is significant and underexplored. 

In our next blog, we will share our insights on the key areas where organisations can take further action to unlock this potential. This research signals our intention to support the business community further by creating valuable and accessible content to accelerate action on nature, beyond climate.