Christopher Bonasia
The Advocate

Last year, a report warned incorporated farms had to prepare for climate reporting. The report noted that farms that incorporate are subject to the same legislation regulating other corporate businesses, and so are required to establish a board of officers and directors who are required to exercise care and due diligence for overseeing the farm’s operations and ensuring its long-term viability. They can be held accountable by shareholders if they don’t.

The issue came up again late last month, when the Commonwealth Climate & Law Initiative published its own legal opinion clarifying the legal nuts and bolts of how directors of Canadian corporations might face legal action for failing to address risks from natural disasters and climate change risks (termed nature-related risks, or NRRs). Though the opinion was directed at corporate directors across the nation’s economy, it identified agriculture among the sectors where businesses are most dependent on nature and climate for their profitability. That places directors of incorporated farms as particularly likely to deal with nature-related risks in the future.

Opinion is clear

The gist of the opinion is fairly clear cut — now that the risks of climate change are well established, a director who fails to acknowledge and prepare for climate threats to a farm business would fail their duties under Canadian law.

The laws requiring company directors to prepare their company for emerging threats are primarily found in the Canada Business Corporations Act (CBCA). The CBCA charges all Canadian corporation directors with a fiduciary duty to “act honestly and in good faith with a view to the best interests of the corporation,” and also with a duty of care to “exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.”

A duty of care

That duty of care includes a legal obligation to identify and manage foreseeable material risks. Risks of future climate impacts are now well-documented and very much foreseeable, and so they can now be considered to pose material financial risks to companies — either directly through physical risks like natural disasters, or indirectly through new climate regulations or from legal challenges arising from a company’s impacts on nature. 

Any single farm corporation’s obligation to address a specific NRR depends on the specific facts of the case. 

But farms are more threatened by climate change and natural disasters — which are becoming more frequent and intense due to the changing climate — than many other businesses.

Cost of risks mounting

In Quebec, where about 25 per cent of farms were listed as either family or non-family corporations in 2021, severe weather, like floods and droughts, was a major factor that led to La Financière Agricole disbursing more than $1 billion to compensate farmers (the average payment over the 10 years prior was $439 million). Hay producers in Abitibi alone received $6.8 million — up from an annual average of $1.7 million — because of an intense drought.

The legal opinion says all directors are required to, at a minimum, identify and assess how nature and climate risks could affect a company’s operations, value chains, strategy and stakeholder relationships.

Additional steps to avoid legal action include making an effort to understand nature-related risks that could affect their farms, and erring on the side of caution when considering whether such a risk needs to be disclosed. Directors and officers of a farm corporation should be trained to address nature risks and emerging legal expectations.

Farms that intend to take these steps and implement policies for nature-related risk governance, management, and disclosure policies can look to existing frameworks — like the Taskforce on Nature-related Financial Disclosures, for example.

“Directors don’t need to be expert scientists or activists, but they are required to consider nature-related risks like any other foreseeable risk to their business,” said Lisa DeMarco, senior partner and CEO of Resilient LLP and the opinion’s lead author.

“Ignoring nature risks is no longer legally defensible as proper corporate governance.”