Climate change remains firmly on the agenda in 2023, and rightly so. With it becoming an increasingly important issue for consumers and businesses alike, many businesses have been looking for ways to reduce their environmental impact and convince customers of their green credentials. One company which has taken a radical approach is Faith in Nature, a natural hair and skincare brand.
In August 2022, Faith in Nature appointed “Nature” as a member to its board, granting it the same voting rights as any other company director. On reading that, your first thought might be: how on earth does that work?
Essentially, “Nature” is being given a legal personality here. As mentioned above, Nature is appointed as a director with the same voting rights as other directors. Nature is independent of the company and must act in the best interests of the natural world. Nature will be remunerated as would any other independent, non-executive director.
Appointing Nature to their board required some changes to Faith in Nature’s articles of association.
The company’s objects were changed, to include that the company should use its best endeavours in its operations to “have a positive impact on nature as a whole and to minimise the prospect of any harmful impact of the business and operations on nature, in a manner commensurate with the size and resources of the company”.
Directors must also have regard to the impact of the company’s operations on the environment, including the long-term consequences.
The articles were further amended to include the position of Nature as a non-executive director and its duties and responsibilities are outlined in a Terms of Reference document. Where “Nature Related Matters” are included in the agenda of any directors’ meetings, the quorum for those meetings must include Nature.
There is also a new duty to provide reasons if the board makes a decision contrary to Nature’s advice.
The definition of Nature included in the company’s articles is “the natural world and all non-human species that inhabit it and it is represented by a director with the requisite expertise and the role to ensure that the board of directors gives due consideration to the environmental impact issues in its decision-making process, for the purpose of achieving the objects of the company.”
Practically, Nature will be represented by a human, though it is fundamentally a non-human entity. This is done through the “guardianship” model. The human representative will be bound to speak on behalf of “Nature”, just like a legal guardian might act on behalf of a child in legal proceedings.
Nature will first be represented by lawyers for Nature and Earth Law Centre, who formed the legal team which helped to develop the model.
Currently under company law, provided at least one director is a natural person (i.e., a human being), then any legal person (for example, a company or LLP) may be a director, provided the company’s constitution allows it to do so. A non-natural director is sometimes referred to as a corporate director.
The government had previously proposed amending the Companies Act 2006 to prohibit corporate directors. Then in 2020, the Department for Business, Energy and Industrial Strategy (BEIS) published a consultation paper on implementing this prohibition while bringing forward regulations to provide for a principle-based exception. BEIS published the Corporate Transparency and Register Reform White Paper in February 2022 indicating support for its proposals, and the government legislated for these reforms in the Economic Crime and Corporate Transparency Bill which was laid before Parliament on 22 September 2022 and is currently progressing through the House of Lords.
As currently drafted, Section 43 of the Bill inserts a new section 167M into the Companies Act 2006, which prohibits directors from acting unless either their identity is verified or they fall within an exemption contained in the regulations. The regulations haven’t been published yet, but the principle-based exception as envisaged in the BEIS White Paper is that a company can be appointed as a director if both all of its directors are natural persons; and those natural persons are subject to the Companies House identity verification process.
If such provisions are enacted as legislation, then this could pose a problem for Faith in Nature’s model. Nature could not really be considered as a corporate director as it is not a company or LLP, and it does not have directors. It cannot really be considered a natural person either.
Whether this concept will actually function in practice or have a meaningful impact on the environment, remains to be seen.
All directors have a duty to promote the success of the company according to the Companies Act 2006. How will Nature resolve any conflicts between this duty and its duty to promote the natural world? The same conflict exists in respect of the company’s objects, which now refers to both promoting the success of the company, and a duty to protect the environment.
Faith in Nature accepts, in its Q&A document, that compromise will be necessary and Nature may at times make proposals which are not financially viable. It’s aiming for a broader definition of “success” which includes having a “healthy planet”. In its marketing of the model, the company is keen to emphasise that it wants to shift the narrative from nature being a resource to exploit.
While some may argue it’s perfectly natural for nature to be a stakeholder (given it is affected by almost all of our actions), others might argue that we can’t know for certain what nature wants. Despite Nature here being a non-human entity, it will in reality be represented by human beings who can get things wrong or make biased decisions. While it may at times be obvious what the best course of action is, some decisions can be multifaceted and involve different aspects of nature. A lot of environmental policy relies on science, which isn’t always easy to understand as a layperson (or a lawyer for that matter) and sometimes isn’t clear cut.
Nature’s first representative to Faith in Nature’s board will have input from a team of environmental experts to help steer it in making decisions, which may address some of these issues.
Accountability and transparency is key here. Many companies have come under fire for “greenwashing” in recent years which has bred scepticism among consumers. Any companies wanting to introduce environmental policies should be aware of the reputational consequences of marketing promises which ring hollow.
Faith in Nature’s articles of association now include annual reporting obligations to Nature, which they will make public, outlining all that the company has done for Nature. It will be of interest to see how the model has affected the company’s operations and profits, and whether the company will make any changes to the model in the future. We also wonder how much of an impact it will actually have on the environment. It is certainly one to watch out for.
Thinking green is central to any business model going forward and it is no longer enough for companies to make vague environmental commitments in marketing, without putting it into practice. Businesses will need responsible decision-making to ensure their (and the planet’s) survival, or face consumer dissatisfaction. Some may say that Faith in Nature’s action is drastic and radical, while others may argue that it’s actually very simple logic.
In any case, it’s a very interesting concept and it will certainly be on our radar to see how and if it works. If successful, it may well be adopted by other companies. Perhaps in years to come, we will consider Nature’s rights as fundamental as humans’.
If you or your organisation would like to discuss any of these issues further, please reach out to Megan Lawson, or your regular Anderson Strathern contact.