Insurance 2023 - the year ahead
Property claims will face a perfect storm in 2023
As climate change becomes a very real and prominent threat, worldwide attempts have been made to curtail and fight this environmental threat. But with great power comes even greater responsibility and the non-compliance with regulatory requirements could have extreme consequences for those charged with the duty to implement the regulatory responsibilities imposed on them. As it currently stands, South Africa does not have any legislation or guidelines which expressly regulate climate change, however South Africa is in the process of developing, drafting and implementing multiple legislative frameworks, bills and guidance papers in order to combat climate change.
We predict litigious disputes pertaining to the imposition and payment of tax on greenhouse emissions by any entity who conducts an activity that results in greenhouse emissions as stipulated by the Carbon Tax Act of 2019. As the Carbon Tax Act was only implemented in 2019, it is a fairly new piece of legislation and the effects of non-compliance with the Act remains uncertain and untested.
We further predict an increase in litigation where Organs of State, governing bodies, companies or other entities who have a duty to promote the sustainable development agenda, including the reporting and regulation of pollution, waste disposal and protection of biodiversity, fails to do so in accordance with the standards set out in legislation and Guidance Papers.
The consideration and commencement of the Climate Change Bill also brings about potential litigious disputes, as Organs of State will be obliged to amend and align their policies in accordance with the Bill and where reporting obligations will arise where Organs of State are required to report to newly created governmental forums that ensure regulation with the Bill. Any non-compliance with the Bill and the Bill itself will raise various unprecedented issues and disputes.
Another unprecedented factor which may arise in potential litigation is the act of ‘greenwashing’ by a company in which the company pretends to incorporate non-financial factors into its business processes. At present there is no legislation tackling the issue of greenwashing, however the act in itself will most likely result in legal consequences.
Directors and Officers will have more extraneous obligations to ensure that their companies employ environmentally sustainable practices. Non-compliance with environmentally sustainable practices can increase litigation for Directors and Officers’ liability and can lead to litigation or regulatory investigations. In particular, climate related claims can arise from:
Directors further owe fiduciary duties towards their companies and may violate these obligations, particularly when physical or transitional climate risks pose a significant financial risk to the company and the directors have either neglected to take this risk into account or have not responded to it with reasonable care and skill. It will be harder for directors to avoid accountability for poor decisions under the business judgment rule given the volume, breadth, and availability of studies addressing climate change and company risk. Directors further have obligations in terms of the National Environmental Management Act of 1998 (“NEMA”) to prevent pollution and degradation of the environment.
A shareholder of a company may be held liable for the environmental effects of a company's activity by drawing from other cases that recognize shareholder liability and by carefully examining the statutory duties created generally towards the environment. Additionally, NEMA has provisions that give the authorities the ability to pursue legal action against anyone who was or is "in control" of an activity that has caused or is producing pollution or environmental degradation, including potentially harm from climate change. If the parent/subsidiary control aspect is established, it has been suggested that these clauses could allow a judge to pierce the corporate veil.
At present, the majority of climate related litigation pertains to entities seeking to obtain environmental authorisation for their projects. As more and stricter legislative measures are being introduced, we foresee that the disputes pertaining to process of obtaining environmental authorization will increase significantly.