Legal shake-up coming for climate change and sustainability
• Companies will have to note the IFRS sustainability reporting standards and Climate Change Bill
The year 2023 was a busy one for sustainability and climate changerelated legislation and regulation — not to mention litigation — and 2024 is continuing this trend.
The new year started with the coming into force on January 1 of the International Financial Reporting Standards (IFRS) sustainability reporting standards S1 and S2 for JSE-listed companies. While these are similar to the sustainability disclosure requirements of King IV, the new IFRS standards include an additional verification process.
This adds to companies’ disclosure obligations, but they might find it helpful rather than unduly burdensome given the clarity that has been provided. As long as they can demonstrate they have complied with the regulations and voluntary standards, and have behaved reasonably, companies should not have any great difficulty with the new requirements.
Another development that all businesses, listed and unlisted, should be watching for in 2024 is the next stage in the life of the Climate Change Bill, which has been a long time in the making, having been introduced in 2018. It is now gathering speed.
Passed by the National Assembly in late October, the bill is heading to the National Council of Provinces (NCOP) before being signed into law by the president.
It is unlikely that these next steps will unfold at a snail’s pace. We expect the bill to move quickly through the NCOP, and hopefully through presidential assent as well, so that work can start on the nitty-gritty of the provisions of the Climate Change Bill. These include setting sectoral emission targets, listing greenhouse gases that are causing or worsening the effect of climate change, allocating a carbon budget, introducing a climate change finance mechanism and developing adaptation and mitigation strategies.
There is a certain sense of urgency about the bill. Much work has to be done before SA will be on its way towards achieving net-zero emissions and decarbonisation by 2050.
And the trends so far show that the country’s performance in moving forward with measures to deal with carbon emissions and greenhouse gases has been mixed.
We have had a national greenhouse gas reporting framework since 2017 and it seems to be working relatively well. The eighth edition of SA’s national greenhouse gas inventory report was published in April 2023.
The carbon tax is still in the starting blocks. Introduced in 2019, the tax is in the first of three phases of being rolled out until it is equivalent to that of global carbon pricing, which is $20-$30 per tonne. Phase one was to have ended in December 2022 but has been extended to end-2025, with phase two stretching from 2026 to 2030.
The carbon tax rate has climbed from R120/tonne of CO2 to the R159. The effect of this increase is an issue that has been worrying business and industry, with the misalignment of the tax with other tools.
That should change once the Climate Change Bill becomes law. Carbon tax is meant to work alongside other climate change mitigation measures such as carbon budgets and the sectoral emission targets. SA will have a coherent and comprehensive legislative framework to address climate change adaptation, mitigation, monitoring and enforcement.
There is evidence of heightened activity on the part of the national and provincial authorities in enforcing environmental compliance, especially about pollution and the unlawful commencement of waste management and environmental impact assessment listed activities. An uptick in criminal prosecution is a clear theme.
More individuals and NGOs are initiating civil litigation over environmental matters. NGOs are increasingly using strategic litigation to take aim at government policy, which affects big infrastructure projects.
There are also increasing threats of private prosecution in terms of section 33 of the National Environmental Management Act.
GREENWASHING
Climate change litigation is gradually rising too. Internationally, this kind of litigation is focusing on greenwashing and green claims; governments and corporations being challenged for failing to take climate risks into account in decision-making; and challenges to the flow of finance to projects and activities not aligned with global commitments to reduce carbon emissions. We have already seen a few such cases in SA.
Where do all these developments leave companies in SA? At present lawfully operated facilities with reasonable measures to prevent or remediate pollution do not appear to be the focus of administrative or criminal justice. But this could change.
Under the Climate Change Bill it will be an offence to provide misleading data or fail to provide data or submit a greenhouse gas mitigation plan.
The penalties for noncompliance are steep, involving fines of R5m-R10m, imprisonment of five to 10 years, or a fine and imprisonment.
Legal challenges could also come from other quarters, given the rise in citizen and NGO activism.
Companies would do well to tighten up their risk assessment and management and ensure their environmental compliance programmes are sufficiently robust to address environmental law and climate change challenges.
LEGAL CHALLENGES COULD ALSO COME FROM OTHER QUARTERS, GIVEN THE RISE IN CITIZEN AND NGO ACTIVISM