* Any views expressed in this opinion piece are those of the author and not of Thomson Reuters Foundation.
Could the risk of having to make payouts drive quick action on climate change by Kenyan companies?
Climate change lawsuits are gaining momentum as citizens are increasingly turning to domestic courts to hold governments and corporations accountable for reducing greenhouse gas emissions. With the passing of its 2016 Climate Change Act, Kenya is among the few countries globally to directly regulate on climate change, signaling strong political will to pursue low-emission development.
The act allows citizens to sue private and public entities that frustrate efforts to reduce the impacts of climate change.
The law establishes the National Climate Change Council, which has the power to impose climate change obligations on private establishments, including regulations on the nature and procedure for reporting on performance.
The National Environment Management Authority (NEMA), on behalf of the council, is charged with monitoring, investigating and reporting on compliance. An organisation that fails to comply may incur a fine of up to a million Kenyan shillings ($9,900) and officers risk five years imprisonment if they withhold or gives false information to NEMA.
An interesting feature of this law is the lenient standard required to prove liability. It is enough to prove that a corporation is not doing enough to address climate change without having to also demonstrate that a person has suffered loss or injury.
COMPENSATION ON THE HORIZON?
Traditionally, in public interest environmental cases, though the law waives the requirement of demonstrating direct harm, there is still a requirement that an applicant establish that a section of society will suffer harm. Perhaps the indulgence granted to climate suits demonstrates the severity and urgency that we should all exercise when tackling a global crisis that threatens the survival of humanity.
The consequences of liability may be exceedingly costly for corporations as Kenya’s Environment and Land Court has the power to order compensation for climate victims where it deems appropriate. Once a company becomes included within a climate change regime, the likely substantial compliance requirements will entail significant, related ongoing costs of operation and management that could affect returns and competitiveness.
An example of liability arising from climate change disclosures is the Volkswagen scandal. "We've totally screwed up," said Volkswagen’s America boss Michael Horn, when the car-manufacturing giant ran into serious problems in 2015 for falsifying carbon dioxide emission tests of their vehicles.
Recalling and modifying the vehicles has resulted in massive losses of approximately $2.8 billion and likely fines of up to $20 billion may be incurred. Additionally, VW stated in its quarterly report that it anticipates facing criminal and civil charges from national regulatory authorities and lawsuits from customers and investors.
CASH TO DO THE RIGHT THING?
So how do you navigate the pitfalls of climate change liability? In the corporate world, companies and their shareholders are increasingly addressing climate change by conducting research and adopting explicit policies and practices as part of sound environmental and risk management practices.
Shareholder proposals submitted to major corporations such as Phillips, Gillette and Reebok state that corporate boards of directors and managers have a "fiduciary duty" to be informed, and to inform shareholders, about potential climate change risks and opportunities.
This involves careful assessment and disclosure to shareholders of information on significant risks associated with climate change, and warrants precautionary, prudent and early actions to enhance competitiveness and protect profitability in a world moving away from fossil fuels.
Public disclosure of uncertainties that are likely to result in significant changes in a company's liquidity because of climate change is essential. Furthermore, factors affecting sales or revenues that may have a current or future effect on the company's financial condition, results of operations, liquidity, or capital resources are equally important to consider.
Nevertheless, it’s not all gloom and doom, as the act creates opportunities for the private sector by advocating for incentives to pursue low-carbon development and promotion of research and development on clean technologies.
This indicates that there will be significant financing channeled towards tax reliefs to promote uptake of clean energy, energy efficiency, and to encourage sustainable architecture. Consequently, the future promises numerous business prospects for members of the private sector who are willing to embrace sustainable development pathways for posterity.