African directors risk legal liability for ignoring nature-related risks, report warns

Company directors in Kenya, South Africa and Nigeria could be breaching their legal duties if they fail to consider nature-related risks in corporate decision-making.

According to a new report that says environmental governance is increasingly becoming a legal obligation rather than a voluntary sustainability initiative.

The report, Directors’ Duties and Nature-Related Risk in Africa, argues that directors have existing fiduciary responsibilities to identify and manage financially material risks arising from biodiversity loss, water scarcity, land degradation and ecosystem decline.

Published by the Commonwealth Climate and Law Initiative (CCLI), FSD Africa and the African Natural Capital Alliance (ANCA), the study examines corporate governance and company law in the three countries and concludes that boards can no longer treat nature-related issues as a peripheral environmental, social and governance (ESG) concern.

Instead, the report says, directors who overlook foreseeable nature-related risks may expose both their companies and themselves to legal, financial and reputational consequences.

The findings come as regulators, investors and lenders place growing emphasis on corporate sustainability disclosures and environmental accountability, while climate and environmental litigation continues to rise globally.

Africa is particularly exposed because of its dependence on natural resources. According to the report, about 62 per cent of the continent’s Gross Domestic Product (GDP) is moderately or highly dependent on nature.

The report also cites a 2024 stress test of banking systems in Morocco, Rwanda, Zambia, Ghana and Mauritius, which found that cumulative expected credit losses could increase by up to 21 per cent by 2050 if no action is taken to address nature-related risks.

In South Africa, it notes, 35 per cent of corporate bank lending is concentrated in sectors that depend heavily on natural ecosystems, making businesses increasingly vulnerable to water shortages, biodiversity loss and extreme weather.

Dr James Mwangi, Group Chief Executive Officer of Equity Group Holdings and a member of the ANCA Governing Council, said African businesses could no longer separate economic growth from the health of natural ecosystems.

“Africa stands at a defining moment. Across our continent, the extraordinary wealth of our natural world has long underpinned the livelihoods of hundreds of millions of people and the commercial foundations of entire economies. Today, that natural wealth is under unprecedented pressure.”

He said company boards must ensure their governance practices reflect the growing financial significance of nature-related risks.

The report identifies increasing regulatory pressure on companies through international reporting frameworks such as the Taskforce on Nature-related Financial Disclosures (TNFD) and the International Financial Reporting Standards (IFRS) S1 and S2 sustainability standards. It also points to new regulations, including the European Union Deforestation Regulation (EUDR), which are reshaping expectations for businesses operating in global supply chains.

At the same time, environmental litigation is becoming more common across Africa. The report cites legal actions involving Shell in Nigeria, TotalEnergies in South Africa and the East African Crude Oil Pipeline (EACOP), saying such cases demonstrate growing scrutiny of environmental impacts and corporate governance.

Despite differences in legal systems, the report finds broad alignment across Kenya, Nigeria and South Africa.

Nigeria’s Companies and Allied Matters Act, 2020 explicitly requires directors to consider environmental impacts. In Kenya, directors who fail to manage foreseeable and financially material nature-related risks could be found to have breached their duties under the Companies Act, 2015. South African directors face similar obligations through the Companies Act, the National Environmental Management Act, the Constitution and the King IV Code on Corporate Governance.

Sammy Ndolo, Director at CDH Kenya, said many company boards still approach environmental matters mainly as regulatory compliance issues rather than strategic business risks.

“Few have really internalised what it means to promote the success of the company under the Companies Act, which includes understanding and evaluating the impact of a company’s operations on both the community and the environment.”

He said the report demonstrates that existing legal frameworks already require directors to integrate nature-related risks into governance and business strategy.

Ndolo also warned that directors could increasingly face personal liability as courts become more willing to scrutinise environmental approvals and corporate due diligence.

“We are likely to begin to see much more litigation, even as we go forward, just like we’re seeing in Europe and other parts of the world.”

Natalie Shippen, Executive Director of CCLI, said Africa had been largely missing from global legal analysis on directors’ duties despite the continent’s strong dependence on natural capital.

She said the report provides directors in Kenya, South Africa and Nigeria with clear guidance on how existing legal obligations apply to nature-related risks.

Beyond legal compliance, the report argues that companies integrating nature into governance could gain better access to capital.

It points to new financial instruments, including Ecobank’s Nature Bond launched this year and emerging products such as water performance bonds, as evidence that investors are increasingly rewarding businesses that incorporate nature into long-term decision-making.

Dorothy Maseke, Head of Secretariat at the African Natural Capital Alliance and Lead Nature Finance at FSD Africa, said integrating nature into corporate governance should be viewed as both a risk management strategy and a growth opportunity.

The report recommends that company directors embed nature-related risks into boardroom discussions and corporate strategy, investors incorporate nature into lending and investment decisions, and legal advisers help clients understand that these responsibilities already form part of directors’ fiduciary duties.

The findings were presented during a pan-African webinar bringing together leaders from the legal, financial and corporate sectors to discuss how businesses can strengthen governance in the face of growing environmental risks.

Views: 22