The Climate Change Act No. 11 of 2016 – Implications for Private Firms
The Climate Change Act, 2016 was signed into law on 6th May 2016. The goal of the Act is to provide a regulatory framework for an enhanced response to climate change, and to provide mechanisms and measures to improve resilience to climate change and promote low carbon development. The Act adopts a mainstreaming approach, provides a legal basis for climate change activities through the national climate change action plan, and establishes the National Climate Change Council and the Climate Fund.
With the enactment of the Climate Change Act of 2016 (CCA), Kenya joins the league of nations that have taken concrete steps to domesticate the Paris Accord on Climate Change. The National Climate Change Council is a powerful council, reporting to the President and with powers to impose climate change obligations on public and private entities, including regulations on the nature and procedure for reporting on performance. The National Environment Management Authority (NEMA), is tasked with monitoring, investigating and reporting on compliance. Failure to comply may incur a fine of up to One million Kenyan shillings and five years’ imprisonment for officers of an entity.
But apart from the institutional framework one of the interesting features of this legislation is that it creates an avenue for citizens to hold governments and corporations accountable for reducing greenhouse gas emissions. The Act has provisions for citizens to sue private and public entities that frustrate efforts to reduce the impacts of climate change. A salient feature of this law is the fairly low bar that is set for purposes of establishing culpability. The plaintiff merely has to demonstrate that a corporation is not undertaking sufficient measures to address climate change. There is no need to further prove actual harm, loss or injury to any person. This departs significantly from the well-established position in public interest environmental litigation – that although one does not have to demonstrate direct harm, nonetheless the plaintiff must, at a minimum, establish that a section of society will suffer harm.
This Act therefore, opens the door to potentially costly compliance requirements, as well as the danger of substantial court awards as the Environment and Land Court has the power to order compensation for climate victims where it deems appropriate. The power to impose climate change obligations on private entities means that once an organization becomes included within a climate change regime, the likely substantial compliance requirements will entail incurring significant, related costs of operation and management that could affect profitability and competitiveness.
A cautionary tale is the example of Volkswagen America, which ran into serious problems in 2015 for falsifying results of 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. VW is also looking at facing criminal and civil charges from national regulatory authorities and lawsuits from customers and investors.
In light of the above, it is important that companies and their shareholders address climate change by conducting research and adopting explicit policies and practices as part of sound environmental and risk management practices. In some of the emerging literature on corporate governance, it has been suggested 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 increasingly looking to green, renewable energy sources.
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. It is already evident that significant finance is being channelled to research on clean energy, energy efficiency, and to encourage sustainable architecture. It would appear that “green” business is also smart business.
If you require further information on the Climate Change Act, and on how you can ensure that you are not adversely impacted by this legislation, please get in touch with Stephen Mallowah or Elias Masika or any member of our Corporate and Commercial/ Environment and Climate Change Teams.