Are you a prescribed officer? Know your ESG risks and exposure to environmental liability

Recent environmental trends have brought environmental law liability back into the spotlight. This includes Environmental Social Governance (“ESG”), which has the potential to expose companies to various risks including regulatory and litigation risks. In particular, the increased attention on mining companies and their environmental impact has significant consequences for the company, its directors and its employees.

Faced with a plethora of environmental regulation and the added pressure to take ESG considerations into account, mining companies are likely to attract ESG associated risks and prescribed officers must be aware of the implications.

What is a prescribed officer?

In recognition of the complexities of corporate decision-making, South African company law has developed the concept of a “prescribed officer”, which encompasses employees who exercise or participate in the exercise of executive authority over the business affairs of a mining company.

This includes chief executive officers, chief operating officers, head of mining operations, finance executives, company secretaries and general counsel who participate in executive decision making.

This list can even be extended to technical, legal, financial, sustainability, procurement, security and other senior managers who, practically, are charged with the various key portfolios of a mining company and whose knowledge and expertise are often determinative of the issues that the directors must resolve.

What are the obligations of a prescribed officer?

The role of prescribed officers cannot be underplayed because directors are entitled to rely on the performance of any person to whom the board may have reasonably delegated, informally or formally, the authority or duty to perform functions of the board and information, opinions, recommendations, reports or statements (including financial statements and other financial data) prepared or presented by employees of the company, legal counsel, accountants or other professional persons, or a committee of the board of which the director is not a member.

Nevertheless, prescribed officers in the mining sector are not always aware of the ambit of their legal duties, obligations and risks. In terms of the Companies Act, 2008 these employees are as exposed to the same obligations, duties and liabilities as the directors of mining companies without always appreciating the ramifications.

One of the objectives of the Mineral and Petroleum Resources Development Act, 2002 and the National Environmental Management Act, 1998 (“NEMA”) is to give effect to section 24 of the Constitution of the Republic of South Africa, 1996 by ensuring that the nation’s mineral and petroleum resources are developed in an orderly and ecologically sustainable manner while promoting justifiable social and economic development.

Environmental legislation in South Africa seeks to impute liability to any person who is or was responsible for, or who directly or indirectly contributed to, or any person who negligently failed to prevent the activity or process being performed or undertaken which gave rise to pollution or environmental degradation.

Specifically, section 28(1) of NEMA places a statutory environmental duty of care on every individual to prevent harm and damage to the environment, and, in the event that such harm and damage cannot be prevented, it must be minimised and remediated.

What are the penalties for non-compliance?

A failure to comply with this duty as well as the requirement for an environmental authorisation can result in significant fines of up to ZAR10-million and/or 10 years' imprisonment being imposed. Directors and certain employees, some of whom are prescribed officers, can also be held criminally liable in their personal capacity under NEMA.

The daily functions of senior employees of mining companies involve a discharge of the types of duties and taking of decisions that make them fall in a net of prescribed officers and therefore they ought to be careful and understand that they owe the same duties to the company as the directors do.

With the increased monitoring of mining companies’ compliance with its statutory obligations and disclosure requirements occasioned by the rise to prominence of ESG, directors and prescribed officers alike should exercise the necessary caution to ensure that they are not held liable in their personal capacity. This will require mining companies to understand and ensure compliance with the applicable laws, as well as clearly streamline their roles to lessen the potential failure to implement the array of environmental laws.

Ntsiki Adonisi-Kgame

Natural Resources and Environment | Executive

nadonisikgame@ENSafrica.com

+27 82 382 7232

Mihlali Sitefane

Natural Resources and Environment | Senior Associate

msitefane@ENSafrica.com

+27 82 310 3694