A recent landmark court ruling has ensured that directors can be held personally liable for the environmental damage caused by their companies. The managing director of clay-mining company Blue Platinum Ventures became the first company director in South Africa to be held personally liable for a mining-related environmental offence.
According to Aon South Africa, the ruling sets a powerful precedent and strong warning to corporates and office bearers. "The landmark ruling against the Director of Blue Platinum Ventures is the strongest motivator of the need for increased responsibility and development at board level for environmental, health and safety issues. It has certainly placed the spotlight on greater awareness for increased liability of directors for impairment caused by the company in which they act and the impact of the company's operations on the community and the environment," explains Michele Ravenscroft, Head: Financial Institutions and Professional Practices at Aon South Africa, risk advisors and insurance brokerage.
The cost of rehabilitation in the Blue Platinum Ventures case was estimated by the court at R6.8-million and gave the director a five-year suspended sentence on condition that the damage was rehabilitated in three months. Both the director and Blue Platinum were found guilty of contravening section 24F of the National Environmental Management Act, after several years of court action by the community which laid criminal charges against the mine and its directors.
"Strategies and action plans must be put in place to establish where improvements can be made to ensure compliance with environmental legislation across the organisation. This would apply to all statutory regulations and requirements in which the directors may be exposed, most common in the mining scope. This is further emphasised in the King Report II which places specific focus on joined sustainability reporting and the importance of integrating safety, health and environmental issues into the policies and procedures of the company and would need to be dealt with definitively at a board level," explains Michele.
Responsibility for environmental damage encompasses many elements, including liability for clean-up and restoration, compensation and criminal damages. These responsibilities are contained within the ambit of various environmental and criminal laws and in most instances the pollute would be liable for both remediation and financial compensation. The reality is that liability for damages exists even if the responsible party observed the required principles of caution and care.
Businesses operating in today's environment are facing ever increasing requirements for better transparency, disclosure, accountability and governance, therefore bringing about increased responsibilities to directors and officers for maintaining compliance with many enactments, corporate codes and best practices.
The latest judgement provides clear warning that companies and directors have a specific obligation to be aware of the environmental impact of their operations and to take the necessary steps to prevent environmental damage. In such an environment, the significance of having appropriate directors & officers (D&O) liability insurance in the face of a growing litigious environment cannot be over emphasised.
"Whilst having D&O cover in place, companies and directors need to aware of what exactly their policy may and may not cover. Terms and conditions may vary from one insurer to another, for example one liability policy may not necessarily extend to cover any awards or clean-up costs, however it may provide defence costs. Liability for compensation will most likely need to be supplemented by additional environmental liability insurance.
"Other factors to consider under the D&O policy could include extensive press coverage of directors' faults, including alleged irregularities in which the policy may provide cover for professional public relations and crisis communications expenses. D&O cover has become an absolute necessity for the protection of the personal interests of directors, officers and other employees charged with supervisory and managerial responsibilities and who can be held liable for wrongful acts which may occur in their day-to-day management activities," adds Michele.
Communities and regulators are pushing harder that mines in particular have more at stake when it comes to environmental legislation. There is growing pressure for greater accountability not only for the corporate, but for every single office bearer with decision making capacity that has any bearing on the potential for environmental damage. In terms of managing risk, all companies are subject to the costs and liabilities of environmental exposures, even those that are not directly involved with hazardous materials or activities. Risk managers in virtually every industry must proactively analyse environmental risk issues to determine vulnerabilities.
"Corporates should focus on prevention through risk assessment of vulnerable processes, and effective risk mitigation through education and checks and balances, detection through internal reporting and forensic auditing, and early response before problems metastasize.
"Aon provides clients with specialised expertise needed to understand their environmental exposure and its consequences, including how it impacts financial objectives as well as corporate governance,
sustainability, and regulatory concerns drawing upon experience in environmental law, environmental remediation and environmental risk management," concludes Michele.
