ESG Global recently chatted with Siphokazi Kayana, the Head of Dispute Resolution at international law firm CMS South Africa, about the legal precedents being set in the ESG space.
She has extensive experience in dispute resolution and litigation services, with a focus on arbitration, commercial litigation and constitutional and administrative law reviews.
How do you identify and manage potential ESG risks associated with clients and their business practices?
In order to assess a client’s ESG risks, the first thing to evaluate and/or consider is the sector in which the client operates. Further factors which would need to be considered are whether clients are a JSE listed company and whether (when relevant) any of the funding agreements concluded between the client and funders require that certain ESG targets be met and the evaluation and monitoring thereof.
In instances where clients are JSE listed, such clients are obliged to report annually on how an organisation’s and/or companies’ strategy, governance, performance and prospects, in the context of its external environment, lead and/or have led to the creation of value in the short, medium and long term within South Africa.
Almost all companies are obliged to conform to certain ESG regulations such as:
- Environmental: Regulations regarding carbon tax, energy efficiency. What should also be considered is Climate Change Bill which has been passed by the National Assembly in October 2023, and is set to be promulgated by the president this year. The Climate Change Bill will result in a new and legal framework being introduced for the regulation of GHG emitting businesses and/or sectors.
- Social and Governance: From an employment perspective, companies are obliged to comply with certain legislation and regulations including, but not limited to, the National Minimum Wage Act, Basic Conditions of Employment Act, Employment Equity Act, Skills Development Act, Pension Fund Regulations, and the Public Investment Corporation Amendment Act.
From a general company perspective, companies are further required to consider and abide by legislation and regulations including, but not limited to, the Companies Act and the Broad Based Black Economic Empowerment Act.
What is the latest precedent that has been set in terms of commercial law as it relates to a) environmental b) social and c) governance for South African companies, which has changed the landscape for how companies operate in an ESG-first world?
Environmental precedents include, but are not limited to the following:
- Companies that produce large CO2 and GHG emissions will be charged higher carbon tax. In order to avoid these costs, companies will elect to pursue a more energy efficient option such as solar; and
- Companies that construct energy infrastructure to be used as part of their trade and which comply with ESG standards are afforded a deduction of the full cost, plus 25% of new renewable energy assets purchased/constructed, against their annual income in terms of the Income Tax Act.
Social and governance precedents include, but are not limited to the following:
- Companies that are a level one BBBEE contributor will enjoy certain preferential treatment when being awarded tenders; and
- Green bonds: Fixed income investments specifically designed to raise money for environmental or climate-related projects.
What new legal services do you offer to address the growing demand for ESG compliance, due diligence, and impact investing?
CMS aims for an approach that allows us to anticipate and understand the issues in the rapidly evolving ESG landscape, which in turn allows us to develop innovative solutions for and with our clients.
We advise clients from multinationals to start ups, in all sectors and areas of ESG-related law, including future mobility, climate change strategies, ESG due diligence and risk assessments, corporate digital responsibility, sustainable supply chains, evaluation and monitoring of ESG targets, whistleblowing, ESG funds, and green real estate finance.
What pro-bono work does your firm do in the NGO and social enterprises spaces, related to ESG?
Yes, CMS has done ESG pro-bono work. South African Youth Education non-profit organisation, that uses cutting-edge educational approaches to create pathways for young people from under-resourced communities to pull themselves and each other into sustainable livelihoods, in providing general commercial and funding agreement advice;
A non-profit conservation organisation, that takes on direct responsibility for the rehabilitation and long-term management of protected areas, in partnership with governments and local communities; and an NPO dedicated to ending the scourge of gender-based violence in South Africa and the world as a whole. One of CMS’ equity partners is a board member of this group.
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