Company directors in Kenya, Nigeria and South Africa who fail to account for nature-related risks such as biodiversity loss, water scarcity and land degradation could soon be penalised for breaching fiduciary duties.
The warning is contained in a report titled Directors’ Duties and Nature-Related Risk in Africa, published by the Commonwealth Climate and Law Initiative (CCLI), FSD Africa and the African Natural Capital Alliance (ANCA).
The study argues that environmental risks are no longer merely corporate social responsibility or environmental, social and governance (ESG) issues, but material business risks that boards are legally obligated to consider when making strategic decisions.
For Kenya, the report carries particular significance.
It concludes that under the Companies Act, 2015, directors who fail to adequately identify and manage foreseeable and financially material nature-related risks could be held liable for breaching their duty of care and their obligation to promote the long-term success of the company.
The findings come as businesses worldwide face growing pressure from investors, regulators and financial markets to disclose how nature loss could affect their operations, profitability and long-term resilience.
According to the report, an estimated 62 per cent of Africa’s gross domestic product is moderately or highly dependent on nature, leaving businesses particularly exposed to disruptions.
The financial implications are substantial.
A 2024 nature stress test covering banking sectors in Morocco, Rwanda, Zambia, Ghana and Mauritius found that cumulative expected credit losses could increase by as much as 21 per cent by 2050 if governments and businesses fail to adopt nature-positive practices.
Although Kenya was not part of that stress test, its economy shares similar characteristics.
Agriculture, tourism, manufacturing, water-intensive industries and renewable energy all depend heavily on healthy ecosystems, making businesses increasingly vulnerable to environmental degradation.
The report also notes that the legal landscape is evolving rapidly.
James Mwangi, Group CEO of Equity Group Holdings and a member of ANCA’s Governing Council, said Africa’s natural wealth has always been the foundation of its economies but is now under unprecedented pressure.
He said every company director must now ask whether their organisation is being governed in a way that recognises the growing financial importance of nature-related risks.
Legal experts say many Kenyan boards still approach environmental issues too narrowly.
Sammy Ndolo, director at CDH Kenya, said many directors remain focused on environmental impact assessments and regulatory approvals without appreciating that the Companies Act requires them to consider how business activities affect communities and the environment more broadly.
He noted that Kenya’s environmental laws define the environment broadly to include biodiversity and ecosystems, meaning nature-related risks fall squarely within directors’ governance responsibilities.
He added that the judiciary is increasingly willing to scrutinise environmental approvals and directors could eventually face personal liability where they fail to exercise adequate diligence.
Rather than viewing nature solely as a compliance obligation, the report argues boards should see it as a strategic opportunity.
The broader shift reflects a growing consensus among investors and global financial institutions that biodiversity loss presents risks comparable to climate change.
The World Economic Forum has identified nature-related risks as among the most significant threats facing businesses over the coming decade.
While the TNFD framework is helping companies integrate nature into governance, risk management and financial reporting.
The report calls on directors to treat nature-related risks as a core governance issue rather than an ESG add-on urge investors to incorporate nature into lending and investment decisions.
