ESG And The Risk Of Lender Liability For Environmental Harm

Historically, lenders have been mainly concerned with the borrower's ability to service its debt and the indirect environmental risks, relating to existing liabilities and non-compliance of the borrower. However, recent developments in environmental law and finance have seen a growing emphasis on the potential liability of a lender for environmental harm caused by the borrower. The rise of ESG makes it essential for lenders to be aware of lender liability in the context of environmental law.

The concept of "lender liability", namely, the idea that a lender is held liable for the actions or conduct of a borrower that results in environmental harm, currently exists only as a theoretical possibility in South African environmental law. While there is no specific provision for lender liability in South African environmental law, section 28 of the National Environmental Management Act, 1998 ("NEMA") provides for a wide statutory duty of care in respect of the environment.