South Africa: King V Code Data Centre Inquiry Implications for Board Duties

• The Human Rights Commission is investigating the human rights implications of data centre expansion in South Africa, focusing on environmental and social impacts.
• A 170MW data centre approval in Cape Town is under appeal, with appellants alleging the Municipal Planning Tribunal made its decision without sufficient information.
• The King V Code, effective from January 2026, mandates that boards oversee targets for human rights, environmental stewardship, and community development, extending accountability beyond just operators.
• Section 76(3)(c) of the Companies Act requires directors to act with care and diligence, with courts often using codes like King V as a benchmark for this standard.
• Civil society organizations have largely set the terms of the HRC inquiry, highlighting the need for enhanced due diligence on outsourced technology risks and community engagement.

These legal and regulatory mechanisms collectively underscore the increasing pressure on all entities within the data centre ecosystem to demonstrate robust ESG compliance and transparent engagement with affected communities, thereby testing the comprehensive implications of the King V Code data centre inquiry.

The burgeoning expansion of data centres in South Africa is currently under intense scrutiny, with significant implications for corporate governance and environmental, social, and governance (ESG) compliance. A key development is the ongoing Human Rights Commission (HRC) inquiry into the human rights impacts of this growth, alongside a critical appeal against a 170MW data centre approval in Cape Town. These events challenge the prevailing boardroom perception that only data centre operators bear the full burden of accountability, suggesting that entities merely leasing capacity may also have significant duties.

This re-evaluation of responsibilities is not driven by environmental politics alone but by existing corporate governance frameworks. The appeal in Cape Town, concerning a 170MW facility at King Air Industria, highlights procedural concerns, with appellants from the Housing Assembly and Foxglove, represented by the Legal Resources Centre, arguing that the Municipal Planning Tribunal approved the project in July without adequate information. Their appeal, lodged in August, has effectively suspended the approval, further complicated by the fact that the hearing itself was closed to the appellants, the public, and the press.

At the heart of this evolving accountability is the King V Code, which became effective for financial years commencing on or after January 1, 2026, following its publication in late October 2025. This code, which streamlines King IV's 17 principles down to 13, represents the first reporting cycle for most organizations under its guidance. While King V operates on an 'apply-and-explain' basis, allowing practices to be scaled according to an organization's size and expected impact, its recommended practices are more specific than many directors realize.

Crucially, the Companies Act, specifically Section 76(3)(c), mandates that directors exercise the care and diligence reasonably expected of their roles. Courts frequently refer to prevailing codes like King V as the benchmark for assessing this standard. The HRC's inquiry themes—electricity demand, water use, environmental impact, e-waste, community consultation, and accountability—directly align with King V's principles. For instance, Principle Two requires governing bodies to oversee targets related to community development, human rights, climate and energy resilience, water stewardship, and waste. Principle Ten mandates responsible disposal of obsolete technology, while Principle Thirteen calls for identifying stakeholders affected by indirect consequences. These provisions demonstrate that the HRC has not introduced new standards but is rather testing adherence to existing ones.

Furthermore, Principle Ten also addresses the management of risks associated with outsourced technologies, requiring minimum assurance from providers regarding significant risks. While this traditionally covers aspects like availability, security, and continuity, interpreting it to encompass environmental conduct is a significant, albeit necessary, extension. The principle of proportionality suggests that a tenant, while not a developer, still bears a duty to understand what they are acquiring, scaled to the nature and extent of their acquisition.

The Human Rights Commission initiated its inquiry by inviting written submissions in May, under Section 184 of the Constitution, to explore the human rights implications of data centre expansion. Submissions closed on July 30, with notable contributions from the Association for Computing Machinery and the African Centre for Biodiversity. The Climate Justice Coalition followed in August, advocating for a halt to new developments. The absence of reported submissions from major corporations has meant that civil society organizations have largely shaped the terms of the debate. The HRC has not published any further information since the submission period concluded.

Beyond the HRC inquiry, the National Environmental Management Act (NEMA) provides a statutory framework for environmental authorization, requiring public participation for listed activities. The case of Africa Data Centres, which sought retrospective rectification under Section 24G for its Midrand campus after expansion exceeded listing thresholds, illustrates the practical application and challenges of NEMA compliance. These legal and regulatory mechanisms collectively underscore the increasing pressure on all entities within the data centre ecosystem to demonstrate robust ESG compliance and transparent engagement with affected communities, thereby testing the comprehensive implications of the King V Code data centre inquiry.

Lawyers and compliance officers must advise boards leasing data centre capacity that they are not exempt from environmental and social governance (ESG) duties under the King V Code. The Human Rights Commission inquiry and the Cape Town appeal are actively testing these obligations, requiring enhanced due diligence on outsourced technology risks, environmental impact, and community engagement, even for non-operating entities.

Source: Original reporting based on analysis by AIforBusiness.net.