Centre for Environmental Rights – Advancing Environmental Rights in South Africa

Cape Town. New research by a non-profit environmental rights organisation reveals that many prominent South African companies not only frequently fail to comply with environmental laws, but also often fail to disclose to shareholders those non-compliances, and the risks that they pose to the company.

Blue chip companies PPC, Sappi, ArcelorMittal South Africa, Lonmin, African Rainbow Minerals, Exxaro and Sasol count among the 20 JSE listed entities whose environmental compliance and disclosure were assessed by the Centre for Environmental Rights (CER), an environmental rights law clinic that helps communities defend their right to a healthy environment.

Between 2008 and 2014, authorities have found many of the 20 companies in the CER’s study to be in violation of their permits and licences, or regularly to have violated environmental laws. Typical breaches include toxic spills, unauthorised disposal of hazardous waste, contamination of soil, ground and surface water, and air pollution. Yet many of these violations are not reported to shareholders.

Tracey Davies, head of the CER’s Corporate Accountability & Transparency Programme, says: “All companies in our study have regularly been listed on the JSE’s Socially Responsible Investment (SRI) Index. Many promote their JSE SRI status, and actively lay claim to good governance and full compliance with environmental laws in shareholder reports”.

“But we have found that some of the ‘best performers’ on the JSE SRI Index also feature repeatedly in the list of companies facing enforcement action by, amongst others, the Department of Environmental Affairs as reported in its annual National Environmental Compliance and Enforcement Reports. To make matters worse, in all but a few cases, firms understate, or neglect to report, significant breaches of South Africa’s environmental laws in reports to shareholders, notwithstanding the dire impacts on human health and the environment, and the potentially significant current and future liabilities represented by these impacts,” says Davies.

Adherence to governance and sustainability guidelines such as the King Codes and the Global Reporting Initiative Guidelines relies on companies’ own assessments of their performance. Inclusion on the SRI Index is also determined on the basis of information provided by the participating companies, without robust independent verification. This seems to have opened the door to serious breaches of environmental legislation being under-reported or omitted in the corporate information provided to investors and other stakeholders.

“No-one would expect all of these large industrial concerns to have a perfect compliance track record. But when violations occur, they must be taken seriously; shareholders and the public must be told about the violations and what the actual or likely consequences of the violations are; and finally, what the company is doing to come into compliance as quickly as possible,” says Davies. “These violations of environmental laws negatively impact the environment and the lives of South Africans each day, but also pose significant risk to the relevant companies’ business. Consequences of environmental violations may include plant shut-downs, the requirement for significant unplanned capital expenditure, and criminal fines.”

“Our study presents publicly available information from multiple sources in a single report that will equip all stakeholders – particularly asset managers and institutional investors – with one source of credible information so that they can start asking the right questions. At present, major shareholders fail to recognise red flags in corporate reporting and are not asking enough questions about environmental risks and impacts. South Africa’s asset managers, many of whom have adopted the Code for Responsible Investing in SA, have a responsibility to go beyond lip service in the integration of environmental, social and governance criteria into their investment decisions. Shareholders can help stem the damage by insisting on better corporate governance and greater disclosure of environmental violations,” Davies says.

Entitled “Full Disclosure: the truth about corporate environmental compliance in South Africa” the CER’s survey is a baseline report and future updates will include additional criteria and firms. The 2015 report assessed the period 2008 to 2014 and reviewed information published by authorities and reported to Parliament, environmental non-compliance reported by affected communities, NGOs and in the media, and the companies’ own disclosure in their annual reports, for the following companies over that period:

1. AECI
2. African Rainbow Minerals
3. Anglo American
4. Anglo American Platinum
5. Anglo Gold Ashanti
6. ArcelorMittal South Africa
7. DRDGold
8. Exxaro
9. Goldfields
10. Harmony Gold
11. Illovo
12. Impala Platinum Mining
13. Lonmin
14. Merafe
15. Mondi
16. Nampak
17. PPC
18. Sappi
19. Sasol
20. Tongaat Hulett

“Each company assessed was given a month in which to respond to our findings before we published our report. Only three failed to do so: Exxaro, Merafe Resources and Harmony Gold. African Rainbow Minerals challenged the CER’s authority to conduct the baseline assessment. Other responses contained descriptions of investments in mitigation of impacts, and declarations of commitment to environmental protection. ArcelorMittal disputed all findings by the Green Scorpions of unlawful activities at its operations, stating that such findings are “based on the relevant government departments’ own interpretations and opinions of the relevant legislation … never confirmed by an independent third party as part of subsequent legal proceedings.” This despite the fact that ArcelorMittal did not actually dispute the vast majority of those findings at the time that they were made. On the positive side, we were impressed by the responses from Mondi, Illovo Sugar and Tongaat Hulett,” Davies concludes.

The full report – and the CER’s correspondence with each of the companies – is available here: Full Disclosure.