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Listed companies lax over environmental laws – report

Little enforcement amid chronic breaches.

JOHANNESBURG – Large industrial businesses use South Africa’s unemployment crisis as a way to manipulate government when it comes to non-compliance with environmental laws, according to the Centre for Environmental Rights (CER).

“Job creation is not mutually exclusive with environmental compliance. As soon as compliance issues arise, businesses scream poverty and claim they will have to retrench people if they are forced to comply. The mining sector does that all the time,” says Tracey Davies, head of corporate accountability and transparency at the CER.

“While nobody is denying the benefits that these industries bring to the country, this does not mean that they should as a result be let off the hook,” she adds, arguing that the cost of compliance with environmental legislation is not extreme in the context of company profits.

In a first-of-its-kind report investigating the degree to which 20 listed companies complied with environmental legislation between 2008 and 2014, the CER finds chronic breaches by the likes of Sasol, ArcelorMittal and African Rainbow Minerals (ARM).

Other companies included in the research conducted by the Cape Town-based law clinic are AECI, Anglo American, Anglo American Platinum, Anglo Gold Ashanti, DRDGold, Exxaro, Goldfields, Harmony Gold, Illovo, Impala Platinum Mining, Lonmin, Merafe, Mondi, Nampak, PPC, Sappi and Tongaat Hulett.

Breaches of environmental laws by these firms are not merely administrative oversights. “We’re talking about toxic spillages into freshwater systems, sewerage spillages, general ground water pollutions and ongoing serious air pollutions exceeding regulations,” Davies tells Moneyweb.

“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,” she argues.

This seldom happens, according to Davies, who says that compliance with environmental laws is simply not a priority for companies since it is poorly monitored and enforced in South Africa, and shareholders don’t care.

“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 impact on human health and the environment,” says Davies.

ArcelorMittal questions regulator’s authority

“We run our plants in full compliance with all regulations and codes,” maintained David Constable, CEO of Sasol, in an interview with Moneyweb on Monday. Constable said that where there is “a leak or equipment failure”, it is immediately addressed by either shutting down or containing the affected part of the facility.

“Of course we are in close contact with all government authorities and make them aware of it as we do to our shareholders through annual reports,” Constable said.

Earlier this year – after instituting legal action against the Minister of Environmental Affairs, which it later withdrew – Sasol was granted postponements for compliance with a number of air quality standards, known as “minimum emission standards”. These were first published in 2010 and came into effect earlier this year.

“What this means is that Sasol can continue, for at least another five years, and in some cases for at least another ten years, to emit highly toxic pollutants in quantities far in excess of globally recognised acceptable levels, and, since 1 April, in quantities far in excess of the requirements of South African air quality legislation,” says the CER.

The CER report also found that criminal investigations in respect of non-compliance were initiated against ArcelorMittal’s Vanderbijlpark and Vereeniging plants in 2012 and 2014 respectively, neither of which investigations were mentioned in the company’s annual reports.

In his response to the CER’s findings, ArcelorMittal CEO, Paul O’Flaherty states that the DEA’s findings are based on their own “interpretations and opinions of the relevant legislation, which was never confirmed by an independent third party”.

The CER, however, refutes this: “There is no environmental regulatory system in the world in terms of which a finding by an enforcement official must be confirmed by an independent third party.”

Shareholder apathy

The report flags apathy among large institutional investors, which it says are not asking enough questions about the environmental compliance of the companies they invest in. “If they [offending companies] know that no one is going to divest and take money elsewhere, where is the incentive to change?” Davies questions.

Davies proposes heftier administrative penalties upfront, as is the case in the US, rather than endless engagement with regulators that pushes enforcement action out indefinitely. “There’s this crazy idea in the private sector that compliance is a matter of negotiation,” Davies says.

On the up side, she acknowledges that for the most part, companies gave very comprehensive responses to the issues raised by the CER. Only Exxaro, Merafe Resources and Harmony Gold failed to respond entirely. 

Head of the Socially Responsible Investment (SRI) Index at the JSE, Corli le Roux, said the JSE will consider further discussions with the companies mentioned in the report, “with the aim to form a view on the role the JSE can play in alleviating stakeholder concerns on corporate transparency”.

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