- Four of ten new companies assessed in Full Disclosure 2016 have failed to adequately disclose findings of serious environmental violations in their annual reports
- A third of companies assessed in Full Disclosure 2015 have improved reporting and disclosure on environmental compliance in their annual reports
- CER proposals on environmental compliance reporting adopted in King IV Report on Corporate Governance™
The Centre for Environmental Rights’ latest Full Disclosure report provides further evidence that some listed South African companies are committing serious violations of environmental laws, and are failing to disclose this adequately to shareholders. Full Disclosure 2016 includes:
- new assessments of 10 listed South African companies with significant environmental impacts over the period 2011-2016; and
- updated information on the 20 listed companies assessed in 2015.
Four of ten new companies assessed in Full Disclosure 2016 have failed to adequately disclose findings of serious environmental violations in their annual reports
The Full Disclosure series of reports provides a baseline assessment of disclosures of environmental violations by listed South African companies with significant environmental impacts. Full Disclosure 2015 showed that many companies which have been hailed as shining examples for their approach to managing environmental, social and governance factors have in fact committed serious violations of environmental laws, and in many cases have failed to disclose those violations to their shareholders.
The 10 newly assessed companies which, unlike the companies assessed in Full Disclosure 2015, have not necessarily been included on the JSE’s SRI Index or its successor, the FTSE/JSE Responsible Investment Index, are:
- Coal of Africa Limited (CoAL)
- Glencore plc
- Kumba Iron Ore Limited
- Northam Platinum Limited
- Omnia Holdings Limited
- Royal Bafokeng Platinum Limited
- Sentula Mining Limited
- Sibanye Gold Limited
- South32 Limited
- Wescoal Holdings Limited
During the assessment period, Glencore, South32, Kumba Iron Ore and CoAL have either failed to disclose serious violations of environmental laws in their annual reports, or referred to them using vague or misleading language.
As with Full Disclosure 2015, each newly assessed company was provided with the findings of this report in advance of publication, and asked to respond. Northam Platinum, Omnia Holdings, Royal Bafokeng Platinum and Sibanye Gold provided considered and helpful responses to our findings and questions. Kumba Iron Ore did not respond.
A third of companies assessed for Full Disclosure 2015 have improved reporting and disclosure on environmental compliance in their annual reports
Encouragingly, the report finds that a significant proportion of the companies first assessed in Full Disclosure 2015 have markedly improved their environmental compliance reporting in their recent annual reports. Of the 20 companies assessed in Full Disclosure 2015, the CER flagged 16 for poor disclosure of environmental violations. Of those 16 companies, 6 (AECI, DRDGOLD, Implats, PPC, Sappi and Sasol) have provided much more detailed information in their company reports for 2015, and 2016 where applicable, on environmental legal compliance. This includes information about regulatory inspections, non-compliance findings and enforcement action taken against them by authorities.
The companies assessed in Full Disclosure 2015, and updated in the new report, are:
- AECI Limited
- African Rainbow Minerals Limited
- ArcelorMittal South Africa Limited
- Anglo American Platinum Limited
- Anglo American plc
- AngloGold Ashanti Limited
- DRDGOLD Limited
- Exxaro Resources Limited
- Gold Fields Limited
- Harmony Gold Mining Company Limited
- Illovo Sugar Limited
- Impala Platinum Holdings Limited
- Lonmin plc
- Merafe Resources Limited
- Mondi Group
- Nampak Limited
- Pretoria Portland Cement Company Limited
- Sappi Limited
- Sasol Limited
- Tongaat Hulett Limited
Lack of standard reporting requirements for environmental compliance hinders sustainable & responsible investment
The Full Disclosure findings demonstrate that the lack of standard reporting requirements for environmental compliance by companies is an enormous impediment to the integration of environmental, social and governance (ESG) factors into investment decisions, and therefore an impediment to sustainable and responsible investment.
A company’s track record of compliance with environmental laws is one of the most important indicators of the environmental risk posed by that company’s operations. In South Africa, however, each company is free to report to current and prospective investors on its environmental compliance in any way it sees fit. This makes it extremely difficult to assess the environmental risks posed by a particular operation, or to compare companies’ environmental compliance, and as a result these issues are often ignored. This reinforces the perception held by many South African companies that investors do not pay attention to environmental reporting. The plethora of integrated and sustainable reporting frameworks and guidelines used by companies in their reporting appears, despite good intentions, to have made this problem worse.
South African listed companies still base their decisions about environmental compliance disclosures predominantly on assessments of the potential financial implications for the company and its investors, i.e. on whether a particular violation has resulted, or will result, in significant financial cost to the company. There are three major problems with this approach.
Firstly, environmental non-compliance does not always result in immediate financial outlay. Secondly, it is often extremely difficult to quantify environmental harm in monetary terms, or to quantify the cost to investors of a public criminal prosecution of a company or its directors. And thirdly, the South African environmental regulatory regime does not yet use a system of administrative penalties which enables the regulator to impose fines on companies for violations of environmental laws. Violations are dealt with by way of compliance notices and directives, and as a last resort, criminal prosecution, which has relatively small maximum fines available. Until this system is changed, South African authorities will not be able to impose a financial penalty for environmental violations that will be regarded as significant by investors, regardless of the extent of the damage or the seriousness of the violation.
CER proposals on environmental reporting adopted in King IV Report on Corporate Governance™
The CER therefore welcomes the inclusion in the recently launched King IV Report on Corporate Governance™ of the following requirement under Principle 13, “Compliance governance”:
Details of monitoring and compliance inspections by environmental regulators, findings of non-compliance with environmental laws, or criminal sanctions and prosecutions for such non-compliance should be disclosed.
As is apparent, this new requirement has no monetary threshold for reporting. The CER proposed this requirement in the comments that we submitted on the draft King IV™ Report. This change represents a significant step towards improving environmental compliance reporting in South Africa, and will provide stakeholders with a much more useful body of information with which to assess and compare environmental risks.
Globally, there is recognition that financial information alone is not adequate to support a holistic assessment of a company’s risk profile or its commitment to sustainable long-term growth. It is now time for South African investors to start taking seriously the impact that industry in this country has on our biodiversity, water resources, air quality and protected areas, and on our ability to reduce global warming and mitigate the impacts of climate change. Comprehensive and detailed disclosure on compliance with environmental laws is a prerequisite for assessing this impact.
Tracey Davies, head of the Centre for Environmental Rights’ Corporate Accountability & Transparency Programme, introduces Full Disclosure 2016
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- AECI LimitedUpdated
- African Rainbow Minerals LimitedUpdated
- Anglo American Platinum LimitedUpdated
- Anglo American plcUpdated
- AngloGold Ashanti LimitedUpdated
- ArcelorMittal South Africa LimitedUpdated
- Coal of Africa LimitedNew
- DRDGOLD LimitedUpdated
- Exxaro Resources LimitedUpdated
- Glencore plcNew
- Gold Fields LimitedUpdated
- Harmony Gold Mining Company LimitedUpdated
- Illovo Sugar LimitedUpdated
- Impala Platinum Holdings LimitedUpdated
- Kumba Iron Ore LimitedNew
- Lonmin plcUpdated
- Merafe Resources LimitedUpdated
- Mondi GroupUpdated
- Nampak LimitedUpdated
- Northam Platinum LimitedNew
- Omnia Holdings LimitedNew
- Pretoria Portland Cement Company LimitedUpdated
- Royal Bafokeng Platinum LimitedNew
- Sappi LimitedUpdated
- Sasol LimitedUpdated
- Sentula Mining LimitedNew
- Sibanye Gold LimitedNew
- South32 LimitedNew
- Tongaat Hulett LimitedUpdated
- Wescoal Holdings LimitedNew