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Full Disclosure

The Truth about Corporate Environmental Compliance in South Africa

Centre for Environmental Rights - Advancing Environmental Rights in South Africa

Executive Summary

The Centre for Environmental Rights (CER) has conducted a baseline assessment of 20 listed South African companies with significant environmental impacts that have regularly appeared on the JSE’s Socially Responsible Investment Index (SRI Index). The purpose of the assessment was to ascertain the extent of compliance by these companies with environmental laws, as well as the extent to which non-compliance with environmental laws was disclosed by these companies to their shareholders, between 2008 and 2014.

…many companies which have regularly been hailed as shining examples for their approach to managing environmental, social and governance factors have in fact committed serious breaches of environmental laws…

Our findings are that many companies which have regularly been hailed as shining examples for their approach to managing environmental, social and governance factors have in fact committed serious breaches of environmental laws during the assessment period. In many cases, the information provided by these companies to their shareholders about their environmental impacts and non-compliances is either misleading, or so minimal as to make it impossible to verify claimed commitments to sound environmental management.

Significant conclusions drawn from the findings of Full Disclosure include the following:

  1. Most assessed companies are not accurately disclosing the extent of their non-compliance with environmental laws to their shareholders.
  2. Some assessed companies are actively misrepresenting their levels of compliance with environmental laws to their shareholders.
  3. The manner in which listed South African companies are rated as good targets for “socially responsible investment” is wholly inadequate.
  4. Investors, in particular South Africa’s large institutional investors, are failing to recognise red flags in company reports and are not asking nearly enough, or the right, questions about the environmental compliance of the companies that they invest in.
  5. South Africa’s environmental compliance monitoring and enforcement system is not effective enough, due, inter alia to:
    • Authorisations that are difficult to monitor, and compliance inspections that take too long to finalise;
    • The fact that our enforcement regime does not allow regulators immediately and predictably to impose monetary penalties which accurately reflect the cost of environmental violations to society;
    • The culture of “engagement” between companies and regulators, and the widespread view in the private sector that compliance with environmental laws is a matter of “negotiation” with authorities, and a “process” to be completed at an indeterminate future date;
    • The ever-shrinking budget allocated to environmental compliance monitoring and enforcement activities;
    • The availability and active encouragement by regulators of a procedure for “ex post facto” authorisation of illegally commenced activities;
    • A general lack of respect by the private sector for the skills and expertise of environmental regulators;
    • The private sector position – often accepted by government – that transparency is “dangerous” because the release of information about environmental non-compliances and enforcement activities threatens the commercial interests of a company; and
    • The fact, for historical and political reasons, that environmental compliance by the mining sector is monitored and enforced by the Department of Mineral Resources, rather than the Department of Environmental Affairs.

All of the information used to conduct the assessment is publically available. The timeframe assessed is 2008 to 2014. We studied, where applicable, the Department of Environmental Affairs’ National Environmental Compliance and Enforcement Reports (NECERs), published annually, the annual, integrated and sustainable development reports of the companies assessed, as well as various other sources of publicly available information such as statements to Parliament, media reports, academic studies and civil society reports.

We provided each company in the assessment with a month to respond to our findings, and 17 of the 20 companies assessed responded. Of these, Anglo American, AngloGold Ashanti, Gold Fields, Illovo, Mondi, Tongaat Hulett, Illovo, Sappi and Sasol provided detailed responses. African Rainbow Minerals challenged the CER’s authority to conduct the baseline assessment. Exxaro, Merafe Resources and Harmony Gold did not respond.

South Africa would be much closer to achieving its oft-espoused commitment to “sustainable development” if it was shareholders, particularly our large institutional investors, and not civil society, that were asking these questions in the first place.

For the most part, the responses emphasised the companies’ commitment to improved environmental performance, and set out information about the steps taken and capital expenditure incurred to improve environmental performance and compliance. In some instances, much more detailed information was provided about the nature and impact of non-compliances identified in Full Disclosure. If this kind of information can be provided in response to a request from the CER, it is unclear why such information is not provided to shareholders in the first place. South Africa would be much closer to achieving its oft-espoused commitment to “sustainable development” if it was shareholders, particularly our large institutional investors, and not civil society, that were asking these questions in the first place.

In many instances, in the assessed company’s responses, the concept of “environmental performance” was used interchangeably with, or substituted for, “environmental compliance”. Improved environmental performance, such as achieving a reduction of water use or greater energy efficiency, can be a process, monitored and managed by each company individually. Environmental compliance, however, is a state in which all applicable environmental legal requirements are in fact fulfilled – not a state of “working towards” being fulfilled within an undefined future period.

Whilst improving environmental performance is a laudable aspiration for the future, complying with the law is, by definition, obligatory, not just in the future, but at all times. An investor may be forgiven for assuming, in the absence of information provided to the contrary, that such compliance may be taken as read, and that improving environmental performance happens over and above baseline legal compliance. The failure to distinguish between the two, coupled with the attitude espoused by many of the assessed companies that environmental compliance is a matter of “negotiation” between a company and the regulator, is a fundamental problem with corporate environmental management in South Africa.

Another view expressed by a worrying number of respondents is that findings of non-compliance constitute an “opinion” or “interpretation” of the EMIs, which must be “independently verified”. No regulatory system in the world requires regulatory findings to be independently verified to be valid and enforceable, and that is not the legal position under South African environmental law. Yet companies use this – essentially a disregard for the technical expertise of EMIs and of compliance monitoring and enforcement officials in the DMR and DWS – to defend their unwillingness to accept violations and to embroil regulators in endless delays by challenging every finding of non-compliance.

Consequences of environmental violations may include plant shut-downs, the requirement for significant unplanned capital expenditure, and criminal fines.

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 importantly, about what the company is doing to come into compliance as quickly as possible. These violations of environmental laws negatively impact the environment and the lives of South Africans each day, but also pose significant risks to the relevant companies’ business. Consequences of environmental violations may include plant shut-downs, the requirement for significant unplanned capital expenditure, and criminal fines.

South Africa’s asset managers, many of whom have adopted the Code for Responsible Investing in South Africa, 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, and contribute to a more sustainable private sector, by insisting on better corporate governance and greater disclosure of environmental violations.

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