Full Disclosure 2016

Summary of findings and company response - 2015

ARM describes its Environmental Policy as follows:

Environmental responsibility is a core part of our commitment to zero harm and to upholding the principles of responsible mining as members of the ICMM. Our ethical approach to environmental considerations reduces the risk of negative impacts on our host communities. It also builds trust in our relationships with Government, labour and Non-Governmental Organisations (NGOs) which are crucial in maintaining our social licence to operate.¹

The findings in Full Disclosure, as well as ARM’s response to those findings in 2015, cast doubt on the claims made in the company’s environmental policy.

In 2015 ARM failed to respond to questions about the extremely concerning number of applications made by the company for ex post facto authorisation of illegally commenced activities. Over a four year period, ARM paid fines for commencing listed activities without environmental authorisation on at least 7 occasions. The purpose of environmental authorisation, and the environmental impact assessments which it requires, is to ensure that impacts are assessed, avoided or mitigated, before the activities are undertaken. Authorisation also sets conditions around how an activity must be undertaken, and contraventions of those conditions are criminal offences. Commencing with a listed activity without environmental authorisation is also a criminal offence.

The multiple instances in which ARM has failed to apply for environmental authorisation before commencing with listed activities indicate a serious disregard for South Africa’s environmental laws.

Full Disclosure 2015 revealed that ARM inadequately disclosed information about environmental non-compliances to its shareholders. In response, Mike Schmidt, ARM’s CEO, responded to our findings as follows:

We [ARM] can only assume that the CER’s intention behind its generation of the baseline assessment … is in order to inform the public in relation to the content of the sources reviewed and to offer the CER’s view on performance considerations. We make this point because, as we understand it, the CER’s intention is not to substitute itself for the Department of Environment Affairs Environmental Management Inspectorate (“EMI”). As you are aware it is the EMI that has primary responsibility to determine matters of performance …management is a dynamic process and it is very difficult to make a definitive statement on environmental performance based on mere observation and reporting that may have been generated some time in the past.

The argument that civil society must not “substitute itself” for the State in relation to environmental protection has been thoroughly debunked by South Africa’s courts. The Constitutional Court has clearly stated that the participation of public interest groups is vital for the protection of the environment.² The Gauteng High Court has stated that civil society organisations and “like-minded individuals must be encouraged to exercise a watch-dog role in the preservation and rehabilitation of our environment”.³

In response to a similar accusation by ArcelorMittal South Africa against the Vaal Environmental Justice Alliance (VEJA), the Supreme Court of Appeal held that:

…it is difficult to understand [ArcelorMittal’s] accusation that VEJA is setting itself up as an alternative regulatory authority. It calls into question [ArcelorMittal’s] stated commitment to collaborative corporate governance in relation to the environment.⁴

Similarly, Mr Schmidt’s comments in this regard call into question the company’s claim that it’s “ethical approach to environmental considerations … builds trust in our relationships with Government, labour and Non-Governmental Organisations (NGOs) which are crucial in maintaining our social licence to operate”.

Mr Schmidt also stated in his response that:

…if the report is simply taken at face value and in isolation from the interactions and correspondence that may have surrounded the compilation of the report, then there is the danger that the information relied upon may be incorrect or incorrectly interpreted.

It is self-evident that, if the information that is publicly available is incorrect or may be incorrectly interpreted, the onus is on the company to make sure that sufficient further information is publicly available to correct any such inaccuracies.

Mr Schmidt stated that in relation to ARM’s Assmang Cato Ridge facility, the findings by Environmental Management Inspectors “do not, in and of themselves, reveal environmental non-performance”.

Firstly, it is important to note that Full Disclosure does not deal with environmental “non-performance”. Environmental performance is an internal benchmark managed differently by each company. Full Disclosure is an assessment of environmental non-compliance, i.e. non-compliance with the law. The findings of the Environmental Management Inspectors at Assmang Cato Ridge included “significant uncontrolled dust emissons, containing heavy metal manganese”, “serious non-compliance with a hazardous waste site permit”, and “at least one unpermitted waste site”. It is self-evident that these findings are findings of legal non-compliance.

Mr Schmidt questioned the CER’s authority to make “definitive statements” based on the review of source documentation and he asked us to:

bear in mind that when the EMI is dealing with compliance issues, its practice is to engage with the entity that has committed the alleged non-compliance. This interaction permits the EMI to develop a nuanced understanding of a situation. Such nuances are difficult to express and, therefore, usually absent from reporting on the alleged non-compliance.

On this basis Mr Schmidt submitted that “…there are a number of issues raised in the CER’s letter that are simply incorrect.”

This approach reflects both the serious problems with the Department of Environmental Affairs’ approach to compliance monitoring and enforcement (for more information please see Enforcing the Law: the challenges undermining environmental compliance monitoring and enforcement in South Africa), as well as the common and very problematic attitude amongst much of South Africa’s private sector that compliance with environmental laws is “nuanced” and a “process”, rather than a state in which all applicable environmental legal requirements are in fact fulfilled. Environmental performance, such as reduction of water use, energy efficiency, etc. may be a process, monitored and managed by each company individually. Environmental compliance, on the other hand, is a pre-requisite for lawful conduct of operations.

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.

Mr Schmidt raised in his letter that:

…much of mining’s environmental impact dates from a time when the actions which caused the impact were perfectly legal and continued to be so for many decades.

He suggested that, were the CER “…to take note of the history of South Africa’s mining industry in its work” this would “bring greater subtlety to how the CER deals with mining’s impact …”

None of the non-compliance issues identified in Full Disclosure 2015, in relation to ARM, were “legacy” issues. They were all non-compliances with current environmental laws applicable and relevant to ARM’s operations over the period 2008 – 2014.

Finally, Mr Schmidt referred to Full Disclosure 2015’s reporting of community, NGO and media references to environmental problems associated with ARM. He stated that information from these sources is “at best, anecdotal and possibly hearsay and we question the value of such information in the manner it has been used by the CER”.

The Department of Mineral Resources and the Department of Water and Sanitation are responsible for compliance monitoring and enforcement of environmental and water laws by mining companies. Thus far, unlike the Department of Environmental Affairs, neither department has published any information on its compliance monitoring and enforcement action. Both Departments however, in answers to Parliamentary Questions, insist that many inspections take place, many directives and compliance notices are issued, and many criminal prosecutions are instituted.

ARM did not refer to any Department of Mineral Resources or Department of Water Affairs compliance inspections and findings at its operations in its shareholder reporting. The fact that the Departments charged with regulating the mining sector do not publicise non-compliance findings or enforcement action means that it is impossible to know whether or not the level of disclosure on environmental non-compliances by mining companies in their annual reports is accurate or complete.