Full Disclosure 2016

Summary of findings and company response

Under the heading “Environment” on its website, Glencore states:

Our operations can have direct and indirect impacts on the environment. We work to minimise our potential effect, complying with or exceeding relevant regulation. We are always looking for ways to improve our performance in minimising and mitigating any negative environmental impact from our activities, including our use of resources, such as energy and water.¹

Glencore plc is one of the world’s largest integrated producers and marketers of commodities.² Glencore operates globally through a complex structure of local subsidiaries and operating divisions.  Glencore merged with Xstrata plc in 2013.³

The NECERs show that Environmental Management Inspectors (EMIs) conducted inspections at the Wonderkop and Lion smelters in 2008 and 2011, and 2014, respectively. Both of these smelters are listed in Glencore plc’s 2015 Sustainability Report as Glencore operations in South Africa.⁴

The 2008 inspection found 38 non-compliances with environmental laws and permits at the Wonderkop smelter. A follow-up inspection in August 2011 resulted in further findings of non-compliance, including the facility’s non-compliance with the conditions of its water use licence and its atmospheric emission licence, significant air pollution and poor waste management.

An inspection at the Lion smelter in November 2014 also revealed several instances of non-compliance with environmental laws and permits, including the facility’s non-compliance with the conditions of its atmospheric emission licence, environmental authorisation, waste management licence, and water use licence, potential groundwater contamination, and poor waste management.

None of the Xstrata or Glencore annual or sustainability reports between 2011 and 2015 disclose these findings of non-compliance.

Glencore’s website only provides contact details for its Swiss offices, and one “corporate communications” contact based in the United Kingdom. The CER searched for local contact details in South Africa and was advised that Mr Gary Nagle headed the Glencore Alloys Division in South Africa, under which the Wonderkop Smelter and Lion Smelter operations fall. Mr Gary Nagle is also listed on Glencore’s website as forming part of the management team for Glencore plc.⁵

In his response to Full Disclosure, Mr Nagle states:

Your letter unfortunately contains a number of factually incorrect statements, certain of which we highlight below, and we would welcome the opportunity to discuss these with you within the context of the Glencore Plc group structure and its operations in South Africa.

Mr Nagle states further that:

As you correctly point out in 2013, Glencore Plc and Xstrata Plc, merged, with the combined assets of the merged entity now falling within Glencore Plc. The South African Alloys operating division (“Alloys Division”) forms a very small part of the wider Glencore Plc group and operates within a local subsidiary thereof, and our response must be understood within this context. This is particularly so as your letter (and annexures thereto) contains significant references to statistics and extracts from various Xstrata Plc and more recent Glencore Plc reports, and any attempt to simply attribute all the statistics to one Division being the Alloys Division, is incorrect and misleading.

Full Disclosure does not attribute Glencore plc statistics to one division. The assessment of Glencore in Full Disclosure is of the South African operations of the listed company, Glencore plc.

The only “factually incorrect statement” which Mr Nagle addresses in his response relies on information which was not in the public domain. Referring to the statement in the 2014/2015 NECER that a “criminal investigation” had been finalised in respect of the Wonderkop smelter and that a “case docket” had “been referred to the DPP North West for decision”, Mr Nagle attaches a letter from the Environmental Management Inspectorate dated 13 May 2016 which confirms that:

The contents of said NECER confused the proceedings with that of the Royal Bafokeng Operations (CAS No: Rustenberg 21/10/2014) which to some extent affects Glencore.

In light of the above, the Department wishes to formally state, at this juncture, that there is no criminal case against the Glencore-Wonderkop Smelter and the Department will ensure that this statement is corrected in the next publication of the NECER (2015/2016) which we are currently in the process of compiling.

In the 2015/2016 NECER, published in November 2016 after the CER received Mr Nagle’s response and after the publication of Full Disclosure, the DEA confirms that “the NECER 2014/15 erroneously referred to a criminal case against the Glencore-Wonderkop Smelter, instead of the criminal case against Glencore Royal Bafokeng.”⁶

However, Mr Nagle’s response, together with the 2015/2016 NECER, only confirms that there is no criminal investigation in respect of the operations of the Wonderkop smelter. As set out in previous NECERs and in the correspondence from the Environmental Management Inspectorate attached to Mr Nagle’s response, there has been a long history of administrative enforcement action in respect of the Wonderkop smelter, necessitated by the non-compliance findings noted at the EMIs inspections of the facility. The 2015/2016 NECER confirms that “the DEA has also issued the [Wonderkop] facility with a letter, dated 14 March 2016, in which further information was requested to assist the DEA to determine the facility’s current level of compliance. On 31 March 2016 the facility provided the DEA with a response. The DEA is currently in a process of reviewing this response and will thereafter take a decision on the way forward.”⁷

Mr Nagle did not provide any comment on the inspection findings noted in the 2014/2015 NECER for the Lion smelter. Mr Nagle’s only comments in respect of the Lion smelter are that:

The Alloys Division constantly focuses on ongoing compliance with existing environmental laws and legislation and strives for continuous improvement at all of its operations. This includes extensive engagement with all the relevant authorities at its operations including the Wonderkop and Lion Smelters.

Glencore’s annual reports provide the number and level of seriousness of “environmental incidents”. While this information is important, it is not the same as the number and seriousness of instances of environmental non-compliance. Failing to disclose non-compliance findings, non-monetary sanctions and criminal investigations means that shareholders are provided with an incomplete picture of the environmental impacts and compliance record of the company’s operations.

Furthermore, the classification system used for environmental incidents in 2013 is different to that used in 2011 and 2012. It changes again in 2014. These changes make it difficult to compare even the number and seriousness of environmental incidents from year to year.

In future, companies like Glencore will need to disclose far more detailed information about environmental non-compliance, as a result of the inclusion in the King IV Report™ 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.