Full Disclosure 2016

Summary of findings and company response

Kumba Iron Ore states on its website that:

We are keenly focused on managing our environmental impacts, including preventing pollution, minimising our emissions, using water and other resources efficiently and ensuring legal compliance.

Kumba is to be commended for the level of disclosure of its environmental impacts and non-compliances in its annual reports, which is higher than that of some of the other companies assessed for Full Disclosure. However, there are a number of serious issues identified in Kumba’s reports in insufficient detail to allow a proper assessment of environmental legal compliance and risk.

The CER wrote to Kumba’s CEO on 27 September 2016, inviting the company to respond to the findings in Full Disclosure by 25 October 2016. The CER received a response from the CEO, Mr Themba Mkhwanazi, on 27 February 2017. This Summary of findings and company response has been updated post-publication to incorporate the response received.

Kumba’s 2013 and 2014 Sustainable Development Reports refer to pre-directives and directives issued. Kumba’s 2014 and 2015 Sustainable Development Reports refer to several “major non-conformances”, which are described as including “section 54 and 55 notices, environmental directives and major non-conformances raised by Bureau Veritas”. Insufficient detail is provided in Kumba’s reports on the nature of these pre-directives, directives, and “major non-conformances”, and the action taken by Kumba to address these compliance issues.

In his response to Full Disclosure, Mr Mkhwanazi states, in relation to the 2013, 2014 and 2015 reporting periods, that while pre-directives and pre-compliance notices were issued and responded to:

No formal directives or compliance notices were issued following representations to the regulators, therefore the issues are deemed to have been satisfactorily closed out.

Mr Mkhwanazi’s statement contradicts Kumba’s Sustainable Development Reports. Kumba’s 2013 Sustainable Development Report, for example, specifically states that “Kumba received two environmental directives” and prominently lists the section 93 environmental management directive issued to the Sishen mine as one of three challenges experienced in “responsibly managing the environment”.¹

Kumba’s description of “major non-conformances” – “notices, environmental directives and major non-conformances raised by Bureau Veritas” – is vague and does not provide stakeholders with sufficient information. In relation to these “major non-conformances” Kumba states that “corrective action plans to prevent recurrence were implemented and shared with the respective auditors”. The “auditors” in relation to these “major non-conformances” are described as Bureau Veritas, DMR, PwC, and DEA. The DMR and the DEA are not “auditors” but government regulators. Corrective action “reported” to the DMR and the DEA presumably implies action required to correct findings of legal breaches, and this should be specified clearly. By grouping these together, Kumba downplays the significance of environmental directives, depriving shareholders of the ability to properly assess the company’s approach to legal compliance as well as the risks involved.

In his response to Full Disclosure, Mr Mkhwanazi acknowledges “the issue on grouping of non-conformances”.  In relation to the CER’s concern around Kumba’s use of the term “auditors”, Mr Mkhwanazi states that:

In the compilation of our Sustainable Development reports, independent assurance providers are used to verify data and information reported. Price Waterhouse Coopers (PWC) was used for this purpose. Most of the findings in PWC’s reports were around incorrect capture of information and misalignment of information between site and head office. These are being addressed, reconciled and the site data reported on Enablon reviewed on a monthly basis.

This response does not address the concern that insufficient information is provided about the nature of each of the “major non-conformances” referred to, meaning that shareholders are unable to assess the risk posed by these problems. It also does not address the concern that the grouping of findings by government regulators, auditors and professional services firms into one category is misleading.

It is concerning that Kumba’s operations appear to be so frequently in non-compliance with environmental laws, and that Kumba provides minimal and vague information about the nature of these non-compliances.

In future, companies like Kumba will need to disclose 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.