Full Disclosure 2016

Summary of findings and company response - 2015

Sappi’s Environmental Policy was described as follows by the company:

While making products that support society’s needs, we strive to achieve the highest effective standards of environmental performance. As a responsible manufacturer, we balance our needs with our impact on the earth.¹

It is apparent from the National Environmental Compliance and Enforcement Reports that inspections by Environmental Management Inspectors at Sappi’s Ngodwana Mill and Enstra Mill,² in August 2008 and October 2009 respectively, discovered multiple serious non-compliances with environmental laws and permits. At follow-up inspections in subsequent years Sappi was found, in relation to the Ngodwana Mill in particular, to be in continuing violation of the same laws and permits, and in some instances to have committed further violations. The NECERs also show that Sappi had made undertakings to the Department of Environmental Affairs to rectify these non-compliances, but had failed to adhere to these undertakings.

Sappi also did not accurately disclose the level of its non-compliance with environmental laws and permits in its shareholder reporting in the relevant years.

For example, Sappi’s Ngodwana Mill was inspected by EMIs in August 2008, and the following findings were made:

• Non-compliance with conditions of the APPA permits.
• Non-compliance with conditions of the ECA Section 20 permit.
• Operation of three waste disposal sites without authorisation.
• Upgrade of ESP and fly-ash collection system and the PF Boiler without the required EIA authorisation.
• Lack of proper bund walls and measures to contain spillages of hazardous chemicals.
• Non-reporting of emergency incidents to authorities.

The 2010 NECER records that undertakings were made by Sappi to:

include the installation of dust suppression systems, the submission of various applications, changes to the monitoring programme and construction of bunded areas. Numerous other commitments were also made to rectify the non-compliances identified. The Department is still in the process of making a decision on whether or not any enforcement action … is required.

A follow-up inspection was carried out at this facility in March 2009. Findings of that inspection included:

• Non-compliance with conditions of the APPA permits.
• Non-compliance with conditions of the ECA Section 20 permit.
• Operation of 2 waste sites without authorisation.
• Lack of proper bund walls and measures to contain spillages of hazardous chemicals.
• After the initial inspection the facility has constructed a chemical storage facility without the required environmental authorisation.
• Potential groundwater and surface water pollution from poor storm water management around the coal storage area.
• Conducting environmentally harmful activities.
• Poor management of waste.

Sappi’s 2009 Sustainable Development Report stated that the company would report on the findings made by the EMIs in the inspections referred to above in 2010. However, Sappi’s 2010 Sustainable Development Report only stated that queries had been responded to and discussions were ongoing with the Department of Environmental Affairs.

In Sappi’s 2010 Southern Africa Annual Report, Sappi stated that Ngodwana Mill had been inspected by EMIs, and that “no major findings were raised”. In Sappi’s 2011 Southern Africa Annual Report, the company stated that “both our Ngodwana and Enstra mills have undergone comprehensive initial inspections with subsequent follow up audits done by the EMIs during the course of 2008 to 2010 with no major findings raised to date”.

In his response to Full Disclosure 2015, Alex Thiel (CEO, Sappi Southern Africa), stated:

We do not agree with the opinions and interpretations of the CER as regards non-compliance. As stated previously, we have addressed gaps identified and continue to engage pro-actively with the authorities. We also report on our actions and engagements in the appropriate manner and to the appropriate forums, whether through our annual integrated report and/or group and/or regional sustainability reports as well as to the environmental liason forums which exist at each mill.

We believe the statements in our reports accurately reflect the situation for each of those years.

Mr Thiel provided information about the current status of non-compliances identified by the EMIs at the Ngodwana Mill inspections. Mr Thiel also said:

As regards the Department of Environmental Affairs National Environmental Compliance and Enforcement Reports (NECERs), we welcome the inspections as an opportunity to work closer with the regulatory authority and also to ensure that they better understand our business. In our opinion, the NECER reports, due to their nature do not reflect the current situation regarding our company.

Full Disclosure does not purport to ascertain the current status of environmental compliance by the companies in the assessment. Instead, it aims to establish, over the period of the assessment, whether the companies assessed have, at any time, been in non-compliance with environmental laws and, if so, the extent to which such non-compliance has been accurately reported to shareholders.

Mr Thiel stated:

We do not wish to be in conflict with any regulations. We believe the best way to achieve this is through good communication and by building an understanding of issues with the relevant authorities. We are committed to pursue sustainability and to continue to improve over time.

This approach, that compliance with legal obligations is a matter of negotiation between the company and the regulator, is common amongst the companies surveyed, and reflects a culture of engagement between authorities and violators, and an inclination always to give more time to comply, that has not promoted compliance with environmental laws over time.

This is also manifested in the approach repeatedly articulated by companies surveyed that compliance with environmental laws needs only be “worked towards”. 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.