Summary of findings and company response
South32’s “environmental stewardship policy” appears as follows on the company’s website:
We understand the important relationship between natural resource use and conservation. We strive to minimise environmental impacts at all our operations to ensure we do not compromise the ecosystems that provide resilience against climate change for our host communities.1
It is clear from the NECERs that a number of inspections were carried out by Environmental Management Inspectors (EMIs) and other regulators at the Samancor Manganese Metalloys plant (Metalloys). The findings of these inspections evidence numerous serious breaches of environmental laws, as well as repeated failures by the company to address these breaches. None of these inspections or findings were disclosed by BHP Billiton in its reports to shareholders during the relevant periods.
It is also noted in the NECERs that a criminal investigation into these transgressions has been initiated. The latest update provided in the NECERs on the status of these criminal proceedings is in the 2015/2016 NECER which states that a “criminal case was enrolled but a trial date is still to be determined.”2
The Metalloys plant is now operated by South32. South32’s annual reports do not disclose any of the ongoing non-compliance issues at the plant, or the existence or status of the criminal case.
In response to Full Disclosure, South32’s President and COO for the Africa Region, Mr Mike Fraser, did not address why the company had not disclosed repeated findings by the EMIs of serious breaches of environmental laws at the Metalloys plant. Mr Fraser instead advised, in relation to Metalloys, that:
…the issuance and payment of the fine falls into the reporting period July 2016 to June 2017. Accordingly, given the fine was only issued on 22 July 2016, the reporting of the fine and payment thereof would, if deemed material, fall in the reporting period from July 2016 to June 2017, being our Financial Year 2017.
It is unclear whether the fine referred to by Mr Fraser is the result of the criminal prosecution referred to in the NECERs. However, Mr Fraser’s response indicates that South32’s reporting of environmental non-compliances is based purely on assessments of financial materiality. The South African environmental regulatory regime does not yet use a system of administrative penalties which enables the regulator to impose large fines on companies in breach of environmental laws. Breaches are dealt with by way of compliance notices and directives, and as a last resort, criminal prosecution, which has relatively small maximum fines available. As a result, using financial penalties as an indication of materiality can lead to very misleading disclosure practices.
In future, however, companies like South32 will need to disclose information about environmental non-compliance, regardless of any assessment of financial materiality, 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.
- https://www.south32.net/sustainability/stewardship (last accessed on 7 November 2016).
- National Environmental Compliance and Enforcement Report 2015/2016, at p51.