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Full Disclosure 2016

South32 LimitedNew

Key questions shareholders should ask

South32 Limited's disclosure of environmental non-compliances in annual reports

BHP’s annual reports

BHP did not disclose any of the Department of Environmental Affairs’ non-compliance findings or enforcement action in its annual reports for the relevant years.

BHP has an internal scale for ranking environmental incidents, with levels ranging from 1 to 5 based on severity. In the 2009 Annual Report it was stated that only those incidents ranked 3 or over are classed as “significant environmental incidents”, of which there were none that year.1 It was stated that there were also no significant environmental fines in 2009.2 In 2010, it was reported that the only significant environmental incidents which occurred that year had occurred outside South Africa3 and the only significant fines were received outside South Africa.4

However it was also noted in the 2010 Sustainable Development Report that a “significant environmental incident” was now one rated 4 or above on the internal scale.5 In 2011 it was stated that the scale ranged from 1 to 76 and on another page of the report it was stated that it ranged from 1 to 5.7 In 2012 it was again stated that the scale ranged from 1 to 7,8 but also stated on one page that a significant incident was one rated at Level 3 or above9 and on another that a significant incident was one rated at 4 or above.10 In 2013 it was stated that the scale ranged from 1 to 7.11

BHP reported that there were no ‘significant incidents’ in 201112 and the only environmental fine reported was outside South Africa.13 In 2012 BHP also reported that there were no significant environmental incidents.14 BHP reported that there were two fines received from outside South Africa in 2012.15 In 2013 it was reported that there were no significant environmental incidents16 and that there had been eight fines.17 One of these, to the amount of US$181,581, was levied in South Africa due to the establishment of fuel, water and effluent infrastructure at the Wolvekrans Colliery without authorisation under NEMA.18

In 2014 it was reported that there were “no significant environmental incidents reported at our operated assets”.19 In relation to environmental fines and prosecutions in 2014, it was reported that:

A fine of US$94,455 was levied at Energy Coal South Africa’s Khutala Colliery, which self-reported a non-compliance against its environmental impact assessment requirements defined by the National Environmental Management Act. As a result, the asset has appointed an independent Environmental Control Officer and introduced a strengthened land disturbance permit procedure.20

All other fines during the year were levied outside South Africa.

In 2015 BHP reported that there were no significant environmental incidents.21 In 2015, in relation to environmental fines and prosecutions, 9 fines were levied in North America and South Africa “for activities including exceeding discharge quality levels, unauthorised land disturbance, failure to update facility contact information and a delinquent mechanical integrity test.”22 South Africa’s environmental fines totalled $570.23

South32’s annual reports

2015 company reports

South32 describes the company’s environmental risks as follows in its 2015 Annual Report:

Our operations, by their nature, have the potential to impact biodiversity, land, water resources and related ecosystems, including from the discharge of contaminants. Changes in scientific understanding of these impacts, regulatory requirements or stakeholder expectations may prevent or delay project approvals and result in increased costs for mitigation, offsets or compensatory actions and may impact the sustainability of operations. The South32 Group has policies and standards defined that seek to prevent, monitor and limit the impact of our operations on the environment. Certain South32 Group sites are subject to remediation plans that seek to address known contamination as a result of past activities. As part of this process, the South32 Group is focused on water and waste water management, as the sustainability of our operations relies on our ability to obtain an appropriate quality and quantity of water. We use water responsibly and manage it appropriately, taking into account natural supply variations.24

South32’s 2015 Annual Report states as follows regarding environmental incidents:

We classify environmental incidents according to an internal severity scale. An incident with a rating of four out of seven would be considered to have a major impact/s to land, biodiversity, ecosystems, water resources or air, with effects lasting greater than one year. There were no significant environmental incidents reported at our operations in FY2015.25

In relation to environmental fines and prosecutions in South Africa, the report references the following fines in relation to the Hillside Aluminium smelter in Richards Bay:

Hillside Aluminium has an agreement to receive and discharge water to Mhlathuze Water, which is listed as a statutory institution in terms of section (84)2 of the Water Services Act for South Africa. Mhlathuze Water has implemented a penalty system for non-compliance with this agreement. During FY2015, six fines to the total value of US$570 were levied against Hillside Aluminium for exceeding the discharge quality levels. Hillside Aluminium is in the process of implementing an auto-sampler at the outlet of the impoundment dam as opposed to taking grab samples to determine the quality of the discharge.26

With respect to environmental complaints, South32 states that it received a total of 187 community complaints and grievances. Of these: 11 related to dust, 112 related to noise, 4 related to odour and 60 were described as “other”. The report does not specify which operations the complaints relate to.

2016 company reports

The 2016 report states as follows with regard to South 32’s environmental impact:

Our operations extend across large areas of land and have the potential to impact biodiversity and ecosystems through disturbance, due to the extraction of minerals, processing and the management of waste. To manage this potential impact, our environment standard requires the collection of biodiversity baseline activity and mandates the use of controls consistent with the biodiversity mitigation hierarchy. Our hierarchy seeks to avoid first, minimise second, rehabilitate third and lastly to offset environmental impacts.27

South32 state as follows with regard to environmental incidents:

We classify environmental incidents according to an internally agreed severity scale. An incident with a rating of four out of seven would be considered to have major impact/s to land, biodiversity, ecosystems, water resources or air, with effects lasting greater than one year. There were no significant environmental incidents reported at our operations in FY2016.28

With respect to environmental fines in South Africa, the report states:

Hillside Aluminium has an agreement to receive and discharge water to Mhlathuze Water, which is listed as a statutory institution in terms of section (84)2 of the Water Services Act for South Africa. Mhlathuze Water has implemented a penalty system for non-compliance with this agreement. During FY2016, three fines to the total value of US$112 were levied against Hillside Aluminium for exceeding the discharge quality levels.29

The report states that a total of 122 community complaints were received by South32 in 2016 in relation to dust, noise, odour, employment, community investment and “other”. Of these complaints, the report states that 15 were in the “Africa Region”.30

  1. BHP Billiton Annual Report 2009, at p59.
  2. BHP Billiton Annual Report 2009, at p170.
  3. BHP Billiton Annual Report 2010, at p56.
  4. BHP Billiton Annual Report 2010, at p183.
  5. BHP Billiton Sustainable Development Report 2010, at p15.
  6. BHP Billiton Annual Report 2011, at p83.
  7. BHP Billiton Annual Report 2011, at p157.
  8. BHP Billiton Annual Report 2012, at p166.
  9. BHP Billiton Annual Report 2012, at p263.
  10. BHP Billiton Annual Report 2012, at p166.
  11. BHP Billiton Annual Report 2013, at p193.
  12. BHP Billiton Sustainable Development Report 2011, at p4.
  13. BHP Billiton Annual Report 2011, at p157.
  14. BHP Billiton Sustainability Report 2012, at p4.
  15. BHP Billiton Annual Report 2012, at p166.
  16. BHP Billiton Sustainability Report 2013, at p5.
  17. BHP Billiton Annual Report 2013, at p193.
  18. BHP Billiton Annual Report 2013, at p193.
  19. BHP Billiton Annual Report 2014, at p53.
  20. BHP Billiton Annual Report 2014, at p215.
  21. BHP Billiton Annual Report 2015, at p177.
  22. BHP Billiton Annual Report 2015, at p203.
  23. BHP Billiton Sustainability Report 2015, at p67.
  24. South32 Annual Report 2015, at p25.
  25. South32 Annual Report 2015, at p156.
  26. South32 Annual Report 2015, at p156.
  27. South32 Annual Report 2016, at p25.
  28. South32 Annual Report 2016, at p124.
  29. South32 Annual Report 2016, at p124.
  30. South32 Annual Report 2016, at p33.