With study after study showing that incorporating sustainability into investment decisions is more than just a feel-good exercise, these funds and services are designed to win over more than just millennial investors.
Some of South Africa’s biggest listed companies are perennial breakers of environmental legislation, according to a comprehensive study by the nongovernmental Centre for Environmental Rights.
Its “Full disclosure: The truth about corporate environmental compliance in South Africa” report looked at 20 of the largest listed companies in South Africa. Eleven work in the mining sector, while the rest are spread across other resource sectors.
The report found that companies such as Sappi, Sasol, ArcelorMittal and Exxaro had been found guilty of environmental offences between 2008 and 2014. The most common breaches were toxic spills, air pollution, unauthorised disposal of hazardous waste, and the contamination of soil, ground and water.
Violations such as these are supposed to be reported by the companies to their shareholders. The fines involved present debts on the books and also possible liabilities in the future. All of these would damage share value and dividend payouts.
But the report found that, “Many of these violations are not reported to the shareholders”.
Tracey Davies, head of the centre’s corporate accountability and transparency programme, said the irony was that many of the guilty companies were also listed on the Johannesburg Stock Exchange’s Socially Responsible Investment Index.
“Some of the best performers on the index also feature repeatedly on the list of companies facing enforcement action.”
This was because the index relies on voluntary submissions, she said. So, instead of reporting environmental failings to the process, the environmental centre’s report found that companies kept mum and then used their presence on the investment index to promote their companies.
In its preamble to the index, the stock exchange says it was prompted by the UN’s launching of the Principles for Responsible Investment. These require signatories to consider “nonfinancial risk indicators in investment decisions and analysis”.
These explicitly include things such as the environmental impact of operations – and recommend that investors stay away from companies that are regularly found to be in contravention of best practice. This includes things such as water and air pollution, as well as the other breaches in legislation that the environmental centre found local companies to be repeating.
In its investigation into ArcelorMittal’s compliance record, the centre found that; “ArcelorMittal’s operations have always had, and continue to have, serious environmental impacts.”
And, while environmental inspectors from government had conducted several visits and found several cases where the company’s Vanderbijlpark operations had broken the law, these were not included in reports back to the stock exchange.
“There are numerous omissions and discrepancies between the findings of these inspections as reported in the National Environmental Compliance and Enforcement Reports and the way in which these findings were presented to shareholders in ArcelorMittal’s annual reports.”
But in response to questions by the centre, ArcelorMittal disputed the findings of the environmental inspectors – the Green Scorpions. It said these findings were “based on the relevant government department’s own interpretations and opinions of the relevant legislation”.
When the Mail & Guardian visited the communities around the plant in June many residents complained about the levels of pollution coming from the factory. Chief among these was the air pollution, which they said caused widespread chest problems.
Sixty-year-old Florence Molete said: “We have always had to live with the smoke from Mittal. You won’t find many old people like me still walking around.”
The company declined to respond to detailed questions about their environmental impacts, instead saying it had “made a concerted effort to hold regular meetings”.
Similar health problems are normal outside Sasol’s Secunda plant. In 2012, the M&G found people living downwind of the petrochemical plant who had to live with constant respiratory problems.
The environmental centre’s report found that Sasol also gave “very little disclosure of environmental noncompliances or incidents”. Where there were disclosures, it was relating to operations outside South Africa, it said.
The report found no mention in its annual reports of a 2008 inspection by the Green Scorpions. This found numerous breaches of environmental law. The same happened at a follow-up inspection in 2010.
In response, Sasol said this information was not always included in its annual reports. These are meant to contain succinct and material information, it said. “The material matters are considered to be critical issues in relation to achieving our strategic objectives and sustaining our business model and integrated value chain.”
The environmental centre’s Fourie said this meant investors did not have enough information to make informed choices. In Sasol’s case, this included large private pension schemes and the Government Employees Pension Fund.
“In the recent past the company [Sasol] has demonstrated a worrying attitude towards the authority of environmental regulators in South Africa and failed to disclose indisputably material information to its shareholders.”
Without full disclosure, Fourie said companies did not face the threat of groups divesting because they were worried about any given company’s environmental performance. The only cost therefore came from fines imposed by government inspectors, which were just added to the cost of doing business.
This mode of doing business was replicated across all 20 companies that the environmental centre investigated. All but three of these – Exxaro‚ Merafe and Harmony Gold – responded to the centre’s questions. The stock exchange said it would need to look at the report in-depth before it responded to the problems it raised.