London Calling asks Sweden: Why stop hounding Vedanta now?Published by MAC on 2011-05-10
Source: Nostromo Research (2011-05-05)
Ethical Council falls short of common sense
The Swedish government's Ethical Council monitors company investments by the country's four state pension funds.
Among its prime targets are several resource extraction companies, including Rio Tinto and Freeport (because of their waste disposal practices at the West Papuan Grasberg mine); and Canada's Goldcorp - allegedly complicit in serious violations of human rights in Guatemala (see below).
But the company on which the Council seems to have focused most, of late, has been Vedanta Resources plc (to which, readers of this column will need little introduction).
While the Swedish Council's overall concerns mirror those of its neighbour, the Norwegian Council on Ethics, its approach to corporate offenders is markedly different.
Since 2006, the Norwegian government has sold all its shares in several miners, including Vedanta, Freeport, Rio Tinto, Barrick, DRD Gold and Norilsk. But Sweden hasn't yet dispensed with any mining-related stake.
In Vedanta's case, the Norwegian Finance minister concluded that no amount of persuasion would cause the company to change its inherently destructive modi operandi - specifically to abandon its Nyamgiri bauxite mine in Orissa.
By contrast, the Swedish Ethical Council put its faith in so-called "dialogue" with Vedanta , to secure the same end.
Bizarrely, it broke off dialoguing with Anil Agarwal's company last year after claiming to have achieved this key objective - though it was India's minister of environment who actually halted the project. And there's no evidence the Swedes played a significant role in getting him to take that decision.
In fact, Vedanta is still trying to secure access to the Nyamgiri prospect, as well as to illegally expand the nearby Lanjigarh alumina refinery. Did the Ethical Council naively think the walls of Jericho had already fallen (thanks partly to the sound of its own trumpet)?
The Council does admit that, since it began investigating Vedanta's activities, further problems have arisen which need to be addressed.
For example, it proposed the organisation of a round-table conference involving Vedanta and other mining companies (members of the ICMM) "to discuss solutions and problems from the perspective of ICMM principles".
However, even this modest move was rejected by the company. Surely that, in itself, should have lent weight to the Norwegian view that nothing is gained by dangling carrots across Vedanta's myopic vision - rather than whacking it with a big stick?
The Swedish Ethical Council's final justification for failing to disentangle itself from Anil Agarwal's band of marauders goes like this: ".
"We can provide most benefit by [our Funds'] relatively minimal ownership, to try and exert influence. If the Funds sell their holding, the problems do not disappear. The Ethical Council's collaboration with other international owners present greater opportunities to exert influence on the company".
Really? Doesn't logic tells us that, if the ownership is "minimal" (less than 0.2% of Vedanta's equity in Sweden's case ) then so is the influence? Of course, "problems" do not disappear when funds offload holdings that, in themselves, amount to little more than a hill of beans.
What does happen, however, is that a funder's moral authority becomes considerably enhanced. That's no mean consideration when the funder is a sovereign government and the disinvestment occurs in the context of maintaining relationships with a friendly foreign power.
That's why the Norwegians have got it right.
Indeed, when their Council on Ethics announced it was throwing Vedanta out of its investment portfolio, the decision was promptly cited by India's Supreme Court as justification for rejecting the UK company's application to mine at Nyamgiri. (Yes, the Court then promptly handed the permit to Vedanta's Indian subsidiary, Sterlite, but that's not the immediate point). See: Court between the devil and the deep blue sea
Nor is it true that the Norwegians reject out of hand the principle of "dialoguing for corporate reforms". Their Council on Ethics is always willing to consider evidence, of a change in their ways, submitted by companies bodies that have previously been thrown out of its "investment universe".
Neither Vedanta (rejected by Norway in 2007); nor Freeport (rejected in 2006), nor Rio Tinto (dismissed in 2008 ) have managed to present such evidence.
They remain cast out in the Nordic wilderness, and that's where they should be.
[London Calling is written by Nostromo Research. Views expressed in this column do not necessarily represent those of any other person. Reproduction is welcomed, provided sources are cited.]
Vedanta: Objectives of the dialogue achieved but monitoring will continue
Extracts from Swedish Ethical Council Report (2010)
18 April 2010
Since the spring of 2009, the Ethical Council has been engaged in a dialogue with mining company Vedanta Resources, together with a group of European investors. The objective of this dialogue has been preventing Vedanta establishing a bauxite mine in Niyamgiri, in the Indian state of Orissa. This stance has been taken due to the company's failure to undergo an appropriate process of evaluation, or, by other means demonstrate that it has taken into account the rights of the indigenous population when planning the mine.
In August 2010, the Indian Ministry of Environment and Forests ruled against granting a licence to Vedanta to proceed with the mine, which meant that the Ethical Council's objective for the dialogue had been achieved.
During the course of the dialogue, a number of other shortcomings and problems on the part of the company were identified. As a consequence, the Council plans to continue monitoring Vedanta and make demands on improved transparency, holding dialogues with different stakeholders, and implementing a Group strategy on environmental and social risks.
What interim demands has the Ethical Council made?
When the Ethical Council opens a dialogue, the objective is for the company to address an isolated incident. The incidents can often be ascribed to shortcomings in internal routines and company policies, and, therefore, should not be viewed in isolation. For this reason, the Ethical Council works proactively towards companies implementing preventative policies and improving routines. In the case of Vedanta, the objective was for the company to ensure that routines and processes concerning the evaluation of environmental and social consequences, including the rights of the indigenous population, are implemented.
In tandem with the investment group, the Ethical Council has held ongoing meetings and evaluations, both with Group management and sections of the board, as well as meeting the company in both India and the United Kingdom. The Ethical Council has issued demands on improved transparency regarding the company's work on sustainability, publicising action plans when errors are made, improving communications with stakeholder groups, and clarifying corporate responsibility.
Initially, Vedanta adopted a defensive stance to communication on sustainability issues; however, during the course of the dialogue, the company has grown increasingly receptive to the investors' views and criticisms. The Ethical Council is able to report increased - if still insufficient - transparency.
As an example of increased transparency, the Ethical Council can report that the company has supplied the Council with requested materials, among them independent evaluations of its work on sustainability. The Council has also put forward suggestions on the company's use of its website as a means of responding to criticism and accounting for its status and processes. In July 2010, Vedanta set up a microsite in order to provide information on its plannedmining operation in Orissa, which was seen as an important sign of progress. In December 2010, the company published an evaluation of its sustainability policies and processes - which was performed by an independent consultancy - on its website. The evaluation also includes recommendations with which Vedanta has promised to comply.7
In November 2010, Vedanta established a new position, Chief Sustainability Officer, reporting to the CEO, with responsibility for sustainability work at Group level. Additionally, the person in question will form part of the company's Sustainability Committee, which reports to the Board and also includes some of its members.
The Ethical Council has proposed that Vedanta join the International Council on Mining and Metals (ICMM) and adopt its principles to ensure their operations are run in accordance with internationally accepted standards. A proposal has also been made to arrange a round-table conference involving Vedanta and other mining companies (members of the ICMM) to discuss solutions and problems from the perspective of ICMM principles. Vedanta, however, rejected this proposal.
Different stakeholders exert influence on companies in different ways
Vedanta is an excellent example of how different stakeholders can exert influence on a company using a variety of tools. Media and voluntary organisations have had a considerable impact, and, through their efforts, succeeded in persuading a number of shareholders to become involved in Vedanta. Shareholders have acted in different ways; a small number of investors have excluded the company, while others have continued to apply pressure. All stakeholders play a key role, choosing to exert influence in different ways. We believe we can provide most benefit by using the First, Second, Third and Fourth AP Funds' relatively minimal ownership - a little over 0.19% of Vedanta's share capital - to try and exert influence.8 If the Funds sell their holding, the problems do not disappear. The Ethical Council's collaboration with other international owners present greater opportunities to exert influence on the company.
8. As of 31 December 2010.
Call on Goldcorp to suspend Marlin mine
Goldcorp is answering to emails sent by various people (25 people so far) asking for a resolution at Goldcorp next AGM calling for the suspension of the Marlin Mine. The resolution was not accepted by Goldcorp management. (See below Goldcorp's answer).
Canadian Network on Corporate Accountability (CNCA)
NB -There is a FAQ sheet answering many of the points attached to this article.
Urge Goldcorp to respect international law and voluntarily suspend.eml
From: David Deisley
Date: 4 May 2011
Thank you for your email regarding the shareholder proposal regarding the Marlin Mine to be considered at Goldcorp's Annual General Meeting of its shareholders. Management has recommended a vote against this resolution as have Glass Lewis, Northwest and Ethical Investors, and ISS Proxy Advisory Services. Management's reasons for opposing the proposal are set forth in Schedule "C" to the management information circular, a copy of which is attached to this message.
ISS Proxy Advisory Services recommends a vote against the proposal on the following basis:
"The shareholder proposal is not supported due to the Company's extensive efforts to comply with the recommendations of an independent human rights impact assessment completed in 2010." (From page 1 of ISS Proxy Advisory Services' Executive Summary)
Goldcorp has demonstrated that it has taken the recommendations of the HR impact assessment very seriously, that it is fully committed to use the assessment as an opportunity to substantially improve consultation, operational performance, and transparency around not only the Marlin Mine operations but also throughout the organization at all of its operations. It also appears that a great deal of the negative media reports on activities surrounding the Marlin Mine have been sensationalized with the aid of third-party groups who have no ties to the local communities involved. Based on the foregoing, the drastic measures requested by this shareholder resolution including suspension of operations at the Marlin Mine are unreasonable and shareholder support for this resolution is unwarranted." (From page 15 of ISS Proxy Advisory Services' Conclusion)
In addition, we would like to call to your attention the joint Ethical Council's (of Sweden's First, Second, Third and Fourth AP funds) discussion of the Funds' engagement with Goldcorp as recently published in the Ethical Council's annual report for 2010. See http://www.ap2.se/en/Financial-information/Press-releases/2011/the-annual-report-of-the-ethical-council-2010/ and copy attached. On page 22 of the report, the Ethical Council states:
"Goldcorp's response to the [human rights] assessment and subsequent action plan demonstrates that the company is actively working to improve the situation in the Marlin Mine. Information on how Goldcorp intends to act in the future has also been provided. These efforts include, among other things, the introduction of policies on sustainability and human rights, and indications have been given that these issues are now treated in the highest echelons of the organisation."
With respect to the precautionary measures issued by the Inter-American Commission on Human Rights (IACHR) in May 2010:
- the precautionary measures were issued before the Government of Guatemala had responded to the allegations,
- further proceedings occurred at the IACHR in the fall of 2010 and spring of 2011, with participation by representatives of Guatemala, Goldcorp and Montana,
- the Government of Guatemala initiated the process provided by the country's Mining Law to determine if suspension of operations at Marlin are warranted,
- all information available to the government to date demonstrates that the allegations of harm to individuals or the environment on which the IACHR's action is based are without merit;
- the Government of Guatemala has complied fully with the other elements of the precautionary measures;
- and no further action has been taken by the IACHR regarding this matter.
The Marlin Mine employs over 2,000 people, (more than 60 percent of whom are residents of communities in the vicinity of the mine). Suspending operation of the Marlin Mine would deprive these people of their rights to work and support their families. Management fully agrees with the conclusion of ISS Proxy Advisory Services that the shareholder proposal proposes "drastic measures ... that are unreasonable and [that] shareholder support for this resolution is unwarranted."
David L. Deisley
Executive Vice President
Corporate Affairs and General Counsel
Suite 3400 - 666 Burrard Street
Vancouver, British Columbia
Canada V6C 2X8
Phone: 604 696-3000 begin_of_the_skype_highlighting 604 696-3000 end_of_the_skype_highlighting