Vedanta Resources has been digging itself into a hole in India
An environmentally controversial plan to extract bauxite in the eastern state of Orissa in India has turned into a reputational disaster for the UK-listed mining company Vedanta Resources.
The Indian environment ministry recently rejected the company’s proposed bauxite mining project in Niyamgiri Hill, Orissa, because of “serious violations of environment protection and forest conservation laws and the rights of the local tribes”. Vedanta’s local subsidiary Sterlite Industries had been trying to get the government permit to mine bauxite in the forested area.
The environment ministry’s bold decision is a big victory for local and international activists who have been campaigning against the project. They allege the mining project will destroy the lands of two ancient tribes – the Dongria Kondh and Kutia – who consider the hill sacred.
More ominously for Vedanta, India’s no-nonsense environment minister Jairam Ramesh says the company’s existing aluminium refinery in the area has also been found violating environmental laws and may face legal action.
However, in a written reply to the ministry of environment and forests, Vedanta has denied any wrongdoing.
Award revoked
In addition, the British Safety Council which promotes workplace health and safety, has withdrawn an international safety award given to Vedanta in 2009 because of concerns that the company had failed to declare an industrial accident at another Indian subsidiary, Bharat Aluminium Company, that killed 41 construction workers.
Weeks before the Indian environment ministry’s ruling, the London-based non-profit group Experts in Responsible Investment Solutions (Eiris) released a report concluding that Vedanta Resources needed to strengthen its board governance to address investors’ concerns.
The Eiris report says Vedanta needs to make improvements in the areas of indigenous rights, biodiversity, pollution, human rights, bribery and health and safety.
“The fact that Vedanta does not have an indigenous rights policy is a huge risk for a mining company in terms of compliance with international norms,” says Louise Tippet, the report author and Eiris’s human rights specialist.
Tippet says Vedanta has failed to engage with stakeholders. She says: “They have not been able to take on the criticism and respond to it in a meaningful way. Their response has been very mechanistic, defensive and entrenched.”
Tippet says that from the perspective of investors, Vedanta lags behind its peers on environment, social and governance issues.
A number of investment funds and commercial banks have dumped Vedanta in recent years. Those that have divested their investment in Vedanta include the Norwegian Government Pension Fund, Martin Currie Investment, the Church of England, the Joseph Rowntree Charitable Trust and the Dutch pension fund PGGM.
At the end of last year, Deutsche Bank sold its bonds in Vedanta but the status of its previous corporate loans to Vedanta is not clear. WestLB bank has indicated it will not invest in Vedanta any further, although the status of the bank’s previous financing of Vedanta is not known. Danske Bank placed Vedanta this year in the list of excluded companies that are not eligible for investment.
“The main reasons for these disinvestments are concerns about Vedanta’s persistent bad performance on environmental, social, and human rights issues, and the financial risks that may come from this,” says Sonja Willems, campaign officer at BankTrack, an NGO promoting responsible investment.
Willems says: “Vedanta should engage with its shareholders, really listen to their concerns, and try to improve on the issues concerned shareholders raise.”
Tippet argues the Vedanta case is a wake-up call for other companies in India particularly in the extractive sector. “The message to them is that this is what happens if you don’t get your environment, social and governance policies in order.”