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The outspoken Bernard Swanepoel summed up the situation with typical brief brutality: “I’ve never had to justify environmental or safety issues relating to companies I’ve been involved with… as far as fund managers in this country are concerned SRI (socially responsible investment) may as well not exist.”
Swanepoel, who was participating in one of the sessions at this week’s Bench Marks Foundation conference, asked – sort of rhetorically – why fund managers would be concerned about SRI or ESG (environmental, social and governance) issues before noting: “There is concern about fatalities in the mining sector but that’s because section 54 of the Mine Health and Safety Act requires companies to stop operations and that affects profits.”
Then the killer comment: “Unless it hurts investor returns, investors won’t care… the incentive system is far too perverse.”
This lack of interest from the fund managers may explain why so few people in the corporate world take reporting on SRI and ESG issues seriously, although, unlike Swanepoel, they pretend to. This may also explain why sustainability reports make for such torturous reading – one tediously earnest motherhood after another interspersed with pictures of happy people in the midst of pristine environments.
In the case of mining companies or those involved in heavy industry, you are tempted to think what an amazing achievement; they’ve gouged out the earth, converted base minerals into stuff that will sustain our consumption addiction for the foreseeable future, and it looks as though they’ve done no damage to the surrounding environment or to communities. And their employees look as though they are happy in conditions that most of us would have thought were gruesome.
There is, of course, an element of cognitive dissonance but the consistency of the narrative puts this to rest. Or you just get so overwhelmed with the unrelenting detail that you cannot begin to think how you could effectively engage with it.
And then thousands of sustainability reports later, the Bench Marks Foundation decides to do something revolutionary. It decided to take corporate sustainability reports seriously, and see if it could determine what is actually happening.
Or rather Bench Marks, which you might call an NGO with attitude, decided to interrogate Lonmin’s sustainable development reports (SDRs). This decision was taken several months ago after Lonmin told it that all of the issues the NGO had raised in its critical Policy Gap 6 Report, released just days before last year’s Marikana tragedy, were adequately addressed by Lonmin’s SDRs. It was the corporate equivalent of “take a hike, we’ve nothing to answer”.
And so began months of torture for Bench Marks’ analysts as they conducted an in-depth study of not just one year but 10 years of Lonmin SDRs from 2003 to 2012.
Read uncritically and in isolation, each report paints an uplifting picture of a company that seems concerned about sustainability issues; that is aware of, and keen to deal with, problems around accommodation, contract workers, pollution and community tensions. There are objectives and targets and in years when it doesn’t make “progress” it apologises and promises to try harder. This inevitably creates a warm feeling about a big company that cares.
But as Bench Marks executive director John Capel points out: “A close and comparative reading of the SDRs over the 10-year period reveals that many of the goals set out in earlier reports are abandoned, not reached and eventually not talked about or not referred to in the same terms.”
What do you imagine would happen if Lonmin tried this with its financial statements? It doesn’t do so because shareholders and pension fund managers take financial statements seriously and engage aggressively with every minute detail.
If you do feel robust enough to undertake the Bench Marks exercise you should be warned that it quickly becomes difficult to avoid the sense that it is all a hoax to create the impression of a company that cares about more than its shareholders and the pension funds that guide the shareholders.
Bench Marks has done us a huge favour; it has taken a picture of the sustainability emperor without his clothes and demands that we deal with this reality. It has placed Lonmin under the spotlight, which is unfortunate for Lonmin, but the reality is that hundreds of JSE-listed companies would fare little better if their sustainability reports were subjected to similar scrutiny.