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July 22, 2011
EIRIS Notes Some Progress in ESG Performance of Vedanta Resources
    by Robert Kropp

One year after finding that the mining company had breached international norms in its Indian operations, the sustainable investment researcher sees signs of progress on some fronts but insufficient attention paid to risk management.

One year ago, EIRIS published a report benchmarking the performance of Vedanta Resources against that of the mining company's peers, and found that Vedanta had breached international norms in the areas of the rights of indigenous peoples, biodiversity, pollution, safety, and bribery.

In the UK-headquartered Vedanta's Indian operations, the company "has come under international scrutiny for its plans for a bauxite mine and the expansion of its Lanjigarh alumina refinery," EIRIS stated in its 2010 report. ""Vedanta Resources had failed to adequately consult indigenous communities about the proposed mine."

Following the publication of the 2010 report, India's Ministry of Environment and Forests denied Vedanta permission to clear forest for its controversial plan to build a bauxite mine on top of the Niyamgiri Mountain in the Orissa region, one of the poorest areas in India. The mountain is considered sacred by the indigenous Dongria Kondh tribe.

In January of this year, RepRisk included Vedanta among its list of most controversial companies in terms of environmental and social performance. Only Transocean and BP, the two companies most responsible for last year's Deepwater Horizon explosion in the Gulf of Mexico, ranked higher than Vedanta.

This week, EIRIS followed up with a second report, entitled One year on: Review of progress by Vedanta Resources on EIRIS' ESG recommendations. In its new report, EIRIS found that Vedanta Resources has made limited progress in addressing some of the seven best practice recommendations suggested by EIRIS for improving its environmental, social, and corporate governance (ESG) performance.

Since EIRIS issued recommendations in its 2010 report, the board of Vedanta has formed a Sustainability Committee, and the company has appointed a Group Chief Sustainability Officer (CSO). "As far as EIRIS has been able to ascertain from publicly available sources," the new report cautions, "the Company has not planned training on ESG issues at board level."

The company is planning a remuneration policy that links executive compensation to ESG performance, as well as procedures to ensure that the concerns of key stakeholders are addressed in a timely manner. While the company states on its website that it fully supports the principles of the International Council on Mining and Metals (ICMM), a trade organization formed in 2001 to improve the sustainable development performance of the mining and metals industry, EIRIS found that Vedanta has not committed to the implementation of ICMM's Sustainable Development Framework.

According to ICCM, "All ICMM members are required to implement the Sustainable Development Framework," which includes ten principles as well as requirements for transparent reporting.

Vedanta has stated, however, that it has already begun to implement the Sustainability Reporting Guidelines of the Global Reporting Initiative (GRI) in its annual reports.

One important issue that EIRIS found has not been addressed by Vedanta is the risk management systems. In order to improve its risk management procedures, EIRIS stated, "the Company would need to have an expert panel assessing the impact of the Orissa operations on the environment and on human and indigenous rights," and "commission independent environmental and human rights impact assessments of its operations in Orissa."

"Investors are likely to welcome the progress achieved by Vedanta Resources to date," the report concludes; however, "The Company still has a long way to go in order to meet the ESG standards set by best in class companies in the extractives sector."


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