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Glencore on its safety record, environmental performance and tax | Leo Hickman

Glencore responds to Guardian’s questions arising out of its first-ever sustainability report

One of the business stories of the year so far was the flotation in May of Glencore, the global commodities trader. Not only did the flotation shine a light on “the biggest company you’ve never heard of“, as some described the secretive, Switzerland-based private firm, but it also revealed the extraordinary extent of Glencore’s assets and market influence.

As the Guardian wrote in an editorial ahead of the flotation: “Glencore is the world’s largest commodities trader, controlling 60% of the zinc market, 50% of the trade in copper, 45% of lead and a third of traded aluminium and thermal coal. Oh, and 3% of the world’s oil and 9% of its grain too.”

As part of its flotation, it announced that it would soon be publishing its first-ever sustainability report. Would it provide answers to some of the questions raised by Glencore’s critics about its attitude and track record on controversial issues, such as environmental performance, worker safety and taxation?

Interested in the process of how a previously publicity-shy company takes such a bold step into the sunlight of transparency and accountability, I approached Glencore and asked if I could interview the team behind the report. It agreed.

Last Friday, after receiving an advance copy of its sustainability report – which is published in full today – I emailed Glencore the following questions ahead of a conference call scheduled for Monday morning…

* The report highlights ‘Glencore Corporate Practice’, which came into effect in 2010. It appears to be a self-auditing/regulating process. Will the next report, which promises to include the publication of specific targets and objectives, be overseen/advised by external, independent CSR auditors?

* Please can you describe the process involved in collating all the information/data etc that went into publishing this report? How many people worked on it? How was data “on the ground” compiled from across the globe and then standardised for the report (expanding on details provided on p31)? Were there any “holes” in the data that caused frustration/problems? If so, what, and how will they be addressed for the next report?

* The report says that biofuels will be increasingly important to Glencore as it attempts to address climate change concerns. How does it aim to also reduce/mitigate its reliance on fossil fuels in coming years? Does Glencore aim to increase or decrease its reliance on the trading and extracting of fossil fuels as a core component of its business model over coming years?

* The report says Glencore is not yet signed up to any external codes of conduct relating to economic, environmental or social charters. When will this be addressed? Which external codes of conduct do you intend to sign up to first? Will Glencore, as part of the report’s commitment to communication and openness, now allow independent inspectors – plus NGOs, journalists etc – to visit any of its facilities around the world?

* How soon will your new CSR standards, commitments and auditing processes be demanded of all your contractors and operations not currently operating directly under the Glencore name? What forms of sanction will you take regarding non-compliance?

* Please can you provide further details of the eight strikes mentioned on p45 of the report? Why did the strikes take place, and how were they resolved?

* The report says 56 fatalities were reported and recorded from 2008-2010. But no details are provided. Please can you say where and how these fatalities occurred? And do you also have figures for the number of serious injuries reported, too? What forms of compensation have the families of the deceased and injured received?

* On page 50, the report lists 173 complaints made by communities in 2010. How many of these complaints have now been resolved? Is there further breakdown available of where these complaints took place and specifically what they involved?

* What forms of compensation is Glencore planning for the 320 families being resettled in Prodeco, Colombia, as mentioned on page 53?

* The report on page 56 shows that Glencore paid m in taxes and royalties in Europe from revenues of just over bn, and around 5% taxes and royalties on global revenues of nearly bn in 2010. How does that demonstrate a commitment to host communities, as the report claims?

* Page 61 mentions four significant environmental fines worth 0k in 2010. Do you also have the figures/details for 2008 and 2009?

* Can you provide more details of the 11 “moderate” spillages reported on p64? Where/why etc?

* On pages 72-73 you detail how much renewable energy Glencore uses in its operations and distribution. How does Glencore define “renewable energy”?

* Please can you supply more details about Glencore’s lobbying efforts, as alluded to on p57? What does Glencore lobby governments about? Please can you provide some specific examples? How much did Glencore spend on lobbying in 2010?

On Monday, a conference call then took place between myself and the following three representatives of Glencore…

Peter Coates, non-executive director, chairman of board’s health, safety, environment committee (PC)
Michael Fahrbach, head of corporate sustainability (MF)
Simon Buerk, head of communications (SB)

Peter Coates, who joined Glencore’s board earlier this year as part of the Initial Public Offering (IPO) process, then began the discussion with some introductory points about the report and his role…

PC: It’s early days and there’s a lot of valuable work to be done. At this point in time, I’ve visited the African operations in the Zambia and the DRC [Democratic Republic of Congo]. I visited them with an open mind. I was aware there were some issues. I was very pleasantly surprised by what I saw. I saw an old business that over many years had been neglected. I saw a significant change occurring under Glencore. This was all prior to IPO which is what encouraged me that Glencore was trying to sort out the issues that are well documented.

LH: Was the IPO the catalyst for all this?

PC: I can’t answer that. I doubt it because whatever has happened has happened over a couple of years. Glencore’s only been in these operations for a couple of years. I think there was an understanding that a good sustainable business was a good commercial business. I know Glencore is very competitive. They have a desire to be recognised among their peers in the industry. There will be very strong support in the whole area of moving forward. This report is a first step; drawing a line in the sand. It will be marker for the board. The next time we produce a sustainability report there will be a lot more comparison of progress in there, I think. It will be a measuring tool to some extent for the board and investors.

LH: How will the target-setting work in practice?

PC: What we have to do is sort out some of the big issues and we know what they are. There are some significant environmental issues that are well documented – SO2 emissions, effluent emissions. Plans to sort those out have been in place for some time. There’s also been a significant amount of money spent on reducing those emissions too – and there’s a lot more to spend and that will be done.
The other thing we have to address very, very quickly is safety. We know where we’re coming from with that regard. From what I saw when I visited the operations, I saw a group of professional management who had identified the problems and who had well and truly entered the process of remediation – improving bolting techniques underground, improving ground control generally and trying to raise the standard of awareness amongst out employees in those countries. I’ve had a lot of experience in Africa. It’s a lot more difficult and there’s a lot more work to be done in raising the level of awareness about safety. It’s chalk and cheese trying to compare this with, say, Australia. The board has to rattle the cage on those issues.

LH: Are you anticipating opening this whole process up to independent auditors and inspectors?

PC: The first step for me is to make sure the Glencore Corporate Practice (GCP) principles are being embraced and the process is being put in place to make sure they’re enacted. Initially, I think we will develop processes that reassure us the board. We’re not in the first instance about trying to reassure the public, if you like. But if that means independent audit, then that’s what it’ll be. Or if it means doing what many of us have done before and taking personnel out of one part of the business and forming an audit team with some independents in there as well then that’s what we’ll do. We will do whatever we have to do to gain the assurances we need as a board that we’re complying with our duties and running this business in accordance with the objectives that we espouse.

LH: What will the time-frame be for implementing all this? Has the IPO driven this forward?

SB: We committed to doing a report long before [the IPO]. We haven’t just emerged from nowhere. We are a very substantial business with a substantial amount of publicly traded debt and have had for a number of years. It’s more of an evolution in terms of our openness. A hundred banks provided us with billion of evolving credit – you don’t get that unless you act very similarly to a public company.

LH: You knew that going for an IPO meant that a CSR report had to be on the table fairly swiftly?

SB: We weren’t not open before. We’re a very substantial company with substantial public debt. We had to act in that way, anyway. Had we decided not to do the IPO for whatever reason we would have still published the report. The work had started long before that final decision had been taken.

PC: I was one of the initiators of Glencore Coal many years ago. In 1994, when I joined Glencore, it wasn’t public then. And we kicked it off in Colombia and came back to Australia until 2002 when it became part of Xstrata. We have a solid, high standard of HSE across the board. You have to maintain your licence to operate which in those countries means we have significant concern for our impact on the community and workforce. I don’t think you should make too much of the fact that this IPO transparency has opened up this company to achieving these standards. These standards are fundamentals of a good business.

MF: I joined the group in 2008 and there was already the idea for this report. The report is just part of a wider process, not just a standalone exercise. It’s not just PR. It’s part of a corporate programme.

LH: Can you please give more details about the 56 fatalities from 2008-2010 listed in the report?

MF: We are concerned about the figures because there’s nothing more important than achieving no fatalities in your operations. The majority occurred in Africa and a significant proportion in South America and Asia. Most of them occurred underground. It is the situation with the mining industry that it has more fatalities than other industries because it is more dangerous and the challenges are higher.

LH: Do you have figures for serious injuries, too?

MF: Yes, we have for what we call “permanent damage injuries”. We have far more figures for health and safety, but we declare what we are asked by the Global Reporting Initiative standards.

SB: A lot of the assets that Glencore has acquired are brownfield sites. We have come in after a privatisation, or a later date, and there’s a deteriorating asset that has been producing for a very long time. Katanga [in the DRC], for example. Originally, it was a private company, then run by the government, and then we came in. In many occasions, it’s about improving an operation that’s been running a long time before we’ve come in.

LH: Are your provisional 2011 figures showing any improvement yet?

PC: Obviously, the high fatalities rate is totally unacceptable. As well as environmental issues, I think the major issue we must address is the high incidence of fatalities. I know a lot of those fatalities were caused by ground falls in one of our African operations and I have a very superficial understanding of what’s being done to try and improve that situation. But, from a board point of view, that will be one of the first things we try to address. Management is responding and the board has to make a decision if they are responding fast enough. If not, we have to do something about that, either by providing enough resources for them, or encouragement.

LH: The term “zero harm” is used in the report as a goal. What time-frame do you put on achieving “zero harm”?

PC: You can’t put a time-frame on that because it depends on the region. A zero-harm time-frame in Australia might be 12 months, in South African it might be 5 years, and central or northern Africa it might be 10 years. You’ve got make continuous improvement.

LH: What is your policy regarding compensation for the families of those killed. Is there a pan-global policy?

PC: I can’t answer that. It’s not something that we have addressed to date. The next board meeting will be the first time we sit down with management and look very closely at this issue. Most of the board meetings to date have been associated with the IPO and going public. Now we’ll move into seriously addressing safety.

MF: There is one example in the report of the challenges of taking over the Katanga operation. We found an operation, for example, where miners were sent by the previous owners into mining areas that were totally unacceptable because of the risk of rockfall etc. So, as the case study in the report shows, when we’re working on strengthening the mine the safety record improves immediately.

PC: You never have the luxury of saying that you’ve got there [in terms of the zero-harm policy]. Inevitably, we harm people. But you’ve got to set the objective of zero harm. If you can achieve a decent standard of continuous improvement you are satisfying your obligations to your employees and the communities in which you are operating.

LH: The report says you aim to support communities, so why is the tax you pay so low? Why, for example, does the report declare that Glencore paid just m on about bn of revenue in Europe for 2010?

MF: We blow our revenues up compared to other mining companies because we are a trading house, too. Glencore will always look bad compared to other producers. A more fair way to view it would be on the margins.

LH: But m in Europe is still a very small number…

SB: In a trading company, revenue is not a very good measurement of the company. So when commodity prices go up, revenues go up automatically, but profits go up much less. As a private company, as is normal in Switzerland, the taxation was actually paid by the individual shareholder when they were paid out at the end of their career. So the tax wasn’t levied on the marketing [trading] business, as you would see here [in UK], it was actually paid when the people received the monies they had made in the company. You can’t work out what it is either as the taxation varies between the cantons in Switzerland. Our CEO, for example, lives in one of the higher tax cantons.

LH: But compared to the rest of Europe, [the tax take] is presumably still very small by comparison?

SB: No, that’s not true. In Zurich, I think it’s about 38%. Anyway, going forward, in the figures for 2011 you will see us paying corporation tax, as is normal for a public company.

Glencore later sent me the following clarification regarding its tax affairs, in further response to this question:

From revenues of billion on Europe, there was just million paid in taxes and royalties. How do you square that with commitment to local communities? In fact in general your tax payments seem a low proportion of revenues?

We see our payment of taxes and royalties as a core part of our contribution to our host countries, alongside providing employment and our broader voluntary contributions to local communities. It is local, regional and national governments that set tax rates, and they determine how those funds are spent, including what proportion is spent near to our operations.

We are also announcing in the sustainability report our support for the Extractive Industries Transparency Initiative as we believe that transparency in the disbursement of our direct economic contributions is important, both for us and for those who receive them.

We have produced the report in line with GRI guidelines, so we show a table comparing taxes and royalties, wages, and contributions to communities, with revenues. Of course, in reality, many corporate taxes are based on profits rather than revenues, and therefore a simple comparison of taxes and revenues may not give an accurate picture. In Europe, the majority of revenues are earned by processing units – they are not subject to production royalties and have much higher cost bases and, therefore, lower taxable net margins than our mining interests elsewhere.

When you look at our taxation more broadly, there are a couple of other things you should bear in mind. Glencore is a involved in commodities production and marketing. Although our profits come roughly half from production and half from marketing, most of our revenues come from the marketing side. This makes a comparison with pure mining companies difficult on this metric. You should also bear in mind that when we were a private company, taxation on our Swiss marketing business was paid by individual shareholders when they received their proceeds and therefore did not appear in our corporate accounts. This will no longer be the case now we are a public company.

The interview continued…

PC: In Zambia and the DRC I saw the contribution that Glencore has made. It has acted responsibly to date: there’s been a big contribution to employment and a lot of capital investment – hospitals, schools. I saw a genuine effort. I’m satisfied as a director that what’s been done to date has been very satisfactory and very responsible and I’m looking forward to taking the company into a new area and making a significant improvement.

LH: Will you be signing up to any external code of conducts?

MF: Our report is GRI compliant. It is a strong commitment that we accept international standards and aim to meet and obey them. There is no policy that we won’t sign up to any codes.

LH: The report briefly acknowledges Glencore’s lobbying activities. What are Glencore’s lobbying efforts?

MF: We are not doing that much in that area. We are members are some trade associations who support our interests. In the chemicals industries, for example, you find the big companies in Europe have offices in Brussels where they talk to government officials and members of parliament, but you won’t find this at Glencore.

LH: You don’t have a lobbying office in Washington DC or Brussels?

MF: For the moment, no. I’m not saying we won’t, but at the moment there is not an instant call for this.

After the call ended, Simon Buerk emailed me his response to some of the outstanding questions I had first raised on Friday:

The report says that biofuels will be increasingly important to Glencore as it attempts to address climate change concerns. How does it aim to also reduce/mitigate its reliance on fossil fuels in coming years? Does Glencore aim to increase or decrease its reliance on the trading and extracting of fossil fuels as a core component of its business model over coming years?

The world is currently seeking the optimum combination of energy sources that can mitigate climate change while ensuring a secure and affordable energy supply. Our role is to both increase the supply of commodities the world needs to support global living standards, and ensure they get to where they are needed in the most efficient way possible. The world clearly still needs oil and coal, and we continue to invest in these businesses. We anticipate new technologies making fossil fuel usage more efficient and reducing emissions. And even in scenarios where the energy mix does shift decisively towards renewable resources, there will be a lengthy transition period with meaningful requirements for carbon-based power production and mobility. For many years agricultural products have also been a core part of our business. We see demand from our customers for biofuels and agricultural products used in their production, so we have been actively investing in this area too for a number of years. In the report we talk about one of those investments, in a biofuels production business in Brazil, but we have similar projects elsewhere in the world and we are are excited about them as businesses.

On page 50, the report lists 173 complaints made by communities in 2010. How many of these complaints have now been resolved? Is there further breakdown available of where these complaints took place and specifically what they involved?

We want to be good neighbours, contributing to the local community in employment, revenues to government and social projects. We take any complaint seriously and try to take action where we can. Most of the complaints in 2010 were related to an effluent issue that we inherited from the previous operators at one of our projects in Africa. Work is ongoing to fix this problem – we expect it to be completed by the end of this year. We hope and expect that there will then be fewer complaints going forward.

Can you provide more details of the 11 “moderate” spillages reported on p64? Where/why etc?

These are mostly small spillages from tailings dams at mining facilities. We take these spillages seriously, and in each case we have entirely remediated the effects and investigated to ensure that similar incidents don’t happen again. But no incident on its own was significant either to the environment or to safety.

Page 61 mentions four significant environmental fines worth 0k in 2010…

We consider any environmental fine over ,000 to be ‘significant’, which is an indicator of how seriously we take our environmental responsibility. As we detail in the report, these fines related to encroachment (infringement on protected land) and a three-day interruption in the licence to operate at one of our production sites in Kazakhstan. We’ve reached agreements with the relevant authorities on these matters and reported them in line with GRI G3 requirements. We are not complacent about this at all, but clearly these fines are minor within the context of our global business.

On page 72-73 you detail how much renewable energy Glencore uses in its operations and distribution. How does Glencore define “renewable energy”?

We use hydro-electric power in some of our operations around the world, including in fact running a substantial hydro-electric facility at our Kazzinc project in Kazakhstan. This makes it simple for us to define renewable energy and we don’t have the same complicated definition issues consumers of biofuels, for example, have to consider in their reporting.

Please can you provide further details of the eight strikes mentioned on p45 of the report? Why did the strikes take place, and how were they resolved?

As we note in the report most of these strikes occurred in South America. We of course try hard to avoid strikes, including by negotiating with our workers on wages and benefits.

What forms of compensation is Glencore planning for the 320 families being resettled in Prodeco, Colombia, as mentioned on page 53?

In 2010, our only operation to be affected by resettlement activity was Prodeco in Colombia. This will have an impact on communities near our Calenturitas site. This resettlement will occur together with other operators in this area and in close collaboration with the Colombian authorities and of course the affected communities. The companies are still investigating the possible effects and consulting with local communities to reach a common consensus. This will establish the appropriate processes for the resettlement. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds