Enduring Values…???

A critical review of Sustainability report

A Project for CSR Course , Trimester I, NMIMS, Aug. 2011.

Kushal Bagadiya (B 006) Mayank Goel (B 019)

Anay Bhalerao (B 009) Siddharth Jain (B 023)

Tanmay Borse (B 012) Anil Mantoo (B 035)

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Index

1.0 Introduction 2

2.0 Triple Bottom Line 3

3.0 Challenges Faced by Vedanta 5

4.0 Corporate Governance 6

5.0 Future of the Company 7

6.0 Our Take on Vedanta 8

References 9

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1.0 Introduction

Founded in 1976, Bombay by Anil Agarwal, Vedanta Resources is headquartered at

London, United Kingdom. It is a diversified metals and mining group with interests in

aluminum, copper, zinc, lead, iron ore and commercial energy. Their mission is to become a

million-ton per annum producer at the lowest possible costs in aluminum, copper and zinc. By

doing so they want to put India on the global metals and mining map.

1.1 Structure

1.2 Vedanta and CSR

Vedanta has setup a website dedicated to its CSR activities, initiatives and recognitions

[1] .It states its CSR policies namely in three domains.[2]

1. Health and Safety - They claim to provide a safe, secure and healthy workplace for all

employees. With this commitment and belief they aim to develop, implement and

maintain Health and Safety management systems. Most of their operations are certified

for OHSAS 18001.

2. Environment - Vedanta claims that it is an environment conscious company. Their

efforts are aimed at efficient resource consumption and minimizing their environmental

footprint. There strategic goal is to reduce waste generation, increase recycling and

maintain environmentally sound operations. Most of their operations are certified with

ISO 14001 – Environmental Management Systems.

3. Empowering Community - Vedanta‟s vision is to enhance the quality of life, create

sustainable societies and improve the socio-economic well being of the communities in

and around their operations. Therefore their focus is on social Investment and bio

Investment.

1.2. Criticisms

To back these CSR approaches and activities they have been felicitated with a lot of

awards and recognitions. Despite these CSR awards and policies Vedanta has been in the traps of

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environment degradation, safety norms being flouted and thus in legal battles. To state in brief

the criticisms it has received:

1. Environmental damage - Vedanta has been criticized by human rights and activist groups

for its various operations. One such operation is in Niyamgiri Hills in Orissa. This project is

said to threaten the existence of the Dongria Kondh people who worship these hills.

2. Safety concerns - Unsafe mining operations have led to many injuries and deaths involving

own employees and contractors. A chimney under construction by Gannon Dunkerley &

Company at the Balco smelter in Korba, Chhattisgarh collapsed on 23 September 2009

killing at least 40 workers.

3. Legal violations - On 21 August 2010, the customs and excise department charged Vedanta

group's Sterlite Industries (India) Ltd for evading duty by mis-declaration of export

consignment. Anil Agarwal has been accused of collaborating with Harshad Mehta, in insider

trading. In 1998 while the Bombay Stock Exchange was performing poorly and Mehta was

promoting Sterlite stock, the company‟s shares rose by 41 percent. That same year, the

Securities Exchange Board of India prohibited Sterlite from accessing the capital market for

a period of two years, for insider trading and other offenses.

2.0 Triple Bottom Line

2.1 Profit

Revenue from the businesses increased from $3,701.8 million in fiscal 2006 to $7,930.5

million in fiscal 2010, representing a compound annual growth rate of 21 %.[2].

The company website states the mission of the company as

‘Our mission is to be a world-class metals and mining group and

generate superior financial returns.’ The group thus, focuses on the profit aspect well, giving good returns to the share holders. But

when we see the other aspects of the bottom line, there is much left to the expectations.

2.2 Planet

This being an extractive industry, a certain amount of damage to the ecological systems is

inevitable. The main focus of the company with respect to the environment is to use the natural

resources efficiently, complying, as a minimum with all the applicable regulatory requirements

and beyond, to reduce and recycle wastes and to encourage a culture of continuous

improvements and innovation, supported by effective management processes and employee

involvement. The focus is also to extend these ideals to contractors and other hired workers.

Most of the operations of Vedanta Resources are certified with ISO 14001 – Environmental

Management Systems.

Through these systems, Vedanta wants to ensure implementation of their policies from

thought to action. Their operating personnel have developed necessary skills and competencies

to use advance tools like TQM, Six Sigma and Quality Circles for implementation of special

improvement projects aimed at improving process efficiency, conserving natural resources,

efficient waste management and managing Green House Gas (GHG) emissions.

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Despite the tall claims, there have been instances when Vedanta Resources has been

repeatedly criticized for their unsafe practices which have lead to some accidents in the past.

They have been severely criticized for disturbing the ecological systems in the eastern parts of

India due to their operational activities.

2.3 People

The sustainability Policies of Vedanta Resources pertaining to People is focused on

empowering community. The company claims to play significant development role in terms of

employment, local skill development, the purchase of local goods and services. It claims to have

contributed in terms of local infrastructure development, road maintenance and medical

facilities. Vedanta Resources Ltd. works with communities in different spheres which range from

rehabilitation and resettlement (wherever applicable) in Greenfield projects, to a more all-

encompassing approach in Brownfield projects. Approach is said to be both intensive and

extensive, depending on whether the village is in the core area of operations or in the buffer

zone. The process culminates in integrating the various projects in a phased manner that is

aligned with Vedanta‟s Integrated Village Development Program.

But there have been many issues on which, Vedanta Resources has been severely

criticized by various Human Rights organizations. The company faced criticism, in India and

abroad that its operations threatened the existence of India‟s Dongria Kondh tribe. The Dongria

Kondh tribes hold the Niyamgiri ranges as sacred and act as protectors for these hills. Cast as a

“David versus Goliath” fight by the tribe and its supporters, the Vedanta story comes at a time

when stakeholders continue to look for a firm definition and application of a community

engagement concept known as Free, Prior, Informed Consent (FPIC), to benefit indigenous

peoples around the world.

At Vedanta‟s AGM on 28 July 2010, the Company faced severe criticism from NGOs

and activist investors for its poor environmental, health and safety and indigenous and human

rights performance. As a result, Scott Wilson Ltd was appointed by the bank lenders to Vedanta

Resources in September 2010 to review the Company‟s approach to sustainable development and

to assess the social and environmental issues in relation to Vedanta Aluminium Limited‟s (VAL)

Lanjigarh (India) refinery and its proposed expansion.

The main points of the Scott Wilson Report are:

Developing policies reflecting best international practice

Adopting a specific human rights policy and implementation procedures that demonstrate its

commitment to the UN Declaration of Human Rights

Developing a standardized approach to community consultation and disclosure on new

developments that reflects the IFC Guidelines

Changing the title of the Health and Safety and Environment (HSE) committee to the

Sustainable Development Committee and expand its term of reference

Adopting a specific policy in relation to engagement with and assistance to social groups that

may be vulnerable to change

Ensuring that there is a simple and accessible grievance mechanism by which villagers can

identify any concerns about the operation of the mines/plants

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Various independent organizations like Amnesty International, EIRIS have assessed the

company on similar lines and have made recommendations. But the progress made by the

company on the guidelines is not satisfactory.[4][8]

3.0 Challenges Faced by Vedanta

Challenges can be classified into two types, external challenges and internal challenges.

External challenges would not only effect long term business strategy of Vedanta but also

determine the sustainability of its present CSR initiatives/strategy. Internal Challenges would

involve restructuring of present business approach by Vedanta and align itself with principles

reflecting a commitment towards improved triple bottom line performance.

The Scott Wilson Report has highlighted a lot of concerns regarding Vedanta‟s policies.

The concern list below is the same one as mentioned earlier, with addition of comments on the

present measures taken by Vedanta to address these concerns.

Table 1 Internal Challenged Faced by Vedanta

In the above table, “green” denotes that the concern has been addressed to the full; “aqua”

indicates that the issue is being dealt in manner that its resolution seems a fair certainty and “red”

denotes that the solution to the issue seems uncertain in near future. It seems that most of the

issues should be resolved by the end of this year. The only area of concern is the development of

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grievance redressal system, though a pilot project has been implemented but there is a lack of

information about its success and shortcomings.

Moreover, as the Scott Wilson was appointed by bank lenders of Vedanta, it can‟t be

truly called an independent assessor of Vedanta‟s policies [9]. The Company should commit to

commissioning independent environmental and human rights impact assessments. One of the

most important challenges faced by Vedanta is to improve its risk management systems by

taking the help of independent bodies and showing transparency in by publicly releasing the

findings.

5.0 Corporate Governance

It is the set of processes, customs, policies, laws, and institutions affecting the way a

corporation is directed, administered or controlled. Company with a premium listing on the

London Stock Exchange, the Company is subject to the Combined Code on Corporate

Governance issued by the Financial Reporting Council in June 2008 (the „Combined Code‟).

Group Governance Structure

The board consists of six members (three executive and three independent) with Mr. AK

Agarwal at the helm as the chairman.

The company, at the time of listing has signed an agreement called relationship

agreement with Volcan,-the majority shareholder, in order to ensure that the group is able to

function independently of Volcan, the Agrawal family and its associates. Under the terms of this

BOARD OF DIRECTORS

Executive Chairman, 2 Executive Directors,

3 independent Non Executive Directors

EXECUTIVE COMMITTEE Executive Chairman, Deputy Executive Chairman, CEO, 11

senior management members

SUBSIDIARY COMPANY BORADS

AUDIT COMMITTEE 3 independent Non Executive

Director

REMUNERATION COMMITTEE 3 independent Non Executive

Director

NOMINATIONS COMMITTEE Executive Chairman,

3 independent Non Executive Director

SUSTAINABILITY COMMITTEE 1 Non Executive Director, 1 Executive Director, CEO from African Operations

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agreement, the Board and Nomination committee with at all times consists of majority of

Directors who are independent of Volcan and Agrawal family while the Remuneration and Audit

committee which consists of only Non-Executive members.

The group corporate governance has five major committees. The executive committee is

responsible for supervising all aspects of operational performance of the Group. There is clear

division of responsibility at the head of the company between the head of the Board and the

executive responsibility for running the company‟s business. The Nomination committee is

responsible for succession planning and making recommendation concerning candidates for

board appointment. As per the new requirements of UK corporate governance due regards should

be given to diversity, including gender in the Board composition and accordingly the committee

is reviewing its succession planning and selection procedures. The Remuneration committee is

responsible for deciding the remuneration of the chairman and the Board of Directors and also

monitors level and structure of remuneration of senior management. The fees of non executive

directors is independently reviewed and its takes into account the time commitments and the

responsibility of the role. The Audit committees remit falls into four main areas: financial

reporting, internal control and risk, and oversight of external and internal audit processes. The

sustainability committee is presently called as the Health, Safety and Environment (HSE)

committee. It‟s the duty of sustainability committee to see that company is fulfilling

responsibility to shareholder in respect of policies and practices that relate to sustainable growth

of company.

To maintain its relations with shareholders, dialogues and meetings are regularly held

with analysts and shareholders where presentations are made to analysts by the Chairman,

Deputy Chairman, Chief Executive Officer and Chief Financial Officer. The Board uses the

Annual General Meeting („AGM‟) to communicate with shareholders and welcomes their

participation and questions.

5.0 Future Plans of the Company

Vedanta Science College to start at Lanjigarh in Orissa

To strengthen the future generation in tribal area Vedanta has pioneered the idea to open

a Science College at Lanjigarh, Kalahandi. The Vedanta Science College will commence classes

from 2012. Most towns in interior Western Orissa have mostly Arts and Commerce Colleges,

where job opportunities for students passing out are limited. The college will address the need

for quality science education in the district of Kalahandi and will make the youth qualified

enough to get ample job opportunities.

Vedanta Science College will help the people to get education in science but it would

only admit 64 students in the first year .This is a very small number compared to the population

in Kalahandi as there are not many science colleges in this part of Chhattisgarh.

Utkarsh Scholarship scheme for talented youth of Chhattisgarh

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Bharat Aluminum Company Ltd (BALCO), has invited applications for Utkarsh Scholarship

Scheme from the bright and talented youth from the economically weaker section of.

Chhattisgarh, who have dream to pursue various streams of engineering in premier institutes.

But Utkarsh Scholarship scheme has provided scholarships to 43 students only till date.

Considering the scale and size of Vedanta group as a whole this is a very small number. By

increasing the number of scholarships they give themselves an opportunity to get the best talent

to work for them, who would readily join Vedanta 4-5 years down the line.

Cancer Hospital in Chhattisgarh

The state of the art hospital will be operational in 2012. It will have 350 bed and all the

latest equipments. This project has been initiated under the aegis of Vedanta Medical Research

Foundation (VMRF)

.

The location of the Cancer Hospital has been chosen at Saddu, a village far away from

Raipur. This poses a question whether the hospital would be able to attract good oncologists and

doctors who would be readily available to work in rural location. It needs to be seen what

charges are levied from the patients of the region. The people of this part are mostly poor and if

they are charged heavily for the facilities then the purpose of this hospital would be defeated.

7.0 Our Take on Vedanta

The website of Vedanta resources has a mention of umpteen CSR Excellency awards that

is has won. But what is the use of such awards and felicitations if one is not able to support and

sustain its environment, people. Apart from that a company also has legal directives from the

government that they should follow. Vedanta resources limited has been a target by various

activists, human rights and environmental NGOs for violation of legal and safety issues and

environmental degradation.

Vedanta Resources focuses only on the Profit aspect to satisfaction. It should look into

the improvement on the People and the Planet front. The company should enter into responsible

partnerships with Governments and ensure that the rights of the indigenous population are not

violated. It should not only look into the well being of the people it employs, but also take into

account the people who are affected by the operations of the company. It should follow the

recommendations of the SWR as it is does not satisfy most of the recommendations to the full

extent till the date.

There have been instances where health of the surrounding communities has been

affected due to release of pollutants in the atmosphere. It is thus violating Millennium

Development Goals 1 and 7. Vedanta Resources should look into the same, prescribe to higher

standards pertaining to environment and communities.

Vedanta currently follows the Cadbury Committee report on financial aspects of

Corporate Governance (1992) and the Greenbury community report for Director‟s remunerations

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(1995) and Combined code of Corporate Governance (2008). But it should transcend the

guidelines and established itself as a model for the extractive industry worldwide.

In accordance, the following are our recommendations with regards to the governance structure.

1. Independent Chairman - An independent chairman at the helm would lead to more

transparency and independent leadership will ensure effective functioning.

2. Independent Nomination Committee - Under the Relationship Agreement, nomination

committee therefore works in collaboration with Volcan when making appointments to

the board. But it should ideally be working as an independent body.

3. Increasing the Board strength - The board consists of only six members presently. The

board strength can be increased in order to have varied opinions and have experts form

varied fields in the board (example, an expert from the mining industry or an ex-member

of ICMM as in independent director in board).

4. Investors Grievance Committee - The group can set up an Investors Grievance

Committee in order to look into redressal of investor‟s complaints like transfer of shares,

non receipt of balance sheet, non receipt of proposed dividends, etc.

The CSR activities, as we see, are principally Philanthropic. They are nowhere in line

with the operations of the company. It should try and align its CSR activities with its long term

objectives. Finally, we feel that rather than having a “New Code of Ethics”, Vedanta should

realign itself and define a new “Business Philosophy” as an investment for future.

References

1. http://www.vedantaresources.com/sustainability/

2. http://www.vedantaresources.com/about-us.aspx

3. http://www.corpwatch.org

4. http://www.eiris.org/files/research%20publications/EIRISVedantaReport2010.pdf

5. http://pib.nic.in/release/release.asp?relid=54712

6. Vedanta Resources Plc, Sustainable Development Report 2010-11

7. Vedanta Resources Plc, Annual Report 2010

8. Scott Wilson Report on Vedanta

9. EIRIS Report on Vedanta