Corporate Governance and Social Responsibility: Biowatch, Department of Environmental Affairs and Tourism and Cosatu: briefings

Meeting report

CORPORATE GOVERNANCE AD HOC COMMITTEE
23 January 2006
BIOWATCH, DEPARTMENT OF ENVIRONMENTAL AFFAIRS AND TOURISM AND COSATU: BRIEFINGS

Chairperson: Ms B Hogan (ANC)

Documents handed out:
Biowatch presentation (please email [email protected])
Department of Environmental Affairs and Tourism presentation
DEAT Annual Review
DEAT Country Assessment for African Peer Review Mechanism
Country Self-Assessment for the African Peer Review Mechanism

SUMMARY
Biowatch, the Department of Environmental Affairs and Tourism and Cosatu presented submissions on issues of corporate social responsibility and corporate reporting with regard to the African Peer Review Mechanism. Information was provided on the standard of compliance experienced by the various entities within their respective zones of influence. A more community oriented development model was needed to counter excessive levels of inequality and poverty. Transparent company reporting practice was crucial to achieving the stated objectives. Multi-national companies had to be closely monitored and assessed to determine levels of compliance. Meaningful measures should be available to sanction non-compliance and rectify environmental degradation. Corporate accountability had to encourage sound use of natural resources and open business practices. International organisations imposed a regulatory framework that favoured global companies and finance corporations. Capacity shortcomings within government departments had to be addressed to improve levels of intervention and monitoring. Recent labour reforms had undermined labour rights and reduced benefits. Trade union activity had to be enhanced within certain economic sectors.

Members asked numerous questions including the general level of compliance by South African companies, the responsibility required by foreign companies, the impact of globalisation on environmental degradation, whether civil society groups could pressure companies to engage in proper reporting, the role of provincial governments in monitoring corporate social responsibility, any constraints in monitoring State Owned Enterprises, existing barriers to trade union activity and the relevance of labour legislation in the face of modernisation.

MINUTES
Biowatch presentation
Mr A Soeker (Advocacy Officer: Biowatch) presented information on the role of corporations in meeting social obligations. The current context was characterised by excessive levels of inequality and poverty. A growth-centred economic model was creating undesirable social consequences. Limitations existed to corporate accountability. The World Summit on Sustainable Development had achieved little progress in promoting a more community oriented development model. Development was occurring in an unsustainable manner with total control by multinational companies. Corporate responsibility should be premised on a sound reporting system. Corporations were now controlling life, food and medicine. The top three drug companies controlled 59% of the international market. Half of the commercial seed market was controlled by the top three companies. Last year saw a 40% jump in the value of key multinational mergers.

Biowatch had to consider how global companies could be monitored and regulated. The organisation had focused on Monsanto, a global seed company, to show the level of control. The company had manufactured Agent Orange during the Vietnam War that caused widespread toxic side-effects in subsequent years. The company intended to hold farmers in the Third World contractually bound to continue sourcing their seeds. The company intended to dominate the genetically-modified (GM) crop market. The company's role in South Africa was explained. Political pressure is also applied to farmers to accept GM crops. Farmers tend to accumulate debts through interaction with Monsanto and pesticides have continued to be used despite assurances that such preventative measures would no longer be necessary. The new technology was not addressing climatic problems associated with farming. High costs prohibited many poor farmers from participating in the programme. Corporate accountability had to be promoted in terms of equity, the finite nature of resources, establishing clean, smart industry and transparency. A firm regulatory framework was needed, including international agreements.

Discussion
Mr Laubuschagne (DA) sought more concrete information on South African corporates with regard to environmental protection. He asked whether local subsidiaries of international companies fell outside the net in terms of regulation. He requested an overview of South African companies on the issue of corporate responsibilities.

Mr Soeker replied that Sasol provided a sound example of corporate reporting on environmental responsibilities that other companies should emulate. The developed world had stringent environmental rules in place that were less intense in the developing world context. Multi-national companies dominated the seed industry in South Africa and released certain products into the local market that were banned in their own countries.

Mr Laubuschagne asked whether listed companies in South Africa had a higher level of corporate social responsibility than foreign unlisted companies.

Mr Soeker responded that South African companies had to improve reporting methods in general despite some successes such as Sasol.

Mr Hendricks (UIF) asked what role the World Bank and International Monetary Fund had played in driving the modernisation model and thereby contributing to the degradation of the environment.

Mr Soeker stated that the organisations in question produced international rules that increased the dominance of multi-national companies over international trade and environmental groups. International agreements should be drawn up to reduce negative impacts on the poor and impose stricter regulations on multi-national companies.

The Chairperson asked whether civil society groups were monitoring the level of sustainable reporting by global companies.

Mr Soeker declared that Groundwork was involved in the testing of air quality in the vicinity of chemical companies and providing feedback to communities. Industry players also had their own monitoring systems that had some relevance. Biowatch would seek to approach companies to improve policy and environmental standards where necessary.

The Chairperson asked whether Biowatch would lobby companies to improve the standard of corporate reporting and to force compliance with regulations.

Mr Soeker replied that no lobbying of companies took place by civil society groups but some NGO'S could purchases shares in target companies and attempt to influence policy through shareholder activism. Civil society groups needed to formulate appropriate strategies to address this shortcoming.

The Chairperson regarded the present scenario as unacceptable as pressure was only emanating from the Johannesburg Stock Exchange at this juncture. A wider front involving crucial civil society groups was critical to alter the current practice. The role of state-owned enterprises in terms of reporting and responsibility should be included in feedback to be provided by Biowatch.

Department of Environmental Affairs and Tourism (DEAT) presentation
Mr B Ngobeni (Deputy Director-General: Corporate Affairs, DEAT) provided an overview of the regulatory framework in place. The Department had horizontal influence over parastatals and vertical influence over all three spheres of government. The challenge was to devise effective methods to ensure sound corporate citizens that acted in accordance with international quality standards. More legal intervention was required to ensure adequate levels of compliance by corporations to existing environmental legislation. Skills shortages within the Department had to be addressed to assist in intervention activity. The creation of the Environmental inspectorate would contribute to higher levels of compliance. Corporate activities had to adhere to international quality standards. The Department had produced programmes on sustainable environmental management. More legal intervention was required to improve levels of corporate compliance. 72 citation reports for environmental degradation had been received last year. Provincial governments monitored corporate activities within their jurisdictions.

Discussion
The Chairperson asked why provincial governments were monitoring corporations with regard to environmental management.

Mr Ngobeni responded that the national sphere concentrated on policy formulation and implementation whereas provincial departments tended to focus on evaluation and assessment.

The Chairperson asked whether any collective monitoring of corporate reports occurred and whether follow-ups on the implementation of corrective measures took place. Regulators should also assess the veracity of corporate reports. Lack of capacity at the provincial level could exacerbate the poor level of reporting.

Mr Ngobeni stated that institutional arrangements were in place to facilitate evaluation at the provincial level such as Minmecs. The Inspectorate was also involved in the monitoring of corporate compliance. National Environmental Advisory Forums had been established that incorporated companies in debate and planning.

The Chairperson declared that existing legislation provided for company directors to be held personally liable for non-compliance and environmental degradation. She asked whether company management was being held responsible for violations.

Ms Seaton (IFP) noted the value of pro-active monitoring to avoid disasters where possible. She asked whether such monitoring was in place.

Ms Z Bogobane (ANC) referred to a recent incident where the Crocodile River was polluted and asked who took responsibility for such an event. A reactive approach to environmental management had to be avoided.

Mr Ngobeni concurred that the National Environmental Management Act provided fro company management to be held liable for environmental degradation. Various co-operative agreements also encouraged voluntary compliance and the Inspectorate had achieved some success. The Department would continue to focus on advisory forums and provincial structures to achieve objectives.

Mr Laubuschagne noted that devolution of responsibilities from provincial to local government contributed to inefficient monitoring. The introduction of increased fines for corporates was a sound development but large enterprises would not regard small fines as a deterrent. Fines had to be of a certain size to persuade companies to comply.

Ms Bogobane referred to the levels of suffering inflicted on the poor by non-compliant companies and asked what restorative steps could be followed by communities to achieve justice.

Mr Ngobeni replied that State of the Environment reports attempted to focus on restorative justice issues and identify levels of illness and suffering caused by corporate negligence. Co-operative agreements tended to impose conditions on companies and serve as a deterrent. However, success in this regard was limited.

Ms C Van Der Merwe (Chief Director-Policy and Planning) stated that Project Consolidate had identified service delivery backlogs in municipalities such as refuse removal and waste disposal that had positive implications for the environment. The onus was on municipalities to use financial resources competently. Co-ordination between the three spheres of government was crucial to ensure proper management of the environment. The Department participated within Integrated Development Planning meetings to contribute to better practices.

Ms Seaton asked what action was taken against non-complaint provincial and local governments.

Mr Ngobeni informed Members that detail on action taken would be submitted to the Committee in due course. Posts had been created within the Department to improve intervention capacity. However, scarce skills negated attempts to improve the system.

Ms Bogobane declared that learnerships could assist in improving skills levels. People with relevant environmental skills should be employed to enhance efficacy of intervention programmes. She referred to poor town planning that resulted in overflowing graveyards located next to water resources and residential areas. She asked whether the Department contained a town planning component.

Ms Van Der Merwe acknowledged that the Department needed to adopt a more pro-active stance with regard to town planning initiatives. The Department had participated in the National Spatial Development review and had applied environmentally sustainable principles to the process. The Department engaged with local government to identify needs and promote sound planning and management. Environmental assessments were incorporated within IDPs.

Mr Ngobeni noted that political expediency and other pressures caused municipalities to deviate from development objectives.

The Chairperson sought clarity on the overall response of the private sector to environmental legislation and whether certain sectors were not responding adequately.

Mr Ngobeni replied that the response from corporations was mixed with significant problems remaining within the mining and chemical sectors. Cleaner technologies reduced the adverse consequences but smaller companies found the set-up costs prohibitive.

Ms Seaton asked whether sandwinning operations on the Kwazulu-Natal coast had been controlled as major damage had been caused.

Ms Van Der Merwe stated that a policy to improve levels of evaluation of management of environmental resources would be developed.

The Chairperson asked whether the Department was constrained when monitoring State Owned Enterprises due to the government as a major stakeholder.

Mr Ngobeni concurred that some tension existed but was managed. The activities of SOEs were monitored to evaluate compliance to environmental legislation.

The Chairperson referred to the presence of unlisted multi-national companies and asked whether the Department monitored their behaviour.

Ms Van Der Merwe responded that the activity of unlisted companies had to comply to existing legislation such as the Air Quality Act. The Department monitored records of decisions within companies to determine company activities. The capacity of provincial authorities would be improved to raise monitoring levels.

The Chairperson asserted that corporates appeared to be left to their own devices with regard to reporting. Minimal assessment of implementation seemed to occur. Shareholder activism would remain a key tool to protect environmental conditions in the interim. The Department should inform the JSE of non-compliance to improve monitoring levels. Interest groups should enhance communication to co-ordinate activities.

Cosatu presentation
Ms P Govender (Parliamentary Liaison Officer) noted that ‘regulation flexibility’ had been imposed on the South African labour market since 1994. The labour market was seen as inflexible by international bodies but in reality was highly flexible. Unemployment had increased in all sectors and wage reductions had become standard. Informal employment standards had become common such as part time work, casualisation and outsourcing. The definition of unemployment remained controversial and reliable statistics were problematic. Corporates attempted to evade legislation to save on costs. An in-depth study of South African corporates had to be undertaken to assess behaviour and levels of compliance. Section 9 institutions such as the Human Rights Commission had to contribute to the debate and provide relevant research findings. Eight fundamental conventions on labour standards were explained and certain conventions identified that had not been ratified by South Africa. The United Nations Convention on Economic and Social Rights for workers should be ratified. Health and Safety legislation was an important component of worker-related legislation.

Minerals and Energy legislation also possessed relevant provisions for labour. Companies applying for mineral rights have to contain a social and labour plan explaining how companies would cater for employees in the face of downscaling and eventual closure. The granting of rights was also conditional on health and safety issues.

The Chairperson asked whether social and labour plan provisions applied to South African companies operating outside of the country.

Ms Govender stated that legislation only applied to companies operating within the country. The Insolvency Act and Companies Act favoured creditors over debtors and banks over other interest groups. Employees of liquidated companies would now have labour contracts remaining in force for 40 days as opposed to the earlier situation where contracts were immediately dissolved. The Department of Justice was investigating cases of alleged abuse by liquidators. The rights of workers had to be protected where businesses were liquidated. Laws governing corporate behaviour were inconsistently applied in certain sectors. High unionization rates existed in the mining industry but agriculture, for example, had low trade union activity. The labour dispute resolution mechanism had to be reformed to reduce the period of resolution and create enhanced rights for workers.

The Chairperson asked whether the resolution process was too pedestrian and whether the Commission for Conciliation, Mediation and Arbitration was operating as intended.

Ms Govender replied that the issues were being discussed within the CCMA and the position of companies with regard to reform proposals had to be established. Certain economic sectors showed better commitment to health and safety requirements than others. High accident rates tended to be associated with the involvement of labour brokers in accessing workers. No national minimum wage currently existed in South Africa and huge wage gaps prevailed between skilled and unskilled employees. The concept of fair wages had to be investigated. The system of compensation for injury was under review. Currently, a no fault system was in place and injured workers had to receive ongoing treatment if required.

Mr S Kgara (Deputy-Head- Parliamentary Office) added that recent policy developments would introduce cover for injured workers and Aids patients. Presently, inadequate assistance existed for workers suffering from Aids.

Ms Govender stated that trade union activity had to be escalated in certain sectors such as agriculture to enhance workers’ rights. Further detail would be submitted to Members on the rate of unionization in various sectors.

Mr Hendricks referred to the plight of farm workers in relation to housing where farmers were evicting labourers and using houses for business purposes within the tourist industry. He asked whether government was involved in supporting such activities.

Mr Kgara declared that the wave of evictions was part of the casualisation process and the increased use of migrant workers with reduced adherence to legislation. The houses in question had been built before 1995 with national government assistance. Government could not provide additional funding for farm houses on private land.

Mr Laubuschagne noted the low levels of unionization in certain sectors but declared that no legal barriers existed to prevent trade union activity.

Ms Govender acknowledged that no barriers to union activity prevailed other than financial constraints. Appropriate strategies should be devised to improve trade union activity within the agricultural sector.

The Chairperson added that domestic workers remained vulnerable due to insufficient trade union involvement.

Ms Govender responded that unions experienced logistical problems in accessing domestic workers and raising sufficient funds.

The Chairperson referred to the improved levels of revenue collection in South Africa and asked whether access to Unemployment Insurance Funds had improved.

Ms Govender stated that accessability and efficiency remained challenges within the UIF. A general concern remained that legislation was not being applied in the correct manner.

The Chairperson noted that Cosatu would be submitting to the APRM process.

The meeting was adjourned.