Asbestos: The Forgotten ESG Risk That Just Won’t Go Away

Investors have been living with the false impression that asbestos is a legacy issue from the 1960’s that has been dealt with.

Nothing could be further from the truth.

This week Dave Oliver, Secretary of the Australian Council of Trade Unions met with senior management at James Hardie seeking a commitment that the company will honour its responsibility to compensate Australian asbestos victims.

James Hardie has for many years been dealing with the legacy of its asbestos production in the 1950’s. After James Hardie sought to remove its asbestos liability by moving its corporate headquarters to the Netherlands, a national campaign led to the company funding the Asbestos Injuries Compensation Fund to pay out claims to asbestos sufferers.

The problem now is that the Compensation Fund is running out of money.

Dave Oliver said this week “I am deeply disappointed that James Hardie’s management were rigid and not prepared to be flexible. The fact of the matter is James Hardie has a moral obligation to compensate the victims of asbestos-related disease and cannot transfer that responsibility.”

The ACTU’s fight comes as workers and neighbours at a factory in Melbourne’s Sunshine North have been contracting asbestosis after the site was left unsecured. The factory had at different times been owned by James Hardie and CSR.

Whilst asbestos in the developing world is subject to intense focus from trade unions and the media, which is a result of the thousands of people that have died from asbestos related diseases, we are unfortunately now witnessing the start of what may be a future asbestos epidemic in Asia.

Having been driven out of developed countries, asbestos producers did not go away but turned their attention to developing countries. The global asbestos trade is worth around $500 million, with India importing $235 million.

The industry has powerful friends including the Russian Government. Russia is the world’s biggest exporter of asbestos with the industry employing 38,500 Russians, many at Uralasbest, the world’s largest asbestos mine.

The Russian Government has used its global influence to promote asbestos in a number of ways including through a Russian government delegation that defeated the listing of chrysotile asbestos as a hazardous substance at the UN Rotterdam Convention conference. In March 2013 scientists from around the world criticized the International Agency for Research on Cancer, which is part of the WHO, for its collaboration with the Russian Government and industry representatives over a study of health effects at the Uralasbest mine.

The asbestos industry also has an active global lobbyist, the International Chrysotile Association that seeks to prevent the introduction of asbestos regulations. Examples of the way asbestos lobbyists seek to stop regulation includes the work of global public relations company, APCO Worldwide, who lobbied the Malaysian Government to defeat a ban on asbestos, proposed by the Malaysian Department of Occupational Safety & Health. In Brazil, in 2012 the industry also fought in the Supreme Court against a proposed ban on asbestos.

Despite the industry’s lobby efforts litigation continues. On October 9 2014 Japan’s Supreme Court ruled against the Japanese Government in a case brought by 89 former asbestos workers opening up the possibility of compensation.

However, the use of asbestos, particularly across Asia, continues to rise. Its main use is in construction for industrial use, but it is increasingly being used as a low cost ingredient in cement for residential housing. With the average asbestos victim living for just 155 days from the time of diagnosis, it is unlikely that future victims will have the chance to be heard, let alone represented. Investors will not just be exposed to future litigation. Asbestos is a classic universal case study, where the impacts of asbestos related diseases will impact the whole of society through increased health costs and reduced economic productivity.

The question for responsible investors is whether governments acting by themselves will ban asbestos globally.

The interest of the Russian Government in promoting and preserving its asbestos industry has raised questions about the role of international bodies such as the World Health Organisation in setting standards. The myth that asbestos is safe, whilst refuted through scientific evidence, is being promulgated in global forums by an industry that has strong commercial incentives.

There has unfortunately been a lack of engagement by investors around asbestos risks. The growth of asbestos use in developing countries threatens to create a future asbestos epidemic. Investors need to find their voice on this issue.

Disclosure: Two members of my extended family have passed away from asbestos related diseases so, yes, this is personal.

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As Battlelines on Divestment Are Drawn, Investors’ Pathway Becomes Clear

Divestment from fossil fuels is attracting global attention not least because of the high profile divestment of the Rockefeller Foundation and Stanford University.

On 3 October the Australian National University issued a five paragraph statement advising that the University would “commence divestment of stocks in seven companies following an independent review of ANU domestic equities.”

The divestment of shares in Iluka Resources, Independence Group, Newcrest Mining, Sandfire Resources, Oil Search, Santos and Sirius Resources made up just 1% of the University’s total investment portfolio.

Whilst not a feature of its press announcement, ANU’s divestment was in response to a campaign by a student group, Students for a Fossil Free ANU Group, which itself was part of a broader campaign for Australian universities to divest from fossil fuels.

Australia is in many ways a small market. Whilst we don’t all walk up and down the street in Paul Hogan fashion saying g’day to each other, our markets, media and government are small enough that Australia has often been used as a testing ground for new products and innovations.

In that regard what happened after ANU’s October 3 announcement is a case study that should be of interest to all investors.

Since the announcement on a daily basis Australia’s premier business newspaper, the Australian Financial Review has rolled out articles and columns criticising ANU’s decision.

Former Labor cabinet members and current Coalition ministers have been brought into the discussion, including Australia’s Prime Minister Tony Abbott who described the decision as stupid.

Critics of ANU’s decision have questioned whether there is a need for activist groups to be brought under secondary boycott laws, which would in effect mean that environmental activists could be sued for damaging a company. Questions have also been raised as to whether the ANU vice-chancellor has a conflict of interest and whether ESG research firm CAER is somehow tainted through links to the Australia Institute, which is campaigning for divestment.

Investors it must be said are not used to this kind of attention. The question is why has there been such an active, vitriolic response?

There is probably something to be said for mining being a part of Australia’s culture. Australia is a country where the resources sector has been a core part of economic development. The Gold Rushes of the 1850’s turned Melbourne into the one of the richest cities in the world, the legacy of which is to this day seen with great Victorian era buildings.

The Australian dollar is itself a proxy for global commodities. Australia’s capital market features some of the largest mining companies in the world but has also become the source of capital raising for small cap miners who operate in all parts of the globe.

But there is something more. The attack on ANU’s divestment is also a direct message for asset owners that may be considering going down this path.

Australia is a place where the ‘rubber hits the road’ in terms of fossil free divestment. Earlier this year Deutsche Bank announced that it would not consider investing in Abbot Point, a coal terminal in north Queensland which is seeking to expand to become the world’s largest coal port.

Australia has deep coal reserves which strong commercial interests are seeking to develop. The Galilee Basin, an area that covers around 250,000 square kilometres located inland in Queensland, contains vast quantities of thermal coal. The investment required to unlock these reserves is significant with the potential to create new billionaires. But to do so there is a need for huge institutional investor support, including from global banks to provide debt finance.

Whilst responsible investment, however you define it, was a small part of the market it has largely been ignored by wider interests. What we are seeing now is that the debate about the way asset owners invest is one that is no longer conducted within the investment industry. It is now a stakeholder debate.

The implications of this are significant. There are two core groups whose interests do not coincide. On the one hand we have citizens who have largely been excluded from discussions around investment. In truth, up until the last couple of years there would be very few university endowments that would have considered that students had anything to do with how university funds are invested.

The second group represents larger commercial interests.

In the middle sits roughly $1.8 trillion of superannuation investment.

The lesson from the attack on ANU’s divestment is that superannuation funds could expect that this would be repeated ten-fold if a major Australian superannuation fund was to divest from fossil fuels.

To understand the playbook that would be used, and is being used in respect to ANU, Erik Conway’s book Merchants of Doubt provides great background on the way corporations have in the past worked to defend their interests. The so called ‘tobacco strategy’ involves clouding debate by attacking scientists and other stakeholders. As Conway states in his book “Whatever the explanation, it is clear that the media did present the scientific debate over tobacco as unsettled long after scientists had concluded otherwise.”

For investors there is in any case a better pathway than divestment, and that is actually to get serious about the way mega trends such as climate change will impact investment returns. In some ways divestment is a lazy option which conveys the impression to stakeholders that the job of investing sustainably is done. Nothing can be further from the truth. Building portfolios that focus on identifying the companies that are demonstrating that they understand the raft of megatrends that will impact over coming decades, and have active strategies to innovate and respond to the new environment, represents the future.

Links:

Merchants of Doubt, Conway, Erik M
http://www.amazon.com/Merchants-Doubt-Handful-Scientists-Obscured/dp/1608193942/ref=sr_1_1?ie=UTF8&qid=1413412555&sr=8-1&keywords=merchants+of+doubt

Old King Coal, NOT Such a Merry Old Soul

Brendon Pearson, Chief Executive Officer of the Minerals Council of Australia, this week wrote a column in the Australian Financial Review (AFR 6 October) in which he criticised ethical investment funds for divesting from coal, arguing that investors will end up with reduced retirement savings. Coal, according to the Minerals Council of Australia, delivers electricity to the poor and should itself be seen as an ethical investment.

There is no disputing the past role that coal has played in global development. But it is important to understand that the concern about coal is a mainstream investment issue.

In the last week, signatories to the United Nations backed Principles for Responsible Investment met in Montreal. A key discussion was the long term impact that climate change has on investment risk.

A result of the discussions was the launch of the Montreal Carbon Pledge, which commits investors to measure and publicly disclose the carbon footprint of their investment portfolios on an annual basis. Some of the largest asset owners in the world including Dutch PGGM Investments, Californian pension system CalPERS, Norway based Nordea, Swedish pension funds AP1, AP3 and AP4 and French state fund Fonds de Réserve pour les Retraites (FRR) have signed up to the pledge.

The reason that mainstream investors are so concerned about carbon is because of the impact that climate change will have within the timeframe that long term investors operate. Long term asset owners recognise that they do not just invest for today, they invest for tomorrow. Climate change is an issue from a fiduciary perspective that investors simply cannot ignore.

We all understand that transitioning to a low carbon world will not be easy and all sectors of the global economy will need to be involved – including developing countries.

The International Energy Agency expects that the share of global energy demand in OECD non-member countries is expected to rise by over one-third before 2035. This will drive a 70% increase in worldwide demand for electricity. As the IEA state “as a result, emerging economies will hold an increasing share of the worldwide burden to build an environmentally sound future. Efforts to share best practice, knowledge, tools and financing options with emerging economies is an important step to accelerating development and diffusion of clean technologies.”

Making progress to addressing global energy poverty is critical. According to the World Health Organization almost 4,000 people per day die prematurely each year from household air pollution from biomass cooking.

Through innovative technology we are seeing off-grid solar and biomass energy that provides the opportunity to provide low cost power in some of the poorest and remote communities where connecting to energy grids has not been achieved. It is renewable energy – not coal – that is in fact working towards connecting the poorest in the world to energy, providing economic benefits as well as simultaneously addressing health issues from cooking.

China has been the big consumer of coal in recent years, and it has been their consumption that has given the Minerals Council of Australia the confidence to argue that coal is linked to ending energy poverty. However we are already seeing an energy transition amongst developing countries including China. According to analysts China, which has recently moved to block low quality coal imports, may be close to a peak in its use of coal.

The better companies to invest in are those that understand the way that megatrends such as climate change impact. The good news is that there are a number of Australian mining companies that are leading global best practice when it comes to sustainability and carbon management.

By focusing on ethical investment, the Minerals Council of Australia is ‘playing the man’, and not the ball. Using its member’s money to fund research into ethical investment returns is a bizarre way for an industry association to operate. It is time that the members of the Minerals Council of Australia questioned whether their industry association is actually representing their interests.

Telstra’s Flawed Wifi Hotspot Plan: Short Term Gain for Long Term Pain

Australian telco Telstra this week announced plans to roll out the first 1,000 sites of 500,000 wifi hotspots across Australia. Having last year paid $1.3 billion to secure two 20 MHz spectrum blocks in the 700MHz band and two 40 MHz blocks in the 2.5GHz band, Telstra plans to spend just $100 million to establish what will effectively be an alternative network to 3G and 4G spectrum.

On the surface the plan makes commercial sense, enabling Telstra to push consumers to use wifi for downloads, allowing 3G and 4G spectrum to be used for high value customers.

But has Telstra thought through the consequences of establishing its wifi hotspot network? And perhaps more importantly, where is the response from Government and regulators?

There are very real concerns as to the long term health impacts of mobile and wireless radiation. On 31 May 2011 the World Health Organisation’s International Agency for Research on Cancer classified radiofrequency electromagnetic fields as possibly carcinogenic to humans (Group 2B), based on an increased risk for glioma, a malignant type of brain cancer associated with wireless phone use.

The concern from medical practitioners about the health impacts of radiation from mobiles and wifi led to the establishment in 2007 of the BioInitiative Working Group. In a similar way the work of the United Nations Framework Convention on Climate Change, which reviews the emerging science on climate change, the BioInitiative Working Group produces a regular BioInitiative Report, with the latest 2012 report reviewing around 1800 new studies reporting bioeffects and adverse health effects of electromagnetic fields and wireless technologies.

The BioInitiative Report, which is prepared by 29 authors from ten countries – ten holding medical degrees (MDs) and 21 PhDs, considers the emerging research on the effect of radiation on immune function, stress responses, brain tumours, acoustic neuromas, childhood cancers, alzeimer’s disease, breast cancer, fertility and reproduction effects, fetal and neonatal effects and autism.

The rapidly changing research environment has led the BioInitiative Working Group to update its work on a regular basis. On 16 April 2014 it stated “evidence for health risk from wireless tech is growing stronger and warrants immediate action. New studies intensify medical concerns about malignant brain tumors from cell phone use.”

For such an emerging public health issue there is remarkably little attention paid by governments on the public health impacts of mobile and wireless radiation. There are number of potential reasons for this including the undoubted complexity of the subject.

The strong commercial interests that corporations have means that it is unlikely that we will see independent commercial research funding examining the risks of mobile and wireless radiation. This wasn’t always the case. Up until 2006 when Telstra closed its Telstra Research Laboratories making several hundred staff redundant, Telstra was a strong supporter of telecommunications research, a legacy of its government ownership.

Devra Davis, founder of the Envionment Health Trust and author of The Secret History of the War on Cancer is proposing that to address the gap in independent research that one dollar from the sale of every phone would be used to train physicians, biomedical researchers and engineers and provide independent research funding, and support monitoring and evaluation of the potential impacts of cell phones and other wireless transmitting devices on health.

Davis is also arguing for a review of the regulations around mobile and wireless radiation, noting that in the U.S that “the last national survey on exposures to electromagnetic fields in America took place in 1980. Standards for cell phones were set 18 years ago. Would you fly in an airplane that met old safety standards?” The criticism of the current regulatory standards is that they are measuring the wrong thing, focusing on measuring heating or thermal effects, and not biological effects.

There is no doubt that it is uncertain what the impact of a 500,000 wifi hot spot network on public health would be. However the emerging research on health impacts means that we shouldn’t just go forward blindly.

Before Telstra is allowed to proceed with its wifi hotspot plan it is imperative that a public inquiry is conducted.

This should not be conducted by existing regulatory bodies but by the Federal Parliament.

The benefit of a parliamentary inquiry is that the evidence of the inquiry, both verbal and written, is available for all Australians to read. It would also ensure that instead of outsourcing to regulators that politicians become engaged in considering the risk to public health from mobile and wireless radiation.

Such an inquiry should take the opportunity to examine whether Australia’s regulatory standards for mobile and wireless radiation are appropriate for the modern era.

Should Telstra proceed with its wifi hotspot plan it is likely to encounter resistance that will take many forms, including legal challenges under nuisance laws. Whilst we make our own decision whether we turn on a wifi router in our own homes, having industrial strength wifi beamed into our houses when we are not Telstra customers, will mean that Telstra will become the focus of stakeholder campaigns and potentially class actions.

The telco industry has been here before with the roll out of mobile phone towers. The difference between then and now is that technology itself has evolved. Wifi routers that are produced today are far more powerful than ones just a few years ago. We also know far more about the potential health impacts of mobile and wireless radiation.

Telstra may be able to roll out their wifi hot spot network in the short term. But the ‘cheap’ cost of the rollout needs to be considered against whether the network is actually in the public interest. Acknowledging that there are risks with mobile and wireless radiation does not mean that we stop using this technology. It means that we use it in a smart way that ensures our health is protected. For long term investors, the impact of mobile and wireless radiation will need to become a core part of engagement with telco companies.

Links

The BioInitiative Report
http://www.bioinitiative.org/new-studies-show-health-risks-from-wireless-tech/
http://www.bioinitiative.org/

Devra Davis in the Huffington Post
http://www.huffingtonpost.com/devra-davis-phd/ready-for-regenerative-me_b_5479827.html

The Secret History of the War on Cancer
http://www.amazon.com/The-Secret-History-War-Cancer/dp/0465015689/ref=sr_1_3?ie=UTF8&qid=1412311743&sr=8-3&keywords=devra+davis