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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