Philippines mining spat underlines rising environmental risk in Asia

The scale of the effort to persuade Asian businesses to take a more long-term view of their activities particularly in relation to the environment and climate change has been made clear as the Chamber of Mines of the Philippines sued Environment Secretary Regina Lopez because of her recent effort to close 23 mining companies and suspend five others for violation of environmental laws. Last year’s influential Global Risks Report produced by the World Economic Forum concluded that business leaders in Asia are generally oblivious to the long-term environmental risks posed by climate change and environmental damage caused by their activities, preferring instead to focus on more immediate economic risks such as asset bubbles, energy price shocks and cyber attacks. Zurich, a strategic partner on the report, stressed the scale of the problem in the region. “Asia benefits from largely strong national governance and, certainly relative to the rest of the world, strong economies…but there is an umbrella risk that Asia takes too much of a short-term view at the expense of longer-range planning, particularly where the impact of climate change comes in,” commented Steve Wilson, Zurich’s chief risk officer for the general insurance business at the time. “We have a constant tension in this part of the world between economic development and its impact on environmental sustainability,” said Stuart Spencer, Zurich’s chief executive of its general insurance business in Asia Pacific. “But what the report is really trying to stress is that we can’t afford to put environmental considerations to the back shelf,” he added after the report was published. Risk managers with companies in the Asia Pacific region have a duty to ensure that their companies comply with the latest environmental and sustainability rules and agreements. But this latest twist in the Philippine mining industry dispute perhaps underlines the potential difficulty of the task on the ground. It also underlines the rising significance of political risk for risk managers with all forms of companies, not least multinational companies with operations in fast emerging markets such as the Philippines. The problem was caused by a government decision to carry out an environmental audit of the mining sector that was commissioned with the best intentions. In the run-up to the announcement of the results, the Philippine government signalled that it was optimistic the drive to clean up the industry would actually lure investment. Environment Undersecretary Leo Jasareno told Bloomberg in an interview last summer: “You are attracting investments because investors are assured that when they put their money on the ground, there’s sustainability.” The results of the audit were, however, not pretty. The country is the world’s top nickel producer, accounting for about a quarter of global mined supply. The audit results would potentially see two thirds of the industry shut down and ruin significant investments made by foreign mining companies in the sector. On 6 September, Ms Lopez announced that she would close 23 mining companies and suspend five others for violating environmental laws. In October, The Straits Times reported that Lepanto Consolidated Mining Company filed a corruption complaint against former Mines and Geosciences Bureau director and Environment Undersecretary Leo Jasareno for violation of the Anti-Graft and Corrupt Practices Act. Lepanto claimed that the audit team actually signed a report concluding that “the company substantially complied with the pertinent provisions of the environmental and mining laws, rules and regulations” and did not recommend a penalty, reported the newspaper. The company said Mr Jasareno’s conflicting statement caused “undue injury” to the firm, “besmirched” its reputation and caused a drastic fall in its share price. The latest development is that the Chamber of Mines sued Ms Lopez before the Office of the Ombudsman accusing her of violating the Anti-Graft and Corrupt Practices Act and the Code of Ethical Standards for Public Officials and Employees. The chamber said that the announcement of the closures and suspensions were made even before the affected mining companies were given the results of the audit. The chamber also criticised Ms Lopez for her “false” and “unfounded” allegations against the mining companies that created problems for them with the public and their international clients. The bigger picture concern for the Philippine economy, and others in Asia Pacific, is that such disputes, often driven by a change in government, can deter foreign investors because of the political risk. OceanaGold Corp’s Didipio project was listed among sites selected for suspension unless it fixed the problems identified in the environmental audit. Mick Wilkes, CEO, told The Straits Times after the news broke: “I just came from New York, and investors are very worried about the Philippines…this has done irreparable damage to the reputation of the Philippines for foreign investment.” Overall, however, the mining industry spat and various other dramas that followed the arrival of President Duterte does not seem to have heavily damaged foreign investment in the Philippines. Based on latest figures the inflow of foreign direct investments (FDI) in 2016 reached $7.9bn compared with the target of $6.7bn, according to Bangko Sentral ng Pilipinas. The 2016 figure is 40.7% higher than the 2015 level of $5.72bn. Net equity capital infusion reached $206m. Equity capital placements of $294m more than offset the $88m withdrawals. The equity investments came mostly from Hong Kong, Japan, the US, Singapore and Belgium. “FDI inflows remained robust, supported by strong investors’ confidence in the country’s solid macroeconomic fundamentals,” the central bank said. And midway through last month, the Trade Department revealed that seven of Japan’s biggest companies plan to invest a combined P$198.5bn in energy, mining, agriculture, automotive and infrastructure projects in the Philippines. The Trade Department said the companies include Mitsubishi, Mitsui, Sumitomo, Itochu, Marubeni, Toyota Tsusho and Sojitz. Trade Secretary Ramon Lopez said: “Through sound and consistent macroeconomic policies, the country continues to attract serious investments. The fundamentals are there in terms of a fast-growing economy, a 109-million population base, standing trade agreements and a young, talented and dedicated work force.” “All these – plus political will and focused trade and investment policies – act as a magnet for foreign investments,” added Mr Lopez. The government assured investors that public sector agencies are “rigidly adhering” to a zero corruption programme and that the investment projects would receive “adequate protection” and “fair treatment”.

Philippines mining spat underlines rising environmental risk in Asia

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