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July 29, 2010

EIRIS Report Details Human Rights Abuses and Other Allegations Against Vedanta Resources Operations in India
    by Robert Kropp

The UK-based investment research firm seeks to raise investor awareness of Vedanta's mining operations in India, and pressure the company to engage with investors more constructively. -- Since 2005, EIRIS has provided a service to investors named Convention Watch, which analyzes whether companies are adequately addressing widely supported international norms in the areas of labor standards, human rights, bribery and corruption, production of anti-personnel landmines, and the environment.

Stephen Hine, the Head of Responsible Investment Development at EIRIS, told, "The service was originally designed for clients in the Nordic regions, for whom corporate compliance with international norms is a common approach to responsible investment."

Since then, the Convention Watch service has been expanded to assist investors on a global scale. According to Hine, two initiatives that have brought more widespread attention to sustainable investment are the United Nations'
Principles for Responsible Investment (PRI), whose signatories, Hine said, are "trying to find a consensual approach to responsible investment," and the United Nations Global Compact.

Ten Principles of the UN Global Compact are all captured in the Convention Watch service," Hine said.

"The reports investigate allegations of serious breaches of international norms by companies," Hine continued. "We analyze how high the risk of the breach is to the company, and contact the company to try to get their response to the allegation."

"The core part of the Convention Watch service is that we always engage with the companies," he said.

In something of a departure for EIRIS, the firm recently published a publicly available report entitled
Improving Vedanta Resources' governance of responsible business practice, which, according to Hine, is based upon a series of Convention Watch reports addressing the mining company's activities.

Headquartered in the UK but with operations mainly in India, Vedanta Resources "has come under international scrutiny for its plans for a bauxite mine and the expansion of its Lanjigarh alumina refinery" in India, according to the report. Vedanta wants to build the bauxite mine on top of the Niyamgiri mountain in the Orissa region, one of the poorest areas in India. The mountain is considered sacred by the indigenous Dongria Kondh tribe.

"Vedanta Resources had failed to adequately consult indigenous communities about the proposed mine," the report states.

The report found that Vedanta had breached international norms in a number of areas in addition to the rights of indigenous peoples, identifying allegations concerning biodiversity, pollution, safety, and bribery as well.

Describing how the publicly available report came about, Hine said, "Our clients at
Aviva were keen to get better engagement with Vedanta, because they found the company unresponsive. So we benchmarked them against their peers in the mining industry and determined they were doing poorly in responding to the allegations, compared to their peers."

Assessing the corporate governance and risk management practices of Vedanta against its peers, as well as its performance in the face of serious controversies, EIRIS found that the company's performance fell far short of best practice in its sector.

"The report illustrates how well other mining companies have done, in the hopes that Vedanta could use them as examples," Hine said. "Investors can use our recommendations as well, to engage with the company."

The recommendations provided to Vedanta in the report include board-level commitment to environmental, social, and corporate governance (ESG) issues, a transparent link between executive compensation and ESG performance, improvement of the company's risk management systems, and support for voluntary self-regulation standards.

As Hine pointed out, engagement with companies is central to its efforts. "Vedanta has responded, but not adequately," he said. The report includes examples of Vedanta's responses, all of which basically disagree with the allegations brought against it, and refer to general statements within its policies and reports as evidence of its compliance.

However, in the case of each allegation to which the company responded, EIRIS and other observers found significant deficiencies. The company's human rights policy, for instance, does not address the rights of indigenous peoples, which is of course central to allegations surrounding its proposed bauxite mine in the Orissa region.

This month, Dutch asset manager
PGGM Investments became the latest investor to divest its stock in Vedanta Resources, because of the company's poor human rights record, after efforts to engage the company in discussions with key stakeholders failed.

Considering the relatively high profile of allegations against Vedanta in Europe and Asia, Hine asked, "How much does one hear about Vedanta from North American investors?"

To help investors engage more effectively with companies, EIRIS is launching an engagement service in September. Hine said of the new service, "The core elements of it are to indentify four main sets of thematic engagement, such as for example climate change and bribery, and identify high-risk companies that are doing poorly to provide engagement services for clients who invest in those companies."

"When a more nuanced approach is necessary," he continued, "We will provide more in-depth and focused engagement."

"With the increasing importance of the PRI, and the increasing emphasis on engagement by investors, I think it is timely to have not only the engagement service but the in-depth reports as well, to help investors have the information they need to grapple with often quite challenging engagements," Hine said.

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