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The sky high cost of doing business

THE tech guy and my co-presenter were standing next to me when I opened up my laptop under fluorescent lighting in the conference venue in the Western Cape. Colour me embarrassed: the glaring light showed up clearly the drift of dust across the keyboard and screen.

Dust from the West Rand. Mine dust. I see disbelief in people’s eyes when I explain that I do dust off my laptop, my screen and my desk every couple of days. Only those who live nearby nod in complete acceptance.

We moved here 15 years ago. Back then, many of the mine dumps close by were still relatively intact and held together by vegetation like pampas grass. A few years later, the process of reclaiming these dumps began, and with it came the ever-present dust.

I wrote a story about mine dust six years ago, where I noted that “The West Rand district municipality reported in 2009 that ‘the number of people reporting to the health facilities … with respiratory illnesses is exceptionally high. Dust from the mine dumps, especially during windy days, is irritating and is a health hazard.’

“The level of dust reaching nearby residential areas has made the health risks apparent. Symptoms surface in the eyes and the respiratory tract and one can find sufferers on every corner. Jabulila Nhlabathi from Snake Park shows me her son's medical records: the worst affected of four children, he has had to have a steroid injection to reduce the swelling and inflammation in his eyes.”

Joburg is built on mining, of course; the nation’s economic hub arose purely because of the industry, which still provides about a third of the JSE’s market capitalisation, and a huge percent of the country’s GDP.

But when business writers make much of the economic benefits of mining, do they factor in the long-term costs?

A recent report from Trucost for the United Nations assessed 100 industries in terms of their impact, and found that “The huge profit margins being made by the world’s most profitable industries (oil, meat, tobacco, mining, electronics) is being paid for against the future: we are trading long term sustainability for the benefit of shareholders. Sometimes the environmental costs vastly outweighed revenue, meaning that these industries would be constantly losing money had they actually been paying for the ecological damage and strain they were causing”.

About four years back, a KPMG report, Expect the Unexpected: building business value in a changing world, figured out that were companies required to pay the environmental costs of production, they would lose an average of 41 cents on the US dollar in earnings. Although the external environmental costs in 11 industrial sectors went up by 50% from 2002 to 2010, you wouldn’t find them on the balance sheets, the report said, because companies don’t have to pay these costs.

No, we do. You and me. I have just paid a miniscule portion of them: the medication I finally had to get for my sinus problems, always worse when the weather is dry (I had never had sinus problems till about ten years ago).

The West Rand poor who live on land salted with heavy metals pay with their health (and the Department of Health bears the burden, which thus rolls back onto me as a taxpayer, one of the reasons why my Tax Freedom Day occurs on May 25, so late in the year); the City of Johannesburg (me, again, as a ratepayer) is paying for attempts to neutralise acid mine drainage; we’re suffering diminishing assets in terms of topsoil lost to thoughtless land use, a cost we taxpayers will pay well into the food-insecure future; the cost of reckless resource-stripping, reckless use of fossil fuels, reckless and heedless behaviour is currently being paid in Ethiopia (18 million hungry people in the worst drought in 50 years) and other countries in fragile developing regions…

The Trucost report makes recommendations for companies, but do you honestly think the average company, with shareholders to feed, is going to “Identify existing mechanisms that could internalise natural capital costs blah blah blah”?
Companies are not moral beings. The people in them may well be, and leadership by people who are principled makes a huge difference (although even then, pressure from boards and shareholders can obliterate principle).

But we can’t depend on ‘good people’; we have to find ways to effectively ensure that those externalised costs are brought home and included in cost calculations and financial statements. Because I don’t know about you, but the estimated $4.7trn a year in environmental costs of business are just too damn much for the people of the world to carry, now and in the increasingly uncertain future.

Some suggestions Trucost has for investors:

1. Identify which assets are most exposed to natural capital risk, and which companies and governments are able and willing to adapt.
2. Identify the probability and impact of natural capital costs being internalised.
3. Build natural capital risks, adjusted for the likelihood of internalisation, into asset appraisal and portfolio risk models.

And for governments, among others:

Develop policies that efficiently and effectively internalise these costs, avoiding sudden shocks in the future, and helping businesses to position themselves for a natural capital constrained world.

*Mandi Smallhorne is a versatile journalist and editor. Views expressed are her own. Follow her on Twitter.

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