Download - Vedanta Close Out Audit Report - Vedanta Corporate Websitesustainabledevelopment.vedantaresources.com/content/dam/vedanta... · Vedanta Close Out Audit Report FINAL REPORT October

Vedanta Close

Out Audit

Report

FINAL REPORT

October 2013

47059086.STG5

UNITED KINGDOM & IRELAND

Prepared for: Standard Chartered Bank as Agent to the Lenders

47059086.STG5

IESC AUDIT REPORT

October 2013 47059086.STG5

i

Limitations

The conclusions and recommendations contained in this Report are based upon information provided by

others and upon the assumption that all relevant information has been provided by those parties from whom

it has been requested and that such information is accurate. Information obtained by URS Infrastructure &

Environment UK Limited (“URS”) has not been independently verified by URS1, unless otherwise stated in

the Report.

The methodology adopted and the sources of information used by URS in providing its services are outlined

in this Report. The work described in this Report was undertaken before, during and after the site visits in

KCM Zambia, Val Lanjigarh (Orissa) and Sterlite Tuticorin (Tamil Nadu) during September 2013 and is

based on the information available during the said period of time. The scope of this Report and the services

are accordingly factually limited by these circumstances.

Where assessments of works or costs identified in this Report are made, such assessments are based upon

the information available at the time and where appropriate are subject to further investigations or

information which may become available.

URS disclaim any undertaking or obligation to advise any person of any change in any matter affecting the

Report, which may come or be brought to URS’s attention after the date of the Report.

Certain statements made in the Report that are not historical facts may constitute estimates, projections or

other forward-looking statements and even though they are based on reasonable assumptions as of the date

of the Report, such forward-looking statements by their nature involve risks and uncertainties that could

cause actual results to differ materially from the results predicted. URS specifically does not guarantee or

warrant any estimate or projections contained in this Report.

1. Note that following its acquisition by URS and consequent integration into the main Group, the ‘Scott

Wilson / URS Scott Wilson’ brands have now been discontinued and the company that undertook the original

Sustainability Review is now named URS Infrastructure and Environment UK Ltd.

Copyright

© This Report is the copyright of URS Infrastructure & Environment UK Limited. Any unauthorised

reproduction or usage by any person other than the addressee is strictly prohibited.

IESC AUDIT REPORT

October 2013 47059086.STG5

ii

TABLE OF CONTENTS

1 EXECUTIVE SUMMARY ................................................... 1

1.1 Introduction ...................................................................... 1

1.2 Validation of implementing IESC recommendations ... 1

1.3 Vedanta Sustainability Framework ................................ 3

1.4 Effectiveness in implementing the Vedanta Sustainability Framework ........................................................................ 7

1.5 Audit conclusion and recommendations .................... 10

2 INTRODUCTION AND BACKGROUND ......................... 12

2.1 Vedanta resources ......................................................... 12

2.2 Terms of reference ........................................................ 13

2.3 Purpose of the audit ...................................................... 14

2.4 Audit criteria ................................................................... 14

2.5 Scope of the audit .......................................................... 15

2.6 Declaration of interests ................................................. 15

3 VEDANTA CLOSE OUT OF IESC RECOMMENDATIONS16

3.1 Corporate level recommendations............................... 16

3.2 Company level recommendations ............................... 28

3.3 VAL Lanjigarh specific recommendations .................. 33

4 VEDANTA SUSTAINABILITY FRAMEWORK COMPLIANCE ................................................................. 39

4.1 PS 1: Assessment and management of environmental and social risks and impacts ........................................ 39

4.2 PS 2: Labour and working conditions ......................... 40

4.3 PS 3: Pollution prevention and resource efficiency... 43

4.4 PS 4: Community health, safety and security ............. 45

4.5 PS 5: Land acquisition and involuntary resettlement 46

4.6 PS 6: Biodiversity and sustainable management of living natural resources ........................................................... 50

4.7 PS 7: Indigenous People ............................................... 53

4.8 PS 8: Cultural heritage .................................................. 55

4.9 ICMM Principles ............................................................. 57

4.10 OECD Guidelines for Multinational Enterprises ......... 62

5 EFFECTIVENESS OF VEDANTA SUSTAINABILITY FRAMEWORK ................................................................. 68

5.1 KCM ................................................................................. 68

5.2 Lanjigarh Refinery India ................................................ 82

5.3 Sterlite’s Tuticorin Copper Smelter India .................... 95

6 AUDIT CONCLUSION AND RECOMMENDATIONS ... 107 APPENDIX A – AUDIT PLAN ......................................................... 109

IESC AUDIT REPORT

October 2013 47059086.STG5

iii

LIST OF TABLES

LIST OF FIGURES

Table 1-1: IESC recommendations close-out status ...................... 2

Table 1-2: VSF compliance against IFC performance standards .. 3

Table 1-3: Summary assessment of VSF implementation effectiveness by audit site .............................................. 7

Table 1-4: IESC Close Out Audit recommendations ..................... 11

Table 2-1 - Overview of Vedanta sites visited during the progress reviews and final audit .................................................. 14

Table 3-1: Final status of Vedanta implementation of IESC recommendations .......................................................... 16

Table 3-2: Overview of Vedanta Sustainability Framework documentation ............................................................... 21

Table 3-3: Final status of Company implementation of IESC recommendations .......................................................... 28

Table 3-4: Final status of VAL Lanjigarh implementation of IESC recommendations .......................................................... 33

Table 1-4: IESC Close Out Audit recommendations ................... 108

Figure 2-1: Overview of the Updated Group Structure ................. 12

Figure 3-1: Sustainability Organisation and Competency ........... 18

IESC AUDIT REPORT

October 2013 47059086.STG5

iv

ACRONYMS

ASM Artisanal and Small Scale Mining/Miner

CAPA Corrective and Preventative Action Plan

CDP Carbon Disclosure Project

CEO Chief Executive Officer

CSO Chief Sustainability Officer

CSR Corporate Social Responsibility

DMP Disaster Management Plan

EBRD European Bank for Reconstruction and Development

ESIA Environmental and Social Impact Assessment

ESMP Environmental and Social Management Plan

ESP Electrostatic Precipitator

FPIC Free, Prior and Informed Consent

GN Guidance Note

H&S Health and Safety

HSE Health, Safety and Environment

IBAT Integrated Biodiversity Assessment Tool

ICMM International Council on Mining and Metals

ICP Informed Consultation and Participation

IFC International Finance Corporation

IESC Independent Environmental and Social Consultant

IP Indigenous People

KCM Konkola Copper Mines

LPARDF Lanjigarh Project Area Development Foundation

LTI Lost Time Injury

MS Management Standard

OECD Organisation for Economic Cooperation and Development

OHSAS Occupational Health and Safety Assessment Series

PAPs Project Affected Persons

PS Performance Standard

QRT Quick Response Team

SPV Special Project Vehicle

TDP Tribal Development Plan

TNEB Tamil Nadu Electricity Board

TNPCB Tamil Nadu Pollution Control Board

TP Tele Presence (Teleconferencing)

TS Technical Standard

UNFCC United Nations Framework Convention on Climate Change

VAL Vedanta Aluminium Ltd

VSF Vedanta Sustainability Framework

VSAP Vedanta Sustainability Assurance Process

IESC AUDIT REPORT

October 2013 47059086.STG5

1

1 EXECUTIVE SUMMARY

1.1 Introduction

This report presents close-out audit findings related to Vedanta Resources plc (Vedanta). Vedanta is a FTSE 100 diversified resources company with interests in zinc, lead, silver, oil and gas, iron ore, copper, aluminium and power. In September 2010 Scott Wilson Ltd “Scott Wilson” (now URS) was appointed by Standard Chartered Bank as the Independent Environmental and Social Consultant (“IESC”) to review Vedanta’s approach to sustainable development. The original Independent Review Report (IRR) set out a number of recommendations with timeframes for implementation. The recommendations were classified into (i) corporate management, (ii) company level and (iii) Lanjigarh Refinery specific recommendations. Since the original IESC review, four reviews have been undertaken to assess progress in implementing the recommendations. The progress reports are published online at the Vedanta Resources website. This purpose of this close-out audit report is to verify that recommendations have been implemented and that Vedanta is conforming to the social and environmental conditions of its debt funding agreement with the Lenders. The specific objectives for the close-out audit are:

1. Validation of the actions taken by Vedanta to close out each of the Recommendations as reported in Vedanta's various Progress Reports and supporting evidence;

2. Determination of the degree to which Vedanta's Sustainability Framework documentation addresses the full range of the IFC, ICMM and OECD standards;

3. Evaluation of the effectiveness of Vedanta's implementation of its Sustainability Framework across the Group;

4. Verification of Vedanta’s conformance with all environmental and social conditions of

the debt funding contract with the Lenders; and

5. Formulation of an audit conclusion, including any further recommendations, with specified responsibilities and timescales, which may be needed to correct identified deficiencies.

Sample Vedanta sites selected for the close-out audit include Konkola Copper Mines in Zambia, Sterlite Copper’s Smelter in Tuticorin, India and Vedanta Aluminium’s Refinery in Lanjigarh, India.

This close-out audit considers the performance of Vedanta and its companies since the 2010 IESC review and excludes past performance before debt financing conditions were in place.

1.2 Validation of implementing IESC recommendations

The original review conducted by the IESC in November 2010 focused on Vedanta’s strategic approach to sustainable development and assessed specific social and environmental concerns relating to Vedanta Aluminium Limited’s (VAL) Lanjigarh (India) alumina refinery and its proposed expansion. Subsequent six-monthly reviews conducted by the IESC reviewed progress in implementing the recommendations. The final close out audit findings for the implementing the IESC recommendations are summarised in Table 1-1 below.

IESC AUDIT REPORT

October 2013 47059086.STG5

2

Table 1-1: IESC recommendations close-out status

Recommendation URS progress assessments

Final close-out status

Corporate-level recommendations

2.5.7 Sustainability Committee Closed- Jul 2011 Closed

2.5.8 Sustainability Officer On track- Mar 2013 Closed

2.5.4 Value Statement Closed- Jul 2011 Closed

2.5.2 Code of Conduct Closed- Jul 2011 Closed

2.5.6 Policies On track- Mar 2013 Closed

2.5.3 Stakeholder engagement Closed- Mar 2012 Closed

2.5.13 Reporting Closed- Nov 2012 Closed

2.5.8 Sustainability oversight Closed- Mar 2012 Closed

2.5.9 Professional competencies Closed- Nov 2012 Closed

2.5.16 Human rights policy Closed- Mar 2012 Closed

2.5.24 External audit On track- Mar 2013 Closed

Company-level recommendations

2.5.15 International best practice On track- Mar 2013 Closed

2.5.11 Land management Closed- Mar 2013 Closed

2.5.23 Incident register Closed- Mar 2012 Closed

2.5.12 Environmental communications On track- Mar 2013 Closed

2.5.17 Consultation for new sites Closed- Mar 2012 Closed

2.5.20 Vulnerable social groups Closed- Mar 2013 Closed

2.5.22 Cultural heritage Closed- Mar 2012 Closed

VAL-Lanjigarh recommendations

3.3.20 Environmental management On track- Mar 2013 Closed

4.5.8 Grievance mechanism Closed- Jul 2012 Closed

3.3.3 Housekeeping Closed- Jul 2011 Closed

3.4.3 Proposed expansion On hold- Mar 2013 Suspended

3.3.79 Disaster management plan Closed-Mar 2012 Closed

3.3.32 Retrenchment plans Closed- Nov 2012 Closed

3.3. 48 Contractor accommodation Closed- Mar 2012 Closed

4.5.5 Dust emissions Closed- Mar 2012 Closed

4.6.8 Livelihood support Closed- Mar 2012 Closed

IESC AUDIT REPORT

October 2013 47059086.STG5

3

Recommendation URS progress assessments

Final close-out status

4.6.12 Integrated development Closed- Mar 2012 Closed

3.3.63 H&S management Closed- Mar 2013 Closed

Further detail of the close-out audit findings by recommendation is provided in Section 3 of this report.

Conclusion

Based on the review of documentation and site visits, the IESC is satisfied that Vedanta has auctioned the original review recommendations and confirms that the recommendations are closed at corporate, company and Lanjigarh site levels. The proposed expansion to Lanjigrah Aluminium Refinery has been suspended so it is not possible to assess performance against this recommendation. Subject to the ESIA being revised to IFC standards as provided for by TS8: Conducting ESIAs to international standards and the IESC findings detailed in Section 5.2, the IESC considers that Vedanta has progressed this recommendation as far as possible given the circumstances.

1.3 Vedanta Sustainability Framework

Vedanta Resources plc has developed the Vedanta Sustainability Framework (VSF) to comply with IFC Performance Standards (debt lending requirements), the ICMM and OECD Principles. The IESC has assessed the degree to which VSF meets these international standards. Summary results are presented in Table 1-2 below against each of the eight IFC Performance Standards considering document reviews, site visit observations and meetings with staff, contractors, suppliers and community members affected by Vedanta company operations.

Table 1-2: VSF compliance against IFC performance standards

IFC standard Key VSF documents Overall finding

PS1. Assessment and management of environmental and social risks and impacts

Vedanta HSE Policy

Vedanta Social Policy

Vedanta MS 1 – Leadership, Responsibility and Resources

MS 3 – New Projects Planning Processes and Site Closure

TS 5 – Stakeholder Engagement

TS 8 -Conducting ESIAs to international standards

The Vedanta Sustainability Framework provides extensive requirements and guidelines for the assessment and management of environmental and social risks and impact in accordance with IFC PS1 requirements.

Project categorisation in TS8 and GN16 should however be amended to align with the updated categorisation in the revised 2012 IFC Performance Standards specifically to mention inherent risks as well as impacts.

IESC AUDIT REPORT

October 2013 47059086.STG5

4


PS2. Labour and working conditions


Vedanta Human Rights Policy

Vedanta Code of Conduct

TS02: Employee Consultation and Participation

TS12: Occupational Health Management

TS06: Supplier and Contractor Management

TS10: Safety Management

The VSF standards and guidance notes meet the all requirements of IFC Performance Standard 2. However further minor measures could further strengthen the labour and working conditions elements of the VSF.

PS3. Pollution prevention and resource efficiency

HSE Policy

TS8 – Conducting ESIA to International Standards

TS9 – Resource Use and Water Management

TS11 – Environmental Management

TS14: Water Management

TS16: Energy and Carbon Management

The requirements of PS 3 are addressed across a range of technical and management standards.

A number of different initiatives at each of the sites visited demonstrate that the requirements of the performance standard have been addressed by the VSF, and the VSF as it related to pollution control and resource efficiency has been well rolled out at operational level.

PS4: Community health, safety and security

MS02: Stakeholder Materiality and Risk Management Standard


TS08: Conducting ESIAs to International Standards

TS20: HIV/AIDS Management

TS13: Emergency and Crisis Management

TS15: Security Management

TS18: Transportation and Logistics

The VSF documentation satisfies IFC PS4 requirements for community health, safety and security.

IESC AUDIT REPORT

October 2013 47059086.STG5

5


PS5: Land acquisition and involuntary resettlement

TS03 Land and Resettlement Management

TS05 Stakeholder Engagement

GN03 Land Acquisition and Resettlement Management

The Vedanta Sustainability Framework substantially addresses IFC PS5 requirements. Revisions are recommended to provide greater clarity and include:

- The need to avoid, or minimise displacement impacts in project design;

- How to deal with conflicts between host country laws and IFC PS requirements for compensation ;

- Entitlements for different category of project affected persons;

- Recognise the different classifications of PAPs, particularly those with no legal right or claim to the land or assets they occupy or use.

TS03 was prepared in September 2011 and GN03 was issued in October 2012 which is more detailed and better aligned to the PS5 2012 requirements. The TS03 review provision provides the mechanism to address the IESC findings.

PS6: Biodiversity and sustainable management of living natural resources

TS07: Biodiversity Management

GN04: Biodiversity Management

The VSF and supporting standards and guidance notes meet the core requirements of IFC Performance Standard 6. However implementation of the following recommendation would strengthen the VSF:

- Internal monitoring of the development of Biodiversity Management Plan should continue;

- Raising the profile of Invasive Alien Species in the Vedanta Technical Standard TS7 will strengthen this standard;

- Specifying further requirements for Legally Protected and Internationally Recognised Areas;

- Providing guidelines for the identification of priority ecosystem services;

- Including reference to IFC PS 6 would strengthen the Vedanta Technical Standard TS 6 – Supplier and Contractor Management.

IESC AUDIT REPORT

October 2013 47059086.STG5

6


PS7: Indigenous Peoples

TS22: Indigenous Peoples / Vulnerable Tribal Groups

TS05: Stakeholder Engagement

GN 00: Indigenous Peoples / Vulnerable Tribal Groups

The Vedanta Sustainability Framework substantially meets the general, FPIC, mitigation and development benefits as well as private sector responsibilities requirements of IFC Performance Standard.

It is recommended that further detail on the following aspects may be provided in TS22 and GN00:

- Confirmation that traditional lands will be returned post decommissioning when the need for displacement ceases;

- Specifically addressing new PS7 requirements for the determination, delivery and distribution of compensation and benefits.

PS8: Cultural heritage

Vedanta Technical Standard TS01: Cultural Heritage

Vedanta Technical Standard TS08: Conducting ESIAs to International Standards

Although addressing fundamental requirements in terms of protection of Cultural Heritage in the Project Design and Execution, the Vedanta Sustainability Framework (VSF) and more particularly Technical Standard 1 on Cultural Heritage only partially comply with IFC PS 8 requirements. It is recommended that revision of the technical standard focus on the specific requirements of the standard.

Further detail mapping IFC performance standard requirements against specific VSF documents and IESC findings is provided in Section 4 of this report.

ICMM Principles

Although the Vedanta Sustainability Framework provides no specific focus on mining and metals sector-specific requirements, the set of policies, standards and guidelines substantially reflects the ten ICMM Principles.

Further refinements and specifications should be added with regard to:

- The integration of business ethics issues into the Vedanta Sustainability Framework (VSF) and Sustainability Assessment Process (VSAP);

- Risk management strategies towards local communities, beyond Emergency Preparedness and Response.

OECD Guidelines

The Vedanta Sustainability Framework is quite comprehensive and addresses all of the OECD Guidelines, except for two of them for which recommendations are:

- On human capital development, the VSF is currently more focused on respect of human and labour rights and training specifically focused on employees’ roles and responsibilities, but should expand to a broader long-term capital development support;

- The development of self-regulatory practices and management systems should be part of the stakeholder engagement process.

IESC AUDIT REPORT

October 2013 47059086.STG5

7

Conclusion

Overall, The IESC considers that the VSF satisfies many of the key requirements of the IFC performance standards. More recent VSF documents such as TS22 on Indigenous People/ Vulnerable Tribal Groups show greater maturity with objectives being included to govern project decision-making for risk and impact identification, assessment and management.

Some of the initial VSF documents require revision, as envisaged by Vedanta’s commitment to annual review of technical standards, in particular with regard to approach to resettlement, biodiversity management and cultural heritage. Revisions to VSF documents should address IESC findings, revision to OECD guidelines (2011) and revisions to the IFC Performance Standards (2012).

1.4 Effectiveness in implementing the Vedanta Sustainability Framework

The IESC site visit to selected Vedanta interests in Zambia and India was used as a sample to evaluate the effectiveness of VSF implementation and to verify conformance with social and environmental performance conditions of the debt agreement with Vedanta’s lenders. Summary results against IFC performance standards for each site is presented in Table 1-3 below.

Table 1-3: Summary assessment of VSF implementation effectiveness by audit site

IFC standard KCM VAL-L Sterlite Tuticorin

PS1. Assessment and management of environmental and social risks and impacts

The field visit confirmed that KCM has worked hard to adopt the Vedanta Sustainability Framework and that its operations are substantially consistent with IFC PS1. The one area of concern relates to the Mimbula II ESIA which has a few weaknesses when compared to international best practice. The Stakeholder Engagement Plan is also new and has yet to be fully rolled out but marks progress towards more comprehensive and sustained engagement.

VAL-L has adopted an approach to sustainability that is substantially consistent with IFC PS1. A robust planning process has been undertaken and a comprehensive framework established. Implementing all aspects of the various plans will require further organisation and apportionment of responsibilities. The one concern relates to the Project Expansion ESIA which is considered not adequately to reflect IFC Standards and international best practice. There is still an opportunity to address this in the final document and thus reach compliance with both the Vedanta Sustainability Framework and the IFC Standards.

The field visit confirmed that Sterlite Tuticorin has worked hard to adopt the Vedanta Sustainability Framework and that its operations are consistent with IFC PS 1. There is a robust integrated management system and risk assessment registers at multiple levels of the company.

IESC AUDIT REPORT

October 2013 47059086.STG5

8


PS2. Labour and working conditions

The field visit confirmed that KCM has adopted the Vedanta Sustainability Framework into its human resource and procurement functions. KCM’s proactive approach to local supplier development and industry engagement warrants special mention as a leading practice to broaden business and livelihood opportunities to nearby host communities. KCM labour and working conditions are consistent with IFC PS2 with on-going implementation of OHS action plans to reduce fatalities and the LTI frequency rate.

The field visit confirmed that VAL Lanjigarh has worked hard to adopt the Vedanta Sustainability Framework and that its operations are consistent with IFC PS2.

The field visit confirmed that Sterlite Tuticorin has worked hard to adopt the Vedanta Sustainability Framework and that its operations are consistent with IFC PS2: Labour and working conditions but requires on-going implementation. The leadership development framework, management structure and systems are mature.

PS3. Pollution prevention and resource efficiency

Based on the evidence presented there is a clear commitment from the KCM team to adopt and implement the Vedanta Sustainability Framework as it related to IFC PS3 – Resource Efficiency and Pollution Prevention and current practice is consistent with the requirements of IFC PS3.

Based on the evidence presented there is a clear commitment from the VAL team to adopt and implement the Vedanta Sustainability Framework as it related to IFC PS3 – Resource Efficiency and Pollution Prevention and current practice is consistent with the requirements of IFC PS3.

Based on the evidence presented there is a clear commitment from the Sterlite Tuticorin team to adopt and implement the Vedanta Sustainability Framework as it related to IFC PS3 – Resource Efficiency and Pollution Prevention and current practice is consistent with the requirements of IFC PS3.

PS4: Community health, safety and security

The field visit confirmed that KCM has worked hard to adopt the Vedanta Sustainability Framework and that its operations are consistent with IFC PS4: Community health, safety and security.

The field visit confirmed that VAL has worked hard to adopt the Vedanta Sustainability Framework and that its operations are consistent with IFC PS4: Community health, safety & security.

The field visit confirmed that Sterlite Tuticorin has worked hard to adopt the Vedanta Sustainability Framework and that its operations are consistent with IFC PS4: Community health, safety & security.

PS5: Land acquisition and involuntary resettlement

Based on the documentation available and site interviews, the IESC considers that KCM meets the majority of basic requirements but is not compliant with several requirements of PS5: Land Acquisition and Involuntary Resettlement at the time of the close-out audit.

Based on the documentation available and site interviews, the IESC considers that VAL is only partially compliant with requirements of PS5. However VAL did not demonstrate compliance with several general, displacement and private sector responsibility requirements of PS5: Land Acquisition and Involuntary Resettlement at the time of the close-out audit.

The field visit confirmed that Sterlite Tuticorin has worked hard to adopt the Vedanta Sustainability Framework and that its operations are substantially consistent with IFC PS5: Land Acquisition and Involuntary Resettlement.

IESC AUDIT REPORT

October 2013 47059086.STG5

9


PS6: Biodiversity and sustainable management of living natural resources

Based on the evidence provided and discussion with site personnel, it is considered that the implementation of the VSF substantially meets the requirements of IFC PS6 Biodiversity Conservation and Sustainable Management of Living Natural Resources, except for the development of biodiversity management plans, which are scheduled for 2015. On-going internal corporate monitoring will be required to ensure the biodiversity management documentation is revised and compiled as per schedule.

Based on the evidence provided and discussion with site personnel, it is considered that the implementation of the VSF is substantially compliant with the requirements of IFC PS6 Biodiversity Conservation and Sustainable Management of Living Natural Resources, except for the development of biodiversity management plans, which are scheduled for 2015. On -going internal corporate monitoring will be required to ensure the biodiversity management documentation is revised and compiled as per schedule.

Based on the evidence provided and discussion with site personnel, it is considered that the implementation of the VSF meets the requirements of IFC PS6 Biodiversity Conservation and Sustainable Management of Living Natural Resources, except for the development of biodiversity management plans, which are scheduled for 2015. On -going internal corporate monitoring will be required to ensure the biodiversity management documentation is revised and compiled as per schedule.

PS7: Indigenous Peoples

The field visit confirmed that IFC PS7 on Indigenous Peoples does not apply to KCM operations and project development activities.

Based on the documentation available and site interviews, the IESC considers that VAL only partially meets the basic requirements of PS7 at the time of the close-out audit. Additional work is needed to demonstrate how VAL meets PS7 requirements to avoid, minimise and mitigate adverse impacts on the Kondh groups including the requirement for ICP in project decision-making that affects them.

The field visit confirmed that IFC PS7 on Indigenous Peoples does not apply to Sterlite Tuticorin operations and project development activities.

PS8: Cultural heritage

Based on the evidence presented there is a clear commitment from the KCM team to adopt and implement the Vedanta Sustainability Framework as it related to IFC PS8 – Cultural Heritage. KCM have demonstrated that they have identified Cultural Heritage on the current site, according to the procedures in place. As the site expands, there will be a need to more fully survey cultural heritage, both tangible and intangible, in and around the site to ensure full compliance with the requirements of IFC PS8.

Based on the evidence presented there is a commitment from the VAL team to adopt and implement the Vedanta Sustainability Framework as it related to IFC PS8 – Cultural Heritage. The procedures are in place to safeguard cultural heritage and no cultural heritage has been identified. However as the site expands, there will be a need to more fully survey cultural heritage, both tangible and intangible, in and around the site to ensure full compliance with the requirements of IFC PS8.

Based on the evidence presented there is a clear commitment from the Sterlite Tuticorin team to adopt and implement the Vedanta Sustainability Framework as it related to IFC PS8 – Cultural Heritage. The procedures are in place to safeguard cultural heritage and no cultural heritage has been identified. As the site expands, there will be a need to more fully survey cultural heritage, both tangible and intangible, in and around the site to ensure full compliance with the IFC 8.

More detailed information is provided by site under Section 5 of this audit report.

IESC AUDIT REPORT

October 2013 47059086.STG5

10

Conclusion

The implementation of the VSF at the selected sites included in the close-out audit indicates that Vedanta has been effective in implementing the VSF and meeting many of the IFC Performance Standard requirements. Policies, procedures and sound systems are in place to manage project risks and impacts. Given the limited time since the VSF has been launched and implemented, the progress made is as much as could reasonably be expected.

Vedanta companies demonstrated leading practice in areas such as resource efficiency and pollution prevention. However, in some areas audit findings indicate that further work is needed to meet IFC Performance Standards requirements:

- Findings at KCM and VAL Lanjigarh show partial compliance with IFC PS5 requirements and that additional work is needed to meet project design, compensation and community engagement requirements for involuntary resettlement.

- High level biodiversity management requirements are addressed at each site, but Biodiversity Management Plans have not been developed as required by Vedanta Technical Standard TS07 or IFC PS. As these are scheduled for 2015, it is recommended that Vedanta continue internal monitoring to ensure these plans are developed and implemented in that timeframe.

- IFC PS7 does not apply to several sites. At VAL Lanjigarh, evidence shows partial compliance with IFC PS7 requirements but further work is needed to show avoidance of impacts, participation and consent of tribal groups.

In summary, the Vedanta Sustainability Framework has been translated into management structures, plans and policies by each company and implementation has started. In some cases it is too early to conclude that implementation is wholly effective, particularly in relation to social topics such as stakeholder engagement, resettlement and indigenous peoples. However, the general trend is encouraging and the increased commitment of staff is evident.

1.5 Audit conclusion and recommendations

The IESC is satisfied that Vedanta management systems are in place to effectively manage the inherent social and environmental risks of Vedanta operations and new projects. Strong leadership and a genuine commitment to sustainability framework implementation was evident at executive and senior management levels that has created a culture of continuous improvement and aspiration to find new ways to avoid or mitigate adverse impacts and find opportunities to create shared value with affected communities, suppliers and customers. The Tele Presence (TP) technology employed by Vedanta promotes a blend of virtual and real communities of practice in health & safety, environment and community relations. Good practices, shared problem solving to common issues and knowledge sharing promote organisational learning across Vedanta businesses and geographies. In turn, the TP support innovation and effective adoption of leading practice sustainability initiatives. Vedanta companies demonstrated a range of high profile sustainability performance improvement initiatives that are delivering environmental, social and business value. The challenge moving forward is to balance efforts to progress new initiatives with conscientiously maintaining supporting systems and practices to manage social and environmental risks and impacts. It is also evident that several plans, for example for Stakeholder Engagement, are at an early stage of implementation and further monitoring will be needed to ensure successful execution.

IESC AUDIT REPORT

October 2013 47059086.STG5

11

The significant progress Vedanta has made in implementing IESC recommendations and embedding the VSF into businesses decision-making and behaviours in a relatively short period warrants acknowledgement. In many areas, Vedanta has demonstrated excellence in initiatives to improve its sustainability performance. However, whilst the VSF framework and procedures are in place, there are a few areas that require further strengthening. In particular, it was found that: - Some of the initial VSF documents require revision, as envisaged by Vedanta’s

commitment to annual review of technical standards, to ensure full alignment with international standards;

- Implementation at site level, particularly in relation to social topics such as stakeholder engagement, ESIAs, resettlement and indigenous peoples remains very new and unproven. Despite substantial efforts deployed to embed the VSF framework into routine practices, the effectiveness of such efforts and the maturity of local processes are yet to be ascertained.

Key recommendations to further strengthen Vedanta sustainability performance are summarised in the table below. It is recommended that these actions are addressed by Vedanta through a specific Remedial Action Plan, which would comply with the proposed timeframe for each of them, and that they are subjected to a further audit within 12 months from November 2013. Table 1-4: IESC Close Out Audit recommendations

# Recommendation IESC Audit ref Timeframe

1

Revise the following core VSF documentation to address IESC findings presented in this report:

- TS03 Land and Resettlement Management

- TS07 Biodiversity Management

-TS01 Cultural Heritage

4.5

4.6

4.8

6 months

2 Improve draft ESIAs to ensure compliance with international standards – in particular for the Mimbula II Pit at KCM and for the refinery expansion project at VAL-Lanjigarh.

5.1 – PS1

5.2 – PS1

9 months

3 Develop and ensure internal monitoring of biodiversity action plans and wider land management proposals

5.1 – PS6

5.2 – PS6

5.3 – PS6

15 months (due for 2015)

4 Demonstrate effective implementation of recently finalised Stakeholder Engagement Plans

5.1 – PS1

5.2 – PS1

5.3 – PS1

12 months

5 Review cultural heritage, tangible and intangible, assess cultural resources and develop action plans.

5.1 – PS8

5.2 – PS8

5.3 – PS8

12 months

IESC AUDIT REPORT

October 2013 47059086.STG5

12

2 INTRODUCTION AND BACKGROUND

2.1 Vedanta resources

Vedanta Resources (Vedanta) is listed on the London Stock Exchange and is a FTSE 100 metals and mining company. It is involved in mining and processing copper, zinc, aluminium and iron ore, in power generation and in oil.

The Group is characterised by a spread of operations and plants, rapid growth and a complex ownership structure which has been undergoing a process of reorganisation. It experienced significant growth in recent years through expansion projects of its core copper, iron, zinc and aluminium businesses in India, Australia and Zambia and its 2011 acquisitions of Bellary Steel & Alloys Ltd in India, Lisheen Mine in Ireland, the Skorpion mine in Namibia and the Black Mountain Mines in South Africa. In 2011, Sesa Goa acquired Bellary Steel & Alloys Ltd and, following the granting of official approval, the Group acquired a significant stake in Cairn India Limited, which includes India's biggest onshore oilfield in Rajasthan and 9 other properties in India, plus one in Sri Lanka. Therefore, from a base metals company producing zinc, lead, aluminium and copper, Vedanta is now also working in bulks (iron ore), power and oil and gas. A consolidation and simplification of the Group structure was decided in February 2012 and effective in August 2013. As part of this, Sesa Goa and Sterlite have merged to form a new company called Sesa Sterlite Ltd. Additionally, Vedanta Resources’ stake in Vedanta Aluminium (VAL) and Cairn India moved to Sesa Sterlite and The Madras Aluminium Company Limited (MALCO) also merged into this entity. Sesa Sterlite Ltd is one of the world’s largest diversified natural resources companies, with exposure to base metals, bulk commodities and oil and gas. Figure 2-1: Overview of the Updated Group Structure

Source: Vedanta Sustainable Development Report 2012-13 At the time of writing, all Vedanta sites are operating, except for the site of Sesa Goa (iron ore producer), as the state of Goa and Supreme Court had imposed mining ban in the state following reporting of illegal mining practices in the state. As a result, production at Sesa Goa has been stopped since September 2012. The Lanjigarh alumina refinery re-started its production activities in July 2013 after a stoppage of seven months; however it is not at full capacity because of limited bauxite supplies.

IESC AUDIT REPORT

October 2013 47059086.STG5

13

The Tuticorin copper smelter had been shut since March 2013 after an order of Tamil Nadu Pollution Control Board. This temporary closure had followed an incident where the emission levels from the stacks were reported to the regulator as exceeding the allowable limits. This was actually due not to a breach in emissions, but to the conduct of regular calibration test of the online stack emission monitors. Following investigation the smelter was re-opened in July 2013.

2.2 Terms of reference

In September 2010 Scott Wilson Ltd “Scott Wilson” (now URS) was appointed by Standard Chartered Bank (as Agent to the Lenders) as Independent Environmental and Social Consultant (“IESC”) to review Vedanta’s approach to sustainable development. A particular focus was given to the social and environmental issues in relation to Vedanta Aluminium Limited’s (VAL) Lanjigarh (India) alumina refinery and its proposed expansion, given its specific risks and impacts and media attention around the site operations. The purpose of the review was to evaluate the suitability, adequacy, and effectiveness of Vedanta's environmental and social policies, strategies and management systems, and identify how Industry Best Practice could be used to facilitate improvements. The IESC findings were set out in a report titled “Vedanta Resources plc and Lanjigarh Refinery - Independent Review of Sustainability Policies and Practices” dated 17 November 2010 (the “Independent Review Report”). The Independent Review Report sets out a number of recommendations and timescales for implementation of each recommendation. These recommendations are divided into those addressed to corporate management, those addressed to the management of the individual companies and those addressed to the management of Lanjigarh Refinery. Further, four reviews of progress have been undertaken, followed by 6-monthly update reports that were published on the Vedanta Resources website together with Vedanta’s own six monthly progress reports. The first review of progress was undertaken in July 2011 and involved visits to the Vedanta Aluminium Limited (VAL) alumina refinery at Lanjigarh, the Sustainable Development department at its former location at Udaipur, and the Hindustan Zinc Limited (HZL) plant at Chanderiya. The second review in February 2012 included visits to the VAL Lanjigarh, Bharat Aluminium Co. Ltd (BALCO), Sesa Goa operations and the Sustainable Development office now located in Delhi. The third review in October 2012 involved site visits to the Skorpion Zinc Mine (SZ) in Namibia and Konkola Copper Mines (KCM) in Zambia. In the context of the fourth review in March 2013, URS visited Lanjigarh, where production activity had been suspended since December 2012 due to a lack of bauxite feedstock, and the Group’s Sustainability Team in Delhi. Table 2-1 below provides an overview of Vedanta sites that were visited during the successive reviews.

IESC AUDIT REPORT

October 2013 47059086.STG5

14

Table 2-1 - Overview of Vedanta sites visited during the progress reviews and final audit

Vedanta company Initial review

Progress Review 1

Progress Review 2

Progress Review 3

Progress Review 4

Close-Out Audit

VAL-Lanjigarh ● ● ● ● ●

HZL ●

SESA ●

SZ ●

KCM ● ●

Sterlite Copper Tuticorin

●

BALCO ●

2.3 Purpose of the audit

The purpose of this audit is to meet one of the recommendations of that review namely: “that Vedanta undertake an independent audit of Group and Company environmental and social performance against international standards (IFC, ICMM, OECD) within 12 months of implementing the recommendations in this report (i.e. June 2012 at latest). Recommendations which are not implemented will be included in a Remedial Action Plan and their compliance reviewed every 6 months.” In July 2012, the lenders agreed to delay the final sign off audit until June 2013. As per the Request for Proposal issued by Standard Chartered Bank in July 2013, the audit completion was due by October 2013.

2.4 Audit criteria

This audit took a different, more robust approach from the series of progress reviews previously conducted by URS. An audit is a systematic evaluation process that is directed at verifying an organization’s status in regard to specific, predetermined criteria. The audit criteria are explicit measures or requirements, such as regulations, standards, guidelines and corporate directions, used to evaluate the information collected during the audit process. More specifically, this audit looked into the effectiveness of implemented sustainability programs and actions, measured against “International Standards” and Vedanta Resources’ Sustainability Framework where:

a. “International Standards” refers to the International Council on Mining and Metals’ Principles, the Equator Principles including the supporting IFC Performance Standards applicable EHS Guidelines, and the OECD Guidelines for Multinational Enterprises; and

b. The Sustainability Framework consists of the various polices, management standards, technical standards and guidance notes (plus other management system documentation referenced therein) being developed and applied by Vedanta to implement Industry Best Practice.

IESC AUDIT REPORT

October 2013 47059086.STG5

15

2.5 Scope of the audit

This close-out audit considers the performance of Vedanta and its companies since the 2010 IESC review and excludes past performance before debt financing conditions were in place. The audit has the following objectives:

1. Validation of the actions taken by Vedanta to close-out each of the Recommendations as reported in Vedanta's various Progress Reports and supporting evidence;

2. Determination of the degree to which Vedanta's Sustainability Framework documentation addresses the full range of the IFC, ICMM and OECD standards;

3. Evaluation of the effectiveness of Vedanta's implementation of its Sustainability Framework across the Group;

4. Verification of Vedanta’s conformance with all environmental and social conditions

appertaining to the debt funding contract with the Lenders; and

5. Formulation of an audit conclusion, including any further recommendations, with specified responsibilities and timescales, which may be needed to correct identified deficiencies.

Implementation of the framework at the following Vedanta sites was used as a sample for the audit process:

Konkola Copper Mines Zambia (KCM),

Vedanta Aluminium Limited’s, Lanjigarh Refinery India (VAL), and

Sterlite’s Tuticorin Copper Smelter India.

2.6 Declaration of interests

URS Scott Wilson Zambia (and its previous company operations) has been operating in the engineering, mining and environment sectors in Zambia for over 50 years. It has been involved in the KCM site over many years including undertaking EIAs and a Resettlement Action Plan within the past three years.

However, it should be noted that all audit team members who took part in the audit site visits are sub-contractors to URS with no previous involvement in any study for Vedanta companies.

IESC AUDIT REPORT

October 2013 47059086.STG5

16

3 VEDANTA CLOSE OUT OF IESC RECOMMENDATIONS

This initial review conducted by Scott Wilson (now URS) as the Independent Environmental and Social Consultant (IESC) in November 2010 focused on Vedanta’s strategic approach to sustainable development and was also aimed at assessing specific social and environmental issues in relation to Vedanta Aluminium Limited’s (VAL) Lanjigarh (India) alumina refinery and its proposed expansion. It formulated a series of recommendations designed to enhance Vedanta’s contribution to sustainable development. These recommendations were divided into three main categories:

- Corporate level recommendations: Recommendations proposed for the establishment of an over-arching corporate level sustainability function, including development of a governance structure and management systems, with the aim of improving coordination across the Group in regard to environmental and social impact assessment and mitigation processes;

- Company level recommendations: Recommendations aimed at ensuring that the Group’s sustainability policies and procedures are implemented across the organisation’s structure, both in India and overseas, and that performance is correctly reported and monitored, wish specific attention to issues such as Land Management, Vulnerable Social Groups, Cultural Heritage and New Projects;

- VAL-Lanjigarh: Recommendations addressing specific social and environmental issues related to the Lanjigarh refinery and expansion project, adequacy of management plans and of way of addressing stakeholders’ concerns.

A summary of this report and of the recommendations can be found online at: http://sustainability.vedantaresources.com/pdf/ScottWilson_Nov2010.pdf

One of the core objectives of the present audit is therefore to assess whether Vedanta has put in place sufficient policies and implementation procedures for these recommendations to now be considered as closed.

This section of the report reviews the actions taken by Vedanta to close-out each of the IESC recommendations. It considers Vedanta's various Progress Reports, supporting documents and interviews with key staff. The review of progress is structured around the recommendations made at corporate and company levels as well as recommendations specific to VAL Lanjigarh.

3.1 Corporate level recommendations

Drawing on past reviews and the close-out audit findings, the final status of Vedanta completion of IESC recommendations as at September 2013 is as summarised in Table 3-1 below and detailed in the sub-headings below.

Table 3-1: Final status of Vedanta implementation of IESC recommendations

Recommendation URS Assessment Close-out findings Final status

2.5.7 Sustainability Committee

Closed- Jul 2011

Appointment of qualified Head of Community Relations

Activities of Sustainability Committee in line with original mandate

Closed

http://sustainability.vedantaresources.com/pdf/ScottWilson_Nov2010.pdf

IESC AUDIT REPORT

October 2013 47059086.STG5

17

2.5.8 Sustainability Officer On track- Mar 2013

Appointment of new CSO with appropriate international qualifications and experience

Coordination with Sustainability Officers at site level

Closed

2.5.4 Value Statement Closed- Jul 2011

Social and economic welfare embedded in Value Statement and subsequent policies and standards

Closed

2.5.2 Code of Conduct Closed- Jul 2011 Reference made to local communities as a key element

Closed

2.5.6 Policies On track- Mar 2013

Comprehensive set of policies and supportive documentation – a small number are still in progress

Closed

2.5.3 Stakeholder engagement

Closed- Mar 2012

Efficient centralised system for answering stakeholder queries

Technical Standard and training programme being rolled out across business units

Guidance Note soon to be released

Closed

2.5.13 Reporting Closed- Nov 2012

Use of GRI Standards and Index in the Sustainable Development Report

Independent Assessment of the Sustainable Development Report

Closed

2.5.8 Sustainability oversight Closed- Mar 2012

Recommendation implemented via the Vedanta Sustainability Assessment Process (VSAP) – Self-evaluation and internal audits followed by corrective action plans for all business units

Closed

2.5.9 Professional competencies

Closed- Nov 2012

Competencies reinforced through extensive training programme across the Group, especially on sensitive social issues

Closed

2.5.16 Human rights policy Closed- Mar 2012

Existence of Policy, Guidance Note and consideration of HR issues in internal audit process

Closed

2.5.24 External audit On track- Mar 2013 This report represents the external audit

Closed

IESC AUDIT REPORT

October 2013 47059086.STG5

18

Recommendation 2.5.7: Sustainability Committee

The title of the HSE Committee should be changed to the Sustainable Development Committee and its terms of reference expanded to reflect the breadth of its role covering all aspects of the environmental and social sustainability of the Group (Original target = May 2011).

The composition of the Sustainability Committee against 2011 terms of reference and previous URS recommendations and the competencies of its members have been examined.

The mandate and the composition of the Sustainability Committee were established in March 2011, through the Board Terms of Reference.

Vedanta has established a Sustainability Committee which is chaired by the senior independent director. The Committee oversees and reviews sustainability performance. Specifically, its role is to institutionalise sustainability, to review and report on sustainability performance, to review sustainability targets and to approve the annual Sustainable Development Report.

Vedanta has also established an Exco Sub Committee on Sustainability. This is chaired by the Chief Executive Officer and works at an operational level to embed sustainability. All CEOs have a permanent invitation to attend and the Committee is assisted by the Chief Sustainability Officer and the Sustainability Team. The team is comprised of Head of specific Sustainability areas, as shown in Figure 3-1 below.

Figure 3-1: Sustainability Organisation and Competency

One of the main recommendations from the last URS review report was to appoint a Community Relations and Human Rights Head, to deal effectively with social issues. Subsequently, an experienced Head of Community Relations, with more than 20 years of experience in CSR and Community Engagement activities and strong academic background, joined the Sustainability Committee in July 2013.

IESC AUDIT REPORT

October 2013 47059086.STG5

19

There were no other changes to the Sustainability departmental structure or its responsibilities.

With regard to the activities performed by the Sustainability Committee, recent minutes of the committee have been examined and demonstrate commitment to its role. In particular, specific focus was given in 2012-13 to the following:

- Definition of sustainability objectives and targets;

- Review of sustainability performance, with a focus on safety and environmental performance on a quarterly basis (incidents, root causes, near misses, progress trends, etc.);

- Overview of the Sustainability Assurance Programme, in particular review of self-score results and internal audits, identification of areas of improvement and follow-up of corrective action plans;

- Self-review of performance on a yearly basis against the initial board terms of reference;

- VAL-Lanjigarh sustainability performance, gap analysis with International Standards and Indian legislation, and overall stakeholder engagement process, in particular with regard to tribal groups;

- Internal risk assessment and due diligence process with regard to human rights and child labour.

Status of Recommendation

It is confirmed that the current arrangements adequately meet the intention of the original recommendation, and that the Group is developing a consistent, on-going approach to the management of environmental and social sustainability.

The recommendation remains closed.

Recommendation 2.5.8: Sustainability Officer

We recommend the appointment of an appropriately qualified Chief Sustainability Officer (CSO) with international experience to direct and coordinate the HSE, CSR and related functions. The CSO will act through single points of contact in each subsidiary company (Original target = November 2011).

The new Chief Sustainability Officer was appointed in April 2013, in succession to the previous CSO. His wide experience in corporate sustainability on an international scale is appropriate to the task of directing the sustainability function within Vedanta. It was noted that Sustainability Officers have now been appointed at KCM, Lanjigarh and Sterlite Tuticorin sites thus meeting the recommendation for a single point of contact in each company.


This recommendation has been implemented successfully and remains closed.

IESC AUDIT REPORT

October 2013 47059086.STG5

20

Recommendation 2.5.4: Value Statement

We recommend that Vedanta revise the wording of its Value statement on Sustainability to state: “We aim to contribute to the social and economic welfare of the communities where we work and to protect and conserve the environment.” (Original target = February 2011).

The value statement was revised following the initial review, to include the above sentence and also specify the following: “We fully recognise the importance of including local communities and other key stakeholders in our development strategy to ensure that our impact is positive. Rather than simply providing aid, we aim to create sustainable livelihood opportunities – improving the quality of life for society and contributing to the basics of life.”

A copy of the Vedanta Mission Statement and updated Corporate Values can be found at http://www.vedantaplc.com/mission-values.aspx.

In addition, Vedanta now has a Sustainability Framework based upon three principles: responsible stewardship, building strong relationships and adding and sharing value. These principles and their subsequent amplification in policies and standards adequately meet the aim of the recommendation which was to embed social and economic welfare and environmental protection into the core business.


This recommendation remains closed.

Recommendation 2.5.2: Code of Conduct

We recommend that the preamble to the Code, “How We Do Business”, should include reference to local communities as a key element affecting Vedanta’s reputation along with customers, shareholders, competitors and suppliers (Original target = February 2011).

The Code was revised following the initial review to integrate the above recommendation. It remains published on the corporate web site at:

- http://www.vedantaresources.com/investor-relations/corporate-governance/code-of-business-conduct.aspx


This recommendation remains closed.

Recommendation 2.5.6: Policies

We recommend that Vedanta develop a series of policies to realise the aims stated for each of the four sustainability areas (environmental stewardship, nurturing people, health and safety and empowering communities). The policy statements should be succinct, should reflect best international practice and reflect a commitment to continuous improvement. Annual targets for progress and reporting should be considered wherever possible. Noise should be included as a policy issue (Original target = 2011 Annual Report and Sustainability Report).

Since the original review, Vedanta has developed 8 Group policies that cover the three principles of responsible stewardship, building strong relationships and adding and sharing value. They are available at: http://sustainability.vedantaresources.com/overview/policies. They reflect a commitment to continuous improvement, as well as the need to review performance on a regular basis – which is ensured though the Vedanta Sustainability

http://www.vedantaplc.com/mission-values.aspx

http://www.vedantaplc.com/mission-values.aspx

http://www.vedantaresources.com/investor-relations/corporate-governance/code-of-business-conduct.aspx

http://www.vedantaresources.com/investor-relations/corporate-governance/code-of-business-conduct.aspx

http://sustainability.vedantaresources.com/overview/policies

IESC AUDIT REPORT

October 2013 47059086.STG5

21

Assurance system that verifies that targets are set and audited in order to ensure continuous improvement.

These policies are supported by a suite of Management and Technical Standards, as well as Guidance Notes for implementation on various aspects of social and environmental sustainability, as reflected in Table 3-3 below. These have, in turn, been modified as appropriate, and adopted by individual companies.

Table 3-2: Overview of Vedanta Sustainability Framework documentation

Policy / TS / MS /GN Issue Date Version No.

Policy

Biodiversity policy 21/09/2011

Energy and Carbon Policy 21/09/2011

HIV AIDS Policy 21/09/2011

HSE Policy 21/09/2011

Human Rights Policy 21/09/2011

Social Policy 21/09/2011

Water Management Policy 21/09/2011

Supplier and Contractor Management Policy 10/11/2011

Management Standards (MS)

MS 1 Leadership, Responsibility and Resources 30/09/2011 v1

MS 2 Stakeholder Materiality and Risk Management 30/09/2011 v1

MS 3 New Projects, Planning Processes and Site Closure 30/09/2011 v1

MS 4 Compliance and Other Requirements 11/12/2011 v1

MS 5 Objectives, Targets and Performance Improvement 21/12/2011 v1

MS 6 Competency, Training and Awareness 30/09/2011 v1

MS 7 Management of Change 11/12/2011 v1

MS 8

Acquisitions, Divestment and Joint Venture Due Diligence 06/04/2012 v2

MS 9 Documentation and Records Management 30/09/2011 v1

MS 10

Performance Monitoring, Data Management and Reporting 10/02/2012 v1

MS 11

Incident Reporting, Classification and Investigation 13/12/2012 v1

MS 12 Auditing and Assurance 10/02/2012 v1

IESC AUDIT REPORT

October 2013 47059086.STG5

22


MS 13 Corrective and Preventive Action Management 11/11/2011 v1

MS 14 Management Review and Continual Improvement 30/09/2011 v1

Technical Standards (TS) TS 1 Cultural Heritage 30/09/2011 v1

TS 2 Employee Consultation and Participation 13/01/2012 v1

TS 3 Land and Resettlement Management 30/09/2011 v1

TS 4 Grievance Mechanisms 30/09/2011 v1

TS 5 Stakeholder Engagement 30/09/2011 v1

TS 6 Supplier and Contractor Management 29/06/2012 v2

TS 7 Biodiversity Management 30/09/2011 v1

TS 8 Conducting ESIAs to International Standards 29/06/2012 v2

TS 9 Resource Use and Waste Management 21/10/2011 v1

TS 10 Safety Management 21/10/2011 v1

TS 11 Environmental Management 21/10/2011 v1

TS 12 Occupational Health Management 21/10/2011 v1

TS 13 Emergency and Crisis Management 17/01/2012 v1

TS 14 Water Management 02/12/2011 v1

TS 15 Security Management 10/02/2012 v1

TS 16 Energy and Carbon Management 02/12/2011 v1

TS 17 Site Closure 06/04/2012 v1

TS 18 Transport and Logistics Management 13/01/2012 v1

TS 19 Community Investment Management 10/02/2012 v1

TS 20 HIV/AIDS Management 06/04/2012 v1

TS 22 Indigenous Peoples / Vulnerable Tribal Groups 22/03/2013 v2

Guidance Notes (GN)

GN 00 Indigenous Peoples/ Vulnerable Tribal Groups 25/06/2013 v1

GN 02 Hazardous Materials Management 20/06/2013 v1

GN 03 Land Acquisition and Resettlement Management 18/10/2012 v1

IESC AUDIT REPORT

October 2013 47059086.STG5

23


GN 04 Biodiversity Management 21/06/2013 v2

GN 07 Risk Assessment 25/06/2013 v1

GN 12 Human Rights 21/06/2013 v1

GN 14 Waste Management 18/06/2013 v1

GN 16 Conducting ESIAs To International Standards 22/03/2013 v1

GN 18 Machinery Guarding 05/11/2012 v1

GN 20 Lock-Out / Tag-Out (LOTO) 10/02/2013 v1

GN 21 Work at Height 26/06/2013 v1

GN 23 Fleet Management 26/06/2013 v1

As one of the core recommendations of the fourth review report was to support policies with more detailed Guidance Notes for effective understanding and implementation across the Group, a series of Guidance Notes have been released or revised in 2013, especially on sensitive topics such as Indigenous People, Biodiversity Management, and Human Rights. Additional Guidance Notes are currently being developed, on Environmental Management Systems (EMS), Safety Management Systems (SMS), Stakeholder Engagement, Grievance Mechanism and Pollution Prevention.

Overall, the vast majority of the Sustainability Framework’s content is deemed to be of a very good standard, but there is still scope for improvements or amendments to address requirements set out in IFC Social and Environmental Performance Standards, ICMM and OECD Principles. See Section 4 – Vedanta Sustainability Framework Compliance for further details. All standards have a review clause which is typically 12 months but this is not evidenced. The frequency to reviews standards may need to be re-assessed to be more realistic.


As a comprehensive series of Policies have been developed in accordance with the original recommendation and supported by a growing set of supporting standards and guidelines and by an effective internal assurance programme, it is considered that this recommendation is closed.

Recommendation 2.5.3: Stakeholder engagement

We recommend that Vedanta adopt internal procedures to ensure that all requests for information from stakeholders (including investors, NGOs, international organisations and the press) are dealt with in a timely manner. We see this as an important part of a wider programme to inform and communicate with all stakeholders. To assist with transparency we recommend that Vedanta maintain a register of enquiries and responses and provide a summary in their Annual Sustainability Report/website (Original target = May 2011).

o Centralised system for answering stakeholder queries

Vedanta has demonstrated a strong corporate commitment to engage with all its stakeholders in a focussed and continuous process. The most recent Sustainability Report provides a summary of email enquiries received by the company (through the email address [email protected] disclosed on the corporate website) and describes their response to a campaign led by Amnesty International. This included the preparation of a

mailto:[email protected]

IESC AUDIT REPORT

October 2013 47059086.STG5

24

report on development at Lanjigarh (“The Lanjigarh Story; The Vedanta Perspective”) and its distribution to over a thousand campaigners. Vedanta is also making increased use of various social media platforms to communicate with its stakeholders.

The analysis of samples of request for information and the reconciliation of the Register of Enquiries and Grievances with information disclosed in the Sustainable Development Report confirm that the Group keeps track of all requests and of the way they were addressed. It also confirms that the majority of requests relate to job search, marketing, surveys.

o Internal procedures for Stakeholder Engagement across the Group

Technical Standard 5 on Stakeholder Engagement is quite comprehensive in detailing requirements for stakeholder identification, ways of engaging with them and of recording and responding to stakeholder enquiries and grievances.

In addition to setting the requirements, additional support was provided in the form of training provided to operational units (through teleconference) by the corporate level in June 2012 and by ERM India in 2013, to ensure effective stakeholder engagement at the operational level. This training is soon to be completed by the release of a Guidance Note on Stakeholder Engagement.


It is both confirmed that the centralised system for providing timely reply to all stakeholders and keeping track of it is fully functional, and that stakeholder engagement standards and implementation support is provided across the Group. Therefore this recommendation is considered to be closed.

Recommendation 2.5.13: Reporting

We recommend that Vedanta report, where possible, on Group environmental and social performance as a whole and seek to benchmark performance against industry best practice and seek assurance from appropriate bodies with industry and sustainability experience (Original target = April 2012).

The diverse nature of Vedanta’s businesses makes difficult “global” reporting and benchmarking against industry best practice. The 2012-13 Sustainable Development Report, available at http://sustainability.vedantaresources.com/reporting/sd_report, does make an attempt to summarise the overall performance of the individual companies and has been independently assured by Det Norske Veritas AS (DNV).

In addition, standards and core performance indicators outlined in the Global Reporting Initiative (GRI) G3.1 and in the GRI G3.1 Supplement on Metal and Mining Industries and Oil & Gas were used to structure the report and refer to various sections in the GRI index.

The Vedanta Sustainability Assurance system also offers the opportunity to set targets for individual companies which reflect international best practice.


This recommendation is confirmed as being closed.

Recommendation 2.5.8: Sustainability oversight

We recommend that the corporate Sustainability Development Committee should continue to ensure that subsidiary companies take a consistent approach to promoting sustainable

http://sustainability.vedantaresources.com/reporting/sd_report

IESC AUDIT REPORT

October 2013 47059086.STG5

25

development in accord with international best practice by monitoring performance, lesson learning and dissemination of best practice (Original target = November 2011).

This recommendation has been implemented via the Vedanta Sustainability Assurance Process (VSAP), through which the sustainability performance of all the subsidiary companies is monitored by the corporate Sustainability Team. The process has three phases: a self-assessment questionnaire; an annual audit visit from the Sustainability Team; and an improvement plan to detail key actions and implementation status. The subjects covered are:

- Compliance, Leadership, Objectives & Performance, Competency & Training;

- New Projects, Management of Change, Incident Investigation, Documentation & Procedures, Audits – Management Reviews;

- Supplier & Contractor Management, Human Rights, Social & Security, Stakeholder Engagement;

- Resources Use & Waste Management, Water & Biodiversity Management, Energy & Carbon, HSE.

The scope of the reviews, the self-assessment process and the independent auditing provide a rigorous system for ensuring consistency across the business and continuous improvement. The establishment of regular Tele Presence sessions for sustainability staff in the different disciplines is a particularly welcome approach to lesson-learning and the dissemination of best practice.

Minutes of meeting of the Sustainability Committee reveal that progress against VSAP topics of each of the business units is a core concern and that all the units have to prepare action plans for improving their scores to more than 70% and then to 90%.

Corrective and Prevention Action Plans (CAPAs) are prepared following each audit of a subsidiary company. They summarise self-evaluation and audit scores, audit findings for each subject, corresponding action plans and completion dates. The review of three of these CAPAs confirmed that the level of details provided in audit findings and of requirements for effective implementation is quite high.

A review of overall updated self-scores and audit scores revealed that none of the subsidiaries had “unacceptable” scores any more (except for one Company for Audits and Management Reviews). This represents a great progress in comparison to last year’s performance, and demonstrates the efficiency of the VSAP.


This recommendation is confirmed as being closed.

Recommendation 2.5.9: Professional competencies

We recommend that Vedanta keep under review the full range of HSE and CSR competencies it requires across its business and consider the need for additional training, as appropriate, in relation to the IFC Performance Standards and Guidelines, human rights, vulnerable groups and the GRI Mining and Metals Sector Supplement (Original target = November 2011).

Vedanta has an on-going training programme on the Vedanta Sustainability Framework and on IFC requirements. In the financial year 2012-13, 7200 employees were trained on the VSF.

One of the main issues highlighted in the last review report was the need to reinforce coordination, awareness and competencies with regard to stakeholder engagement and management of social issues. This observation was addressed through:

IESC AUDIT REPORT

October 2013 47059086.STG5

26

- The appointment of a highly qualified Chief Sustainability Officer and of a dedicated Head of Community Relations and Human Rights in the Sustainability Team;

- The development of a needs-based approach to training.

An extensive review of training materials was performed and encompassed the following items:

- Training PPT presentation on VSF for Board Members (February 2013) and for business units;

- Training presentation on VSAP to business units (2013);

- Tele Presence Courses on Requirements for New Projects, Stakeholder Engagement to business units (June 2012);

- Training PPT presentation on Stakeholder Engagement disclosed by ERM India with business units in 2013;

- Training on Technical Standard 22 (Indigenous People) and questionnaire on TS 22 provided to business units in July 2013;

- Human Rights training material at site level;

- Corporate communication on Roll-Out of Training Programme and invitations of business units to training sessions.

The review revealed that, in addition to mainstreaming the sustainability framework, recent emphasis has been placed on Human Rights (particularly for security staff), Stakeholder Engagement, New Projects Management, and Indigenous People. Extensive use of Tele Presence facilities, organisation of participatory workshops and distribution of questionnaires appear to support onsite understanding of applicable requirements – although it must be stressed that the improvement of awareness and competencies on these issues is an on-going process and that it is important to keep the momentum going.


It is considered that this approach and the scale and nature of training are in accord with the recommendation which remains closed.

Recommendation 2.5.16: Human rights policy

We recommend that Vedanta adopts a specific human rights policy demonstrating its commitment to the UN Declaration of Rights and procedures to ensure its implementation. This should be communicated to all stakeholders via its web site (Original target = November 2011).

The Human Rights Policy has been adopted in 2011 and made publicly available, at: http://sustainability.vedantaresources.com/overview/policies. It has been the subject of extensive staff training at site level, either exclusively or as part on a broader training on the Code of Conduct.

In addition, a Guidance Note on Human Rights was released in June 2013 and distributed to all subsidiaries. The Guidance Note provides thorough historical information, definition of Human Rights and presentation of international standards and legal instruments relevant to Vedanta in this field. In addition, it specifies how the UN Human Rights Framework’s

http://sustainability.vedantaresources.com/overview/policies

IESC AUDIT REPORT

October 2013 47059086.STG5

27

Foundational and Operational Principles for Business are reflected in Vedanta Sustainability Framework and how they should be rolled out by the subsidiaries.

Finally, the review of site-specific audit findings subsequent CAPAs reveals that Human Rights are a core element taken into account in the VSAP, especially with regard to subjects such as Competency & Training, Supplier and Contractor Management, Security Management, Risk Management.


As Human Rights Policy, guidelines and implementation procedures are now in place, this recommendation is considered as closed.

Recommendation 2.5.24: External audit

We recommend that Vedanta undertake an independent audit of Group and Company environmental and social performance against international standards (IFC, ICMM, OECD) within 12 months of implementing the recommendations in this report (i.e. June 2012 at latest). Recommendations which are not implemented will be included in a Remedial Action Plan and their compliance reviewed every 6 months (Original target = as specified within preceding text).

This report represents the external audit.


This recommendation is closed.

IESC AUDIT REPORT

October 2013 47059086.STG5

28

3.2 Company level recommendations

Drawing on past audits and the close-out audit findings, the final status of Company-level completion of IESC recommendations as at September 2013 is as summarised in Table 3-3 below and detailed in the sub-headings below.

Table 3-3: Final status of Company implementation of IESC recommendations

Recommendation URS assessment Close-out findings Final status

2.5.15 International best practice On track- Mar 2013

Enhancement of draft ESIAs necessary to ensure compliance with VSF and IFC Standards

Closed

2.5.11 Land management Closed- Mar 2013

Biodiversity Management Plans have been prepared for Vedanta Companies, which have areas with critical habitat

Sites without critical habitat are scheduled to prepare Biodiversity Management Plans by 2015

Closed

2.5.23 Incident register Closed- Mar 2012

Company level environmental and social incident registers are maintained at company level and reported to corporate

Closed

2.5.12 Environmental communications

On track- Mar 2013

Information is being provided and consultations formalised and regularised via the Stakeholder Engagement Plans

Closed

2.5.17 Consultation for new sites Closed- Mar 2012 VSF in place and being followed at audit sites

Closed

2.5.20 Vulnerable social groups Closed- Mar 2013 Training records show staff have been trained in TS22

Closed

2.5.22 Cultural heritage Closed- Mar 2012

Current Terms of Reference for ESIA’s include requirements for cultural heritage baseline studies

Closed

Recommendation 2.5.15: International best practice

We recommend that Vedanta produce and test their EIAs and EMPs against the IFC Performance Standards and ICMM best practice and define clear links between the EIAs, EMPs and Environmental Management Systems. Specifically EIAs should be expanded in

IESC AUDIT REPORT

October 2013 47059086.STG5

29

relation to biodiversity and habitat identification, the identification of cultural heritage (scheduled and non-scheduled sites) and social and human rights impacts. Vedanta should commission independent reviews of one or more major EIAs each year in order to ensure compliance with IFC Standards (Original target = to be implemented for all new projects and major extensions requiring EIA).

Two draft ESIAs were examined during the course of the audit, one for the Mimbula II Pit at KCM and one for the refinery expansion at Lanjigarh. Both ESIAs make reference to the IFC Performance Standards but neither is specific in identifying the applicable Standards nor in making explicit how the ESIAs fulfil the Standards. The draft Mimbula II Pit ESIA does consider biodiversity and does consider social impacts but nevertheless could be enhanced (see 5.1 below). The Lanjigarh expansion ESIA is effectively a supplementary ESIA produced at the request of the Ministry of Environment and Forests and responds specifically to their requests. Nevertheless, the final ESIA should deal more explicitly with the IFC Performance Standards in order to comply with the Vedanta Sustainability Framework. Neither ESIA has been the subject of an independent audit.


Whilst the draft ESIAs represent an improvement on past documents, further improvement is necessary to meet the declared policies of Vedanta. As the documents are in draft, such amendments can still be made and independent audit implemented as appropriate. Subject to these changes this recommendation can be closed.

Recommendation 2.5.11: Land management

We recommend that Vedanta develop a policy and implementation practices to more proactively manage land in their ownership in order to maximise environmental gains and promote biodiversity. This would include the development of environmental management plans for all non-operational land and the carrying out of more detailed habitat surveys for all new sites prior to development (Original target = in time for the 2011 Annual report and Sustainability Report, i.e. now June 2012).

Vedanta Technical Standard 7 (Biodiversity Management) clearly states Vedanta’s commitment to biodiversity management and managing biodiversity impacted by site operations, expansions and surrounding non-operation land. Implementation of this standard at company level (KCM, VAL, Sterlite Tuticorin) was reviewed during the audit. All three sites have conducted an IBAT assessment to determine the occurrence of critical habitat potentially impacted by the site. No critical habitat was identified within the 10km radius of the sites. Each of the sites has some form of biodiversity planning but it has been identified that these should be revised to ensure Biodiversity Management Plans at all sites have a similar approach. Vedanta has prioritised the development of Biodiversity Management Plans, for its companies, based on criticality of habitat impacted by operations and potential developments. As no critical habitat identified at KCM, VAL and Sterlite Tuticorin, the Biodiversity Management Plans for these site has been scheduled for 2015.

Documentation supporting new projects indicated that more detailed ecological surveys, ultimately supporting a Biodiversity Management Plan, would be required during the next phase of project. This demonstrates that the Vedanta requirements, as documented in the technical standard are being achieved, though the implementation of these standards.


Based on the findings of the audit, this recommendation can be closed, however will require on-going internal monitoring to ensure scheduled Biodiversity Management Plans are completed and implemented.

IESC AUDIT REPORT

October 2013 47059086.STG5

30

Recommendation 2.5.23: Incident register

We recommend that Vedanta companies compile and maintain a register of major social and labour incidents at their plants and report to Vedanta Resources (Original target = April 2011).

Each company (KCM, VAL, Sterlite Tuticorin) maintains an Environmental and Social Incident register. Incidents are investigated to understand root cause. This information is shared monthly through Tele Presence Multimedia Meetings to enable other sites to learn from the incidents and improvements resulting from the root cause analysis. These incidents are also reported to Vedanta Corporate through the corporate reporting process.


Based on this evidence this recommendation remains closed.

Recommendation 2.5.12: Environmental communications

We recommend that Vedanta communicate the environmental monitoring regime at their plants to stakeholders, including local communities, on their environmental and social performance, benchmarking this against international standards (e.g. IFC Guidelines) and reporting in their 2012 Sustainability Report (Original target = November 2011).

Vedanta has published a Social Policy which commits to consulting and informing stakeholders, a management standard for stakeholder risk and materiality and a technical standard on stakeholder engagement. The last requires individual companies to prepare stakeholder engagement plans. These have been produced by VAL, KCM and Sterlite Tuticorin and were examined as part of the audit.

The original recommendation stemmed from the fact that allegations were being made about the environmental and health impact of the Lanjigarh refinery. It was considered that the provision of further information on the environmental performance of the plant would inform the situation and help to allay unnecessary fears.

VAL sought first to communicate its environmental performance via a notice board at the site entrance and through the provision of information during its community development meetings in the area. This has now been supplemented by a real time emissions recording system which is shown on an electronic display panel at the refinery entrance and provided to the local regulators. In addition, as a separate initiative, VAL has monitored the health of local people with particular respect to respiratory diseases. This has served to demonstrate that there has been no discernible deterioration in public health in recent years.

Communication of information on environmental performance to local communities will be further formalised and regularised through the implementation of the stakeholder engagement plan.

The KCM stakeholder engagement plan provides for quarterly meetings to involve local communities using multi-stakeholder forums. This proposal responds to an earlier URS report suggesting the need to formalise and regularise the provision of information to and consultation with adjacent communities.

Sterlite Tuticorin’s stakeholder engagement plan was finalised in July 2013 covering all functions of operations and new projects. It identifies and maps statutory requirements and general stakeholder groups by Sterlite Tuticorin outlining different methods of engagement, disclosure and organisational responsibilities, training and resourcing. For local communities six-monthly meetings with the Gram Panchayat are scheduled with annual disclosure of

IESC AUDIT REPORT

October 2013 47059086.STG5

31

sustainability performance. The plan was finalised in July 2013 with evidence of implementation but further time is needed to provide a reliable assessment of performance.


The provision of information to local communities has been and is being improved and comparison is being made with appropriate standards. Further auditing of the implementation of the stakeholder engagement plans is desirable. However, this recommendation remains closed.

Recommendation 2.5.17: Consultation for new sites

We recommend that Vedanta develop a standardised approach to community consultation and disclosure on new developments which responds to IFC guidelines and communicate this to all stakeholders via its web site (Original target = November 2011).

To ensure a consistent approach to public disclosure and consultation for new projects, Vedanta has addressed this in a number of aspects of its Sustainability Framework including:


MS 3: Project Planning and Site Closure Process

TS 5: Stakeholder Engagement

TS 8: Conducting ESIAs to International Standards

Site visits provided the opportunity to review project development processes (screening, ESIA ToR development) and stakeholder engagement plans to confirm that the original recommendation has been actioned.


Based on this evidence this recommendation is confirmed closed.

Recommendation 2.5.20: Vulnerable social groups

We recommend that Vedanta adopt a specific policy in relation to engagement with and assistance to social groups that may be vulnerable to change and communicate this to all stakeholders via its web site (Original target = November 2011).

Vedanta has developed and implemented TS 22: Indigenous Peoples/ Vulnerable Tribal Groups which was initially issued on 7 March 2013. A revised version was issued on 22 March 2013 and a Guidance Note was issued in June 2013. The IESC considered this recommendation to be closed out in its March 2013 report subject to Vedanta being able to demonstrate effective communication and training on the standard.

Site visits show training records for TS 22 to 16 KCM staff, in July 2013 and 9 staff from VAL Lanjigarh, which is considered to have satisfied the requirement to close the recommendation as being actioned. In addition the IESC reviewed the draft Tribal Development Plan prepared for VAL Lanjigrah which is discussed in Section 5.2: Effectiveness of Vedanta Sustainability Framework for VAL Lanjigarh. Given the short period since the VSF has incorporated IPs/ Vulnerable Tribal Groups, the progress made in implementation meets what can reasonably be expected.

IESC AUDIT REPORT

October 2013 47059086.STG5

32



Recommendation 2.5.22: Cultural heritage

We recommend that in developing new sites Vedanta adopts a standardised approach to the identification of sites of cultural heritage value involving formal documentary sources, site surveys and community consultation (Original target = November 2011).

Vedanta has developed TS1 (Cultural Heritage), which requires an assessment of cultural heritage requirements for all new projects. There are currently new major projects planned for KCM (Mimbula II), VAL (Expansion Project) and Sterlite Tuticorin (Desalination Plant). For each of these projects a Terms of Reference for an ESIA or an ESIA has either been prepared has been prepared. In each of these, the requirement for a detailed cultural heritage assessment has been identified as well as the preparation of a cultural heritage management plan, if required.

At operational facilities visited (KCM, VAL, Sterlite Tuticorin) it was only KCM, which had identified matters of cultural heritage importance on the current site (namely Cooling Towers). There was clear evidence that KCM together with the government were managing the removal of these items and responsible mitigation measures. These are discussed in more detail in Section 5. VAL and Sterlite Tuticorin had undertaken initial assessments and no areas of cultural heritage significance were identified.



IESC AUDIT REPORT

October 2013 47059086.STG5

33

3.3 VAL Lanjigarh specific recommendations

Drawing on past reviews and the close-out audit findings, the final status of VAL Lanjigarh completion of IESC recommendations as at September 2013 is summarised in Table 3-4 and detailed in the sub-headings below.

Table 3-4: Final status of VAL Lanjigarh implementation of IESC recommendations

Recommendation URS assessment Close-out findings Final status

3.3.20 Environmental management

On track- Mar 2013 ESMP, SEP and TDP in place

Closed

4.5.8 Grievance mechanism Closed- Jul 2012 Grievance mechanism has been enhanced

Closed

3.3.3 Housekeeping Closed- Jul 2011

High standard observed

Challenge with storage of expansion materials

Closed

3.4.3 Proposed expansion On hold- Mar 2013

Legal dispute over expansion project yet to be resolved. Draft ESIA prepared

Suspended

3.3.79 Disaster management plan

Closed-Mar 2012 Training provided & evidence of regular drills.

Closed

3.3.32 Retrenchment plans Closed- Nov 2012 Plan is in place Closed

3.3. 48 Contractor accommodation

Closed- Mar 2012 Accommodation managed Closed

4.5.5 Dust emissions Closed- Mar 2012

All bauxite is now delivered by train reducing dust emissions

Dust control measures have been implemented

Real time online monitoring displayed at site entrance and available to regulator

Closed

4.6.8 Livelihood support Closed- Mar 2012 Livelihood improvement monitoring report

Closed

4.6.12 Integrated development Closed- Mar 2012 Evidence of coordination with Government

Closed

3.3.63 H&S management Closed- Mar 2013 Sample areas evaluated and no major discrepancies identified

Closed

Recommendation 3.3.20: Environmental management

Undertake a systematic gap analysis of its EMS against the Industry Best Practice Criteria and update it accordingly (Original target = April 2011).

IESC AUDIT REPORT

October 2013 47059086.STG5

34

The site management system continues to maintain third party certification for its environmental management system, occupational health and safety management system, quality management and energy management. During the audit the following documents were also reviewed and evidence of implementation of these documents was provided during interviews:

Environmental and Social Management Plan has been revised since the last audit visit to better cross-reference between plans and remove duplication;

Stakeholder Engagement Plan;

Tribal Development Plan- encompasses the 32 villages peripheral to the Alumina Refinery inhabited by the Kutia Kondh. Section 5.2 of this report provides IESC findings on baseline data, impact assessment and the development benefits against IFC PS7 requirements;

Resettlement Action Plan for new land acquisition- covering the three villages of Rengopalli, Bandhuguda and Kothaduar. The Preliminary RAP demonstrates compliance with statutory requirements. IESC findings on what measures are needed to demonstrate IFC PS5 requirements are given in Section 5.2 of this report.



Recommendation 4.5.8: Grievance mechanism

Establish and strengthen a simple and accessible grievance mechanism by which villagers can identify any concerns about the operation of the refinery by using the village coordinators already deployed by VAL (Original Target = May 2011).

As noted in previous reviews, VAL has established a grievance mechanism enabling villagers to call at the office at the refinery gate and report their concerns. As originally established grievances had to be registered on a Friday afternoon and were recorded on a specific form. Based on experience and international best practice, VAL has now expanded and liberalised the system. Thus villagers may lodge a concern at the office at any time whilst all staff will register concerns whilst in the field. Grievances are properly recorded and findings communicated to those concerned.


This recommendation is confirmed closed.

Recommendation 3.3.3: Housekeeping

Notwithstanding the current problems arising from equipment storage, VAL seek to improve site housekeeping with particular regard to ensuring the correct segregation, collection and disposal of waste materials and the fitness for purpose of the refinery’s storm water drainage systems (Original target = immediate).

Housekeeping was evaluated during the site tour as well as in subsequent visits to the plant and surrounding areas during the audit. Housekeeping is considered to be of a high standard.

It should be noted that equipment and material for the proposed expansion was observed onsite, however due to the delays and restrictions related to the expansion project, these should not be and were not considered when evaluating the site’s housekeeping status.

IESC AUDIT REPORT

October 2013 47059086.STG5

35

The storm water system was inspected during the site tour. This system has been re-lined to prevent leakage and storm water is directed to a central water dam, where water is reused in the refinery.

Waste is segregated and there are initiatives to re-use/minimise waste (e.g. waste lime bags are collected and sent to cement factory as fuel source).



Recommendation 3.4.3: Proposed expansion

If the expansion of the refinery is to proceed, a supplementary report be prepared to augment and update the existing EIA, thus meeting international best practice. This report would be used to guide further development and would be made available to key stakeholders (No defined target date = dependent upon court approval to proceed).

The legal dispute regarding the plant expansion has yet to be resolved. However, VAL has prepared a draft ESIA designed to meet the immediate requirements of the Ministry of Environment and Forests. Further comment on the draft ESIA is included under Section 5.2.


This recommendation remains open pending resolution of the legal dispute.

Recommendation 3.3.79: Disaster management plan

Review the Disaster Management Plan against recognised industry guidance (such as the ICMM / UNEP publication “Good practice in emergency preparedness and response”, 2005) and upgrade its emergency prevention and response arrangements including improved drill and simulation exercises (Original target = April 2011).

Emergency Planning was evaluated during the site tour, subsequent visits to the plant and surrounding areas as well as interviews with personnel. Evidence was provided demonstrating planning for emergency drills. Results of emergency drills undertaken were sighted and records of learnings from drill were provided.


Based on this evidence this recommendation should remain closed.

Recommendation 3.3.32: Retrenchment plans

Develop suitable and sufficient retrenchment plans to mitigate the adverse impacts of future suspension or closure of the refinery on both direct and indirect employees (Original target = November 2011).

VAL has a retrenchment policy that has been regularly revised and explicitly refers to IFC PS2 and statutory requirements. The policy aims to avoid collective dismissals and reduce the adverse impacts of retrenchments. It proactively identifies business risks such as acute raw materials shortage, environmental incident and unrest and commits to an action plan where

IESC AUDIT REPORT

October 2013 47059086.STG5

36

retrenchments are unavoidable. The most recent version updated in October 2012 reflects revisions to community communication of the policy.



Recommendation 3.3.48: Contractor accommodation

Undertake a gap analysis for contractors’ labour accommodation against IFC / EBRD guidance and address any serious deficiencies. VAL should therefore amend its contractual documentation to specify minimum expectations for contractors in regard to labour accommodation, and then enforce contractors’ adherence to its specified requirements (Original target = November 2011).

The audit team confirmed that VAL has an accommodation policy where eligibility is based on grade and whether employees are accompanied by family members. A standard operating procedure is in place for contractor worker accommodation covering assessment and review of accommodation supported by a checklist, action plan and redress measures. Quarterly site visits to contractor accommodation is undertaken by a cross functional team comprising of personnel from HR, HSE, Commercial and CR (Community Relations) who use the checklist to verify that the accommodation meets VAL standards. Contractor accommodation must meet Vedanta standards as stipulated in contracts with provisions for penalties where standards are not met.

Contractors are also required to self-assess accommodation using the checklist each month which must be signed. The completed checklist, accompanied by evidence of worker wage and benefit payments, is submitted with monthly contractor invoices. Examples of completed contracted accommodation checklists and photos of upgraded living conditions were on record providing confidence the system is in effect.



Recommendation 4.5.5: Dust emissions

Review the issue of sporadic dust nuisance, seek to reduce such pollution and monitor both dust emissions and incidence of respiratory infections in the immediate locality of the refinery (Original target = within 12 months).

Dust management was observed during the site tour, subsequent visits to the plant and interviews with personnel. The following improvements to dust management continue to be implemented, and are considered to be of an international standard:

All bauxite is now delivered by train, thus reducing dust emissions;

Dust control measures have been implemented (e.g. Additional bag filters, Covered coal stockpiles and Sprayers on bauxite stockpiles);

Air quality monitoring, including dust, is online and reported real time to a display at the entrance to the facility as well as to the government regulator.

IESC AUDIT REPORT

October 2013 47059086.STG5

37



Recommendation 4.6.8: Livelihood support

Give further consideration to accelerating livelihood training programmes for villagers via self-help and business start-up support, especially in those villages close to the refinery, and monitor local employment creation in these villages and the Lanjigarh block (Original target = November 2011).

VAL demonstrated good examples of livelihood improvement projects during the close out site visit (cash cropping, double-triple cropping, agricultural extension support services, materials and equipment) for rural communities as part of its social investment program. VAL provided a livelihood monitoring report covering farm, non-farm and indirect employment. The report provides sufficient detail to ensure confidence that VAL has provided additional livelihood improvement programs to nearby villages.



Recommendation 4.6.12: Integrated development

Work together with local government to develop and publicise an integrated rural development strategy for the area (Original target = November 2012).

The IESC confirmed that there is increased coordination with the Lanjigarh Project Area Development Foundation (LAPDF) in rural development planning and observed that CSR investments in health, education and livelihood improvement are implemented as partnerships with Government agencies and NGOs. LPADF is a special purpose vehicle (SPV) to support development project in 50 km radius around Vedanta Alumina Refinery project. LPADF support includes mobile health care units, public hospital and allied health care. Other programs include reticulated drinking water supply, malaria control programs, opening Science Colleges, hostels for tribal students, school infrastructures upgrades, roads and bridges to improve access to services and markets for Tribal Groups.



Recommendation 3.3.63: H&S management

Undertake a gap analysis against the occupational and community health and safety requirements set out in the Lender’s Industry Best Practice criteria (specifically the IFC’s General and applicable sector EHS Guidelines) and take appropriate measures to address any outstanding gaps (Original Target = November 2011).

The site has an Occupational Health and Safety Management System certified to OHSAS 18001:2007. The personnel interviewed provided evidence to demonstrate that a management program was in place to allocate resources to address system requirements as well as opportunities for improvement. The audit focussed on the following areas, as a sample to seek evidence of effective occupational health and safety management:

IESC AUDIT REPORT

October 2013 47059086.STG5

38

Risk Identification;

Personal Protection Equipment Management;

Emergency Preparedness; and

Equipment Isolation process.

Sufficient evidence was provided to demonstrate that the safety management system was robust and being implemented effectively, resulting in improvements in work methods.



IESC AUDIT REPORT

October 2013 47059086.STG5

39

4 VEDANTA SUSTAINABILITY FRAMEWORK COMPLIANCE

This section of the report presents audit findings of Vedanta Resources plc compliance against the ICMM and OECD Principles. It also addresses conformance with debt lending conditions of complying with the IFC Social and Environmental Performance Standards (2012). The results are presented against each of the eight IFC Performance Standards considering document reviews, site visit observations and meetings with staff, contractors, suppliers and community members affected by Vedanta company operations.

4.1 PS 1: Assessment and management of environmental and social risks and impacts

IFC requirement VSF reference Comments

5. Environmental & social assessment and management system

Vedanta Sustainability Framework (i.e. polices, standards and guidance)

Vedanta Sustainability Framework as a whole provides for environmental and social assessment and management.

6. Policy Vedanta HSE Policy


Policy context is in accord with IFC provisions.

7-12. Identification of risks and impacts



GN16 – Conducting ESIAs to international standards

Suitable framework for identifying environmental and social risks and impacts. Project categorisation on TS8 needs slight amendment to meet revised IFC definition.

13-16. Management programs




TS8 provides for environmental and social management plans.

17-19. Organisational capacity and competency

MS 1 – Leadership, Responsibility and Resources

MS 1 provides the organisational structure, leadership, responsibilities and resources for implementing sustainability.

20-21. Emergency preparedness and response

TS 13 – Emergency and Crisis Management

TS 13 provides a comprehensive framework for emergency preparedness and response which is in accord with IFC requirements.

22-24. Monitoring and review Vedanta Sustainability Assessment Process

Self-assessment and independent audit ensure that policies and actions are monitored and reviewed on a regular basis.

25-33. Stakeholder engagement


TS 5 requires each company to prepare and implement Stakeholder Engagement Plans.

IESC AUDIT REPORT

October 2013 47059086.STG5

40


34-25 External communications and grievance mechanisms

TS 4 – Grievance Mechanism


TS 4 sets out the need for and nature of grievance mechanisms whilst TS 5 requires Stakeholder Engagement Plans.

36. On-going reporting to affected communities


TS 5 includes the requirement for regular consultation with and reporting to affected communities.

Finding

The Vedanta Sustainability Framework provides extensive requirements and guidelines for the assessment and management of environmental and social risks and impact in accordance with IFC PS1 requirements.

Project categorisation in TS8 and GN16 should however be amended to align with the updated categorisation in the revised 2012 IFC Performance Standards specifically to refer to inherent risks as well as impacts.

4.2 PS 2: Labour and working conditions


8 – 9. Human resource policies and procedures



Vedanta Code of Conduct


VSF document meet PS2 labour and human rights requirements in managing the workforce and meeting national and international obligations.

TS02: 4.5 c) commits to Vedanta informing workers of their rights pertaining to employment terms and conditions under the law and any applicable collective bargaining agreements thereby complying with PS2

10-12. Working conditions and terms of employment

Vedanta terms and conditions of employment


Vedanta General Terms and Conditions of Employment



TS06: Supplier and Contractor Management

The Human Rights Policy, TS 2:4 and TS 12 set out fair working conditions and remuneration requirements in compliance with PS2.

The Code of Conduct and Human Rights policy fair and reasonable remuneration structure in compliance with national laws without discrimination. It does not specifically address migrant labour but is consistent with PS2.

TS06: 4.7 on Contractors Accommodation is compliant with IFC requirements for

IESC AUDIT REPORT

October 2013 47059086.STG5

41


quality of accommodation and access to basic services. However direct worker accommodation standards are not specifically addressed in VSF documents

13-14. Workers organisations


TS02: Employee Consultation and Participation (Section 4.2 and 4.3).

The Human Rights policy and TS02:4.2-3 acknowledges employees’ rights to collective bargaining and freedom of association meeting the PS requirement.

15-17. Non-discrimination and equal opportunity

Human Rights Policy. Vedanta Code of Conduct

TS02: Employee Consultation and Participation (Section 4).

The HR policy, TS02:4.2 g) and 4.5 e) demonstrate fair treatment and equal opportunity principles and non-discrimination meeting PS requirements.

18-19. Retrenchment

Human Rights Policy. TS02: Employee Consultation and Participation (Section 4).

The Human Rights Policy and TS02 commit to following statutory requirements for employment terms and conditions.

It does not specifically address the retrenchment requirements for collective dismissals outlined in PS2.

20. Grievance mechanism

Vedanta Code of Conduct TS04: Grievance Mechanisms (Section 4)

The Whistle-blowing Policy presented in the Code of Conduct ensures anonymous reporting of workplace concerns.

TS04:4 meets reflects IFC requirements of accessibility, resourcing, timely feedback and transparency.

21-22. Protecting the workforce Human Rights Policy Vedanta Management Standard MS02: Stakeholder Materiality and Risk Management (Section 4) TS12: Occupational Health Management

The Human Rights Policy claims zero tolerance for any child or forced labour.

MS02 provides methodology on how to assess and manage sustainability risks. This can be applied to prevention of child or forced labour.

TS12: 4.14 details the specific health protection requirements for young persons at work (between 16 and 18), which is compliant with IFC requirements that recognises some national laws provide for the employment of minors. No work under the age of 16 is authorised.

IESC AUDIT REPORT

October 2013 47059086.STG5

42


23. Occupational health & safety



GN 18: Machine Guarding

GN 20: Log Out / Tag Out

GN 21: Working at heights

MS11: Incident Reporting and Investigation

Incident register FY 2012-13

Incident register Q1 FY 2013-14

TS10:4 and supporting GNs set out robust safety requirements from hazard identification to methodological prevention through safety management systems.

TS12:4 details requirements for health risk assessment, health management and surveillance

MS11:4 addresses incident reporting and investigation

The incident register shows that environmental, safety, social, labour and health incidents are reported to the Group level each month

The VSF therefore fulfils the OH&S requirement of PS2

24-26. Workers engaged by third parties

Supplier and Contractor Management Policy.

TS04: Grievance Mechanisms (Section 4).

TS06: Supplier and Contractor Management (Section 4)

TS06:4 outlines requirements for contractor management across the project cycle. It starts from pre-qualification and selection of contractors that are legitimate and reputable with appropriate systems to meet VSF requirements. It extends to contractor inspections, performance monitoring and review. TS04:4 extends grievance mechanism to workers engaged by third parties.

The VSF therefore fulfils the contracted workers requirement of PS2

27-29. Supply chain

Human Rights Policy

Supplier and Contractor Management Policy.

Vedanta Technical Standard TS06: Supplier and Contractor Management (Section 4.8-4.11)

The HR policy commits to zero tolerance of forced and child labour. TS06:4 focuses especially on safety and child labour/forced labour issues, both for direct contractors and supply chain which satisfy this IFC PS 2 requirement.

Finding

The VSF and supporting standards and guidance notes meet the all requirements of IFC Performance Standard 2. However the following measures could strengthen the labour and working conditions elements of the VSF:

- Retrenchment policy in the event of collective dismissals;

- Workers’ accommodation standards for direct employees.

IESC AUDIT REPORT

October 2013 47059086.STG5

43

4.3 PS 3: Pollution prevention and resource efficiency


4-5. Application of resource efficiency and pollution prevention principals

Vedanta Technical Standard TS8 – Conducting ESIA to International Standards (Section 4.5)

Vedanta Technical Standard TS9 – Resource Use and Water Management (Section 4.1)

Vedanta Technical Standard TS11 – Environmental Management (Section 4.1)

The standards referenced set out Vedanta’s commitment to meeting the requirements of PS 3 – Pollution Prevention and resource efficiency.

6. Resource Efficiency



Vedanta Technical Standard TS14: Water Management (Section 4.3 - 4.4)

Vedanta Technical Standard TS16: Energy and Carbon Management (Section 4.2)

The requirements of this element of the standard are adequately addressed in the Vedanta standards referenced.

7-8. Greenhouse Gasses


Vedanta Technical Standard TS11 – Environmental Management (Section 4.5, 4.6),

Vedanta Technical Standard TS16: Energy and Carbon Management (Section 4.2, 4.4)


9. Water Consumption


Vedanta Technical Standard TS14: Water Management (Section 4.3-4.4)


10-11. Pollution Prevention

Vedanta Technical Standard TS8 – Conducting ESIA to International Standards (Section 4.9)

Vedanta Technical Standard TS9 – Resource Use and Water Management (Section 4.6-4.7)


However as an opportunity for improvement Vedanta could consider combining sub -sections of Technical Standard

IESC AUDIT REPORT

October 2013 47059086.STG5

44

Vedanta Technical Standard TS11 – Environmental Management (Section 4.11, 4.12, 4.14)

Vedanta Technical Standard TS14: Water Management (Section 4.3)

TS14 (Section 4.4.1 and 4.4.2 – Impact Assessment) as they essentially are related to the same topic.

12. Wastes

Vedanta Technical Standard TS9 – Resource Use and Water Management (Section 4.5-4.9)

Vedanta Technical Standard TS11 – Environmental Management (Section4.9, 4.10)

GN14 – Waste Management


13. Hazardous Material Management



GN02 – Hazardous Materials Management


14-17 Pesticide Use and Management

Vedanta Technical Standard TS10 – Safety Management (Section 4.12, 4.13)


Vedanta Technical Standard TS12 – Occupational Health Management (Section 4.7)


Finding

The requirements of IFC PS3 are addressed across a range of technical and management standards as noted in the VSF reference above. A number of different initiatives at each of the sites visited demonstrate that the requirements of the performance standard have been addressed by the VSF, and the VSF as it related to pollution control and resource efficiency has been well rolled out at operational level.

IESC AUDIT REPORT

October 2013 47059086.STG5

45

4.4 PS 4: Community health, safety and security


5. Community health and safety



MS02: Stakeholder Materiality and Risk Management

TS 10:4.2.g and TS12:4.2.f commits to community health & safety risks and impacts assessment across the project cycle meeting this PS requirement.

MS02:4.3 requires representatives from Affected Communities to be involved in risk management

6. Infrastructure and equipment design & safety


Vedanta General Terms and Conditions (T&C) of Employment

TS 6: Supplier and Contractor Management

MS 3: New Projects Planning Processes and Site Closure


TS10:4.2,10: address safety in building design.

T&C of Employment:5, 12 requires proof of qualifications and secures consent for credential checks

TS6:4.2 provides checks on the qualifications of nominated contractor personnel to ensure they are competent.

MS3:4.2 also provides for checks on contractor credentials.

TS18, Section 4.9.d requires road safety procedures are made available in local languages and that a communication system be in place for vehicles that travel on public roads.

Hence the VSF satisfies this requirement of PS4.

7. Hazardous materials management and safety

TS10: Safety Management (Section 4.3).

Vedanta Technical Standard TS12: Occupational Health Management (Section 4).

Vedanta Guidance Note GN02: Hazardous Materials Management

TS10:4.2.h and TS12:4.2.g: commit to avoiding and minimising the potential for community exposure to hazardous situations that may result from on-site project/operation activities.

TS12:4.7 covers risk identification and management requirements with regard to hazardous substances.

GN02:4,12 address the need to evaluate risks on communities and to share information on potential risks and possible effects of accidents.


8. Ecosystem services

TS07: Biodiversity Management

GN04: Biodiversity Management

TS07:4 covers the need to consider affected communities’ ownership and access rights to ecosystem services, especially for high risk projects

GN04 requires the natural resource dependence of communities be accounted for in impact assessment

Hence the VSF satisfies this

IESC AUDIT REPORT

October 2013 47059086.STG5

46


requirement of PS4.

9-10. Community exposure to disease



TS20: HIV/AIDS Management

TS 10:4.2.g and TS12:4.2.f commits to community health & safety risks and impacts assessment across the project cycle meeting this PS requirement.

TS12:4.13 details requirements for integrated management programs and controls to prevent both chronic and acute illnesses.

TS20:4.5 notes the need to implement HIV/AIDS details requirements prevent and minimise, the impact of HIV/AIDS in the workforce and community.


11. Emergency preparedness and response

TS13: Emergency and Crisis Management


TS 10: 4.8.a) requires Emergency Preparedness and Response Plans be based on community H&S risks and impacts that must be communicated to them

TS13:4.4.c) also required stakeholder participation in the identification of risks and development of Emergency Response Plans.

TS13:4.9.c) requires operations to coordinate with authorities and neighbouring businesses in emergency management

12-14. Security personnel TS15: Security Management

TS15:4.15 details requirements for security risk assessments, planning, recruitment and training of security personnel and incident investigation procedures.

TS15 satisfies this PS4 requirement

Finding

The VSF documentation satisfies IFC PS4 requirements for community health, safety and security.

4.5 PS 5: Land acquisition and involuntary resettlement


Definitions TS03:3 Definitions- Resettlement Action Plan (p.5)

TS03:3 RAP extends beyond compensation and must include assistance to restore livelihoods and actions to avoid/ mitigate displacement

IESC AUDIT REPORT

October 2013 47059086.STG5

47


impacts.

8. Project design

Vedanta Technical Standard TS03: Land and Resettlement Management (Section 4.1, 4.8). Vedanta Land Acquisition and Resettlement Guidance Note GN03.

Vedanta Management Standard MS03: New Projects, Planning Processes and Site Closure (Section 4).



Social Policy commits to avoiding displacement where possible.

TS 03:4.1 states avoidance in the heading but not in the text below it. The statement that resettlement and rehabilitation measures cannot be guaranteed conflicts with the IFC PS5 objective ‘to improve, or restore livelihoods and standards of living of displaced persons’ effectively imposing the proponent to guarantee support until resettlement and rehabilitation works.

TS03:6 refers to project designs and alternatives minimising displacement impacts but omits the preference to avoid where possible.

GN03: 2.2 addresses the need to avoid or minimise resettlement to IFC PS5 requirements however a review of Figure 1.1 is needed to meet good industry practice.

9. Compensation and benefits for displaced persons

Vedanta Technical Standard TS03: Land and Resettlement Management (Section 4.5, 4.7). Vedanta Land Acquisition and Resettlement Guidance Note GN03.

TS 03:4.2 heading needs a minor revision to ‘Preference for negotiated settlement over expropriation’. The text should state that forced evictions will only be considered as a last resort and must follow the law and IFC PS5 requirements (IFC PS5:24)

TS 03:4.3 commits to meeting regulatory requirements and IFC PS requirements. It does not address how to deal with any conflicts.

TS03:4.6 Resettlement support commits to replacement housing for affected households and does not consider the different categories of PAPs (e.g. landlord, tenant, informal settler) as required under IFC PS5:19.

TS03:4.7 provides for long term livelihood assistance to all households whereas IFC PS5:25 recognises entitlements will different dependent upon the category

IESC AUDIT REPORT

October 2013 47059086.STG5

48


of PAP (e.g. landlord, tenant farmer, sharecropper, caretaker).affected by economic displacement

GN03:3.9 provides more detailed requirements for an entitlements matrix which is consistent with PS5.

GN03:39 preferences in-kind over cash compensation where possible particularly for those who have land-based livelihoods which is consistent with IFC PS5:GN24.Further consideration is needed of IFC PS5:GN15, 25 and GN45 provisions to assess the capacity of the PAP to use cash compensation to restore their living standards and livelihood.

10. Community engagement

Vedanta Technical Standard TS03: Land and Resettlement Management (Section 4.6, 4.9

Vedanta Land Acquisition and Resettlement Guidance Note GN03.

Vedanta Technical Standard TS05: Stakeholder Engagement (Section 4)

Vedanta Technical Standard TS08: Conducting ESIAs to International Standards (Section 4) and supporting Guidance Note GN 16.

TS03:4.9 refers to a project specific consultation procedure and requirement for FPIC for affected people and communities whereas IFC PS5:10 requires ICP and provision of options and alternatives for resettlement and livelihood restoration

TS03 does not specifically address the IFC PS5:10 requirement for disclosure of relevant information and participation of PAPs in resettlement planning, implementation and monitoring

GN03:3.10 requires valuation methods to be disclosed and consultation on eligibility and entitlement with PAPs meeting IFC PS5:10 requirements for ICP on compensation rates.

11. Grievance mechanism

Vedanta Technical Standard TS03: Land and Resettlement Management (Section 4.10)

Vedanta Land Acquisition and Resettlement Guidance Note GN03

Vedanta Technical Standard TS04: Grievance Mechanisms (Section 4).

GN03:3.7 outlines grievance early in the project cycle and is consistent with IFC PS5:11

12-16. Resettlement and livelihood restoration planning

Vedanta Technical Standard TS03: Land and Resettlement Management (Section 4)

Vedanta Land Acquisition and

GN03:3 details the process and requirements to prepare a RAP/LRP which is consistent with IFC PS5 requirements

IESC AUDIT REPORT

October 2013 47059086.STG5

49


Resettlement Guidance Note GN03.

17-18. Displacement

Vedanta Technical Standard TS03: Land and Resettlement Management (Section 4)


TS03 does not specifically recognise the different classification of displaced person and vulnerability of PAPs with no recognisable legal right or claim to the land or assets they occupy or use.

19-24. Physical displacement



GN03 provides detailed guidance on resettlement planning which is consistent with IFC PS5.

25-29. Economic displacement



GN03 provides detailed guidance on livelihood restoration and improvement planning which is consistent with IFC PS5.

30- 32. Private sector responsibilities under Government-managed resettlement



TS03 does not specifically mention Government managed resettlement. However GN03:5 captures IFC requirements including the requirement for a supplemental action plan and determine whether corrective actions are needed for past resettlement programs.

Finding

The Vedanta Sustainability Framework partially addresses IFC PS5 requirements. Minor revisions are recommended to provide greater clarity and include:

- The need to avoid, or minimise displacement impacts in project design;

- How to deal with conflicts between host country laws and IFC PS requirements for compensation;

- Entitlements for different category of project affected person;

- Recognise the different classifications of PAPs, particularly those with no legal right or claim to the land or assets they occupy or use.

TS03 was prepared in September 2011 and GN03 was issued in October 2012 which is more detailed and better aligned to the PS5 2012 requirements. The TS03 review provision provides the mechanism to address the IESC findings.

IESC AUDIT REPORT

October 2013 47059086.STG5

50

4.6 PS 6: Biodiversity and sustainable management of living natural resources


6 – 8 General

Vedanta Technical Standard TS07: Biodiversity Management (Section 4.2).

TS11 – Environmental Management (Section 4.13)

Vedanta Guidance Note GN04: Biodiversity Management

TS07 describes the risk and impact identification and management process for biodiversity and ecosystem services. It is substantially aligned with IFC PS6, in particular with regard to the mitigation strategy, the need to adopt a practice of adaptive management responsive to changing conditions and the need to involve specialists in biodiversity assessment and management.

However, no differentiation is made between direct, indirect and residual risks in TS07. GN04 mentions indirect and residual impacts but a clear definition in accordance to IFC PS6 would be useful.

9-10 Protection and Conservation of Biodiversity

Vedanta Technical Standard TS07: Biodiversity Management (Section 4.2, 4.7)

Vedanta Guidance Note GN04: Biodiversity

A Biodiversity Management Plan is required by TS07 and GN04 as soon as there is an impact on biodiversity attributes.

Very comprehensive guidance on the preparation, implementation and monitoring of BMPs is provided in GN04.

The development of Biodiversity Management Plans varies across sites, mainly due to a prioritisation across the companies to focus on high-priority biodiversity areas. Remaining sites are scheduled for completion in 2015.

It is recommended that internal monitoring of Biodiversity Management Plan development continue.

With regard to biodiversity offsets, TS7, Section 4.2.4 “Biodiversity Gains and Offsets” reflects the “no not loss” or “net gain” (for critical habitats) principles. However it should be specified that biodiversity offsets must only be considered at the end of the mitigation strategy.

GN04 does specify this last point and provides useful guidance on biodiversity offset.

IESC AUDIT REPORT

October 2013 47059086.STG5

51

11-12 – Modified Habitat

Vedanta Technical Standard TS07: Biodiversity Management (Section 4.2.3)


Modified habitats are covered by TS07 and the IFC definition applies.

13-14 – Natural Habitats



Natural habitats are covered by TS07 and the IFC definition applies.

However, TS07 fails to meet IFC requirements with regard the need to demonstrate the following when natural habitats are to be degraded:

- That there is no other viable alternative

- That consultation with stakeholders clarified the extent of conversion or degradation

GN04 however provides guidance on the stakeholder engagement process to be conducted and is therefore compliant with this last requirement.

16-19 – Critical Habitat



Critical habitats are covered by TS07 and the IFC definition applies.

GN04 provides examples of Critical Habitats, and reflects requirements of IFC PS6 – article 17, 18, 19.

20- Legally Protected and Internationally Recognised Areas



TS07 mentions the need to further examine biodiversity and ecosystem services issues on the basis of their value - such as Legally Protected Sites.

However the specific requirements outlined by IFC PS6 that apply to such areas are not reflected in the VSF.

21-23 Invasive Alien Species

Vedanta Technical Standard TS07: Biodiversity Management (Section 4.1)


Management of Invasive Alien Species is documented in the Vedanta Guidance Note GN04 and implied in the technical standard TS07.

Management of alien species is a significant issue related to biodiversity management and as such the PS6 has an element dedicated specially to this matter.

It is recommended that raising

IESC AUDIT REPORT

October 2013 47059086.STG5

52

the profile of Invasive Alien Species in the Vedanta Technical Standard TS7 will strengthen this standard.

24-25 Management of Ecosystem Services

Vedanta Technical Standard TS07: Biodiversity Management (Section 4.2)


The need to take an ecosystem services perspective is highlighted in both TS07 and GN04.

However further guidance should be provided to identify priority ecosystem services.

26 – 29 Sustainable Management of Living Natural Ecosystems

Not Applicable

As Vedanta is not currently engaged in the primary production of living natural resources, these elements of IFC PS6 are not applicable.

30 Supply Chain

Vedanta Technical Standard TS08: Conducting ESIAs to International Standards (Section 4) and supporting Guidance document GN 16.

Vedanta Management Standard TS06: Supplier and Contractor Management (Section 4.2, 4.8, 4.11).

Biodiversity is one of the items presented in the supplier and contractor screening checklist provided in Annex of TS6. However, TS6 (Section 4.1) references various IFC performance standards that relate to Supply Chain Management and the VSF, but does not reference IFC PS6.

TS7 and GN04 mention that mechanisms should be created to raise awareness among suppliers on biodiversity and conservation issues.

Including cross-reference in TS6 (on biodiversity) and TS7 (on supply chain management) would strengthen these standards, by highlighting that the company’s supply chain has the potential to have a significant impact on biodiversity.

Finding

The VSF and supporting standards and guidance notes meet the core requirements of IFC Performance Standard 6. However implementation of the following recommendation would strengthen the VSF:

- Internal monitoring of the development of Biodiversity Management Plan should continue;

- Raising the profile of Invasive Alien Species in the Vedanta Technical Standard TS7 will strengthen this standard;

- Specifying further requirements for Legally Protected and Internationally Recognised Areas;

- Providing guidelines for the identification of priority ecosystem services;

- Including reference to IFC PS 6 would strengthen the Vedanta Technical Standard TS 6 – Supplier and Contractor Management.

IESC AUDIT REPORT

October 2013 47059086.STG5

53

4.7 PS 7: Indigenous People


8 - 9. Avoidance of adverse impacts

TS22: Indigenous Peoples / Vulnerable Tribal Groups (Section 4).

TS08: Conducting ESIAs to International Standards (Section 4) and supporting Guidance document GN16.

TS05: Stakeholder Engagement (Section 4)

Guidance Note 00: Indigenous Peoples / Vulnerable Tribal Groups

TS22:4.2 General requirements address avoidance of adverse impacts where possible.

TS22: 4.6.5 meets the impact minimisation, restoration and compensation requirements of PS7.

TS08, Section 4.6: IPs included in the screening exercise for New Projects.

Hence this PS requirement is adequately addressed by VSF.

10-12. Participation and consent


MS03: New Projects, Planning Processes and Site Closure (Section 4).

TS05: Stakeholder Engagement (Section 4)


TS22:4.6.2 details consent and participation requirements consistent with PS7 requirements.

GN00:3 provides further guidance on ICP requirements.

Hence this PS requirement is adequately addressed by VSF.

7.13-7.14 - Impacts on Lands and Natural Resources Subject to Traditional Ownership or Under Customary Use

TS22: Indigenous Peoples / Vulnerable Tribal Groups (Section 4). GN 00: Indigenous Peoples / Vulnerable Tribal Groups TS03: Land and Resettlement Management (Section 4). GN 03: Land Acquisition and Resettlement

TS22:4.5 and GN00:3.4 show compliance with IFC requirements in terms of impacts on IP/TG land and natural resources use/ ownership.

7.15 - Relocation of Indigenous Peoples from Lands and Natural Resources Subject to Traditional Ownership or Under Customary Use

TS22: Indigenous Peoples / Vulnerable Tribal Groups. Guidance Note 00: Indigenous Peoples / Vulnerable Tribal Groups TS03: Land and Resettlement Management (Section 4). Vedanta Land Acquisition and Resettlement Guidance Note GN03.

TS22, Section 4.5: Need to avoid relocation or to obtain FPIC if unavoidable.

GN00, Section 2.4 describes situations of traditional ownership of land and natural resources.

TS22:4.8 Closure commits to minimising post decommissioning/ residual impacts. It does not specifically state that IPs should be able to return to their traditional lands once the cause of their relocation ceases to exist.

7.16-7.17 – Management of TS22: Indigenous Peoples / Vulnerable Tribal Groups

TS22, Section 4.5/GN00, Section 3.4: Need to avoid or,

IESC AUDIT REPORT

October 2013 47059086.STG5

54

Critical Cultural Heritage (Section 4). GN 00: Indigenous Peoples / Vulnerable Tribal Groups TS01: Cultural Heritage (Section 4)

if unavoidable, obtain FPIC for any impacts on Critical Cultural Heritage.

TS01, Section 4.2.4: Need to avoid or if unavoidable adopt ‘preservation-in-place’ approach to Cultural Heritage.

GN00 provides details on baseline Cultural Heritage information that needs to be captured.

7.18-7.20 – Mitigation of Impacts and Development Benefits

TS22: Indigenous Peoples / Vulnerable Tribal Groups (Section 4). GN 00: Indigenous Peoples / Vulnerable Tribal Groups TS08: Conducting ESIAs to International Standards (Section 4) and supporting Guidance document GN 16.

TS22:4.6.5 and GN00:4.3 provide requirements and guidelines for mitigation measures and sustainable development benefits.

- PS7 (2012) additional requirements for the determination, delivery and distribution of compensation and benefits are not specifically addressed by VSF documents.

7.21-7.22 – Coordination with Government for Management of Indigenous Peoples Issues



TS22:5.1 and GN00:3.3 cover PS7 requirements for collaborating with Governments, active support, gap analysis and coordination of implementation tasks.

Finding

The Vedanta Sustainability Framework substantially meets the general, FPIC, mitigation and development benefits as well as private sector responsibilities requirements of IFC Performance Standard. It is recommended that further detail on the following aspects may be provided in TS22 and GN00:

- Confirmation that traditional lands will be returned post decommissioning when the need for displacement ceases;

- Specifically addressing new PS7 requirements for the determination, delivery and distribution of compensation and benefits.

IESC AUDIT REPORT

October 2013 47059086.STG5

55

4.8 PS 8: Cultural heritage


6-7 - Protection of Cultural Heritage in Project Design and Execution

Vedanta Management Standard MS03: New Projects, Planning Processes and Site Closure (Section 4)

Vedanta Technical Standard TS01: Cultural Heritage (Section 4)

Vedanta Technical Standard TS08: Conducting ESIAs to International Standards (Section 4) and supporting Guidance Note GN 16

MS3 specifies that the loss of Cultural Heritage is to be included in the Sustainability Risk Assessment in the planning process and that the risk screening exercise shall include input from internal or external technical expertise, where required (4.2.c).

TS1 is aligned with IFC requirements as it outlines the need to:

- Conduct CH impact assessments and management plans for the protection and preservation of CH

- Involve project planning and engineering staff, appropriate government agencies and knowledgeable people

- Conduct feasibility studies prior to ESIA, desktop reviews, baseline surveys, risk and impacts evaluation, CH management plans and disclosure procedures in line with international standards.

8 – Chance find procedure Vedanta Technical Standard TS01: Cultural Heritage (Section 4.4)

TS1 provides requirements for a chance find procedure and details tasks, responsibilities and processes that should be described in the procedure.

However, it does not reflect IFC requirement that any chance find should not be further disturbed until an assessment by competent professionals is made and actions consistent with IFC PS 7 requirements are identified.

9 – Consultation

Vedanta Technical Standard TS01: Cultural Heritage (Section 4.1, 4.2) Vedanta Technical Standard TS05: Stakeholder Engagement (Section 4.2)

TS1 stresses the need to interview government agencies and local knowledgeable people in the CH surveys (4.1.d).

Stakeholder engagement is

IESC AUDIT REPORT

October 2013 47059086.STG5

56

Vedanta Technical Standard TS08: Conducting ESIAs to International Standards (Section 4.8) and supporting Guidance Note GN 16

recognised as of prior importance in the identification of presence and significance of CH, and in the exploration of mitigation measures (4.2.2.c).

However the integration of Affected Communities’ views in the decision-making process and elaboration of CH management plans should be made more explicit.

10- Community Access


Continued access to CH sites is not mentioned in TS01. This requirement should be added.

11-12 – Removal of Replicable / Non-Replicable Cultural Heritage

Vedanta Technical Standard TS01: Cultural Heritage (Section 4.2, 4.3)

TS 1 states that it should be ensured at every stage that the potential impacts to cultural heritage are avoided or, where not feasible, to adopt ‘preservation-in-place’ over removal (4.2.4). However, no differentiation is made between replicable and non-replicable CH, and no further mention of any mitigation hierarchy, which should be added to ensure compliance with IFC requirements.

13-15 – Critical Cultural Heritage


TS1 definition of Critical CH is aligned with IFC definition.

However no further requirement is outlined for CH identified as critical throughout TS1. This should be corrected.

16 – Project’s Use of Cultural Heritage


This issue is not covered by TS1. It should however be mentioned, if only to justify why it is not deemed to be relevant to Vedanta activities.

Finding

Although addressing fundamental requirements in terms of protection of Cultural Heritage in the Project Design and Execution, the Vedanta Sustainability Framework (VSF) and more particularly Technical Standard 1 on Cultural Heritage only partially comply with IFC PS 8 requirements.

It is recommended that revision of the technical standard focus on the specific requirements of the standard.

IESC AUDIT REPORT

October 2013 47059086.STG5

57

4.9 ICMM Principles

ICMM Principle VSF reference Comments

1. Implement and maintain ethical business practices and sound systems of corporate governance

Vedanta Code of Conduct Social Policy. Human Rights Policy. HSE Policy. Supplier and Contractor Management Policy. Water Management Policy. Energy and Carbon Policy. Biodiversity Policy. HIV/Aids Policy.

All policies that form part of the Vedanta Sustainability Framework are made available on website and communicated and supported by training on the VSF to the subsidiaries and to the Board. Vedanta also developed and distributed to business units its Code of Conduct, Whistle-blowing Policy and Fraud and Bribery Act. The ex-co Subcommittee on Ethics is comprised of Group executives and senior managers from subsidiaries, to ensure consistent approach across the Group. In order to foster the dissemination of ethical business practices, around 36,000 man-hours of training on the Code of Conduct were provided across the Group for FY 2012-13. The Vedanta Sustainability Assurance Programme focuses first on Compliance of all business units with host country regulations, which is reviewed on a yearly basis. In order to ensure full compliance with this standard, it is recommended that Compliance with the Code of Conduct principles is integrated in the VSAP.

2. Integrate sustainable development considerations within the corporate decision-making process.

Vedanta Code of Conduct Social Policy. Human Rights Policy. HSE Policy. Supplier and Contractor Management Policy. Water Management Policy. Energy and Carbon Policy. Biodiversity Policy. HIV/Aids Policy. Vedanta Management Standard MS03: New Projects, Planning Processes and Site Closure Vedanta Management Standard MS06: Competency, Training and Awareness Vedanta Management

The Group CEO is a Permanent member of the Sustainability Committee, along with the CSO who liaises with the rest of the Group Sustainability Team. Such organisation ensures integration of sustainability aspects into strategic corporate decision-making. In addition, regular and comprehensive training on Vedanta Sustainability Framework to the Board and to business units is provided – much use is made of Tele Presence facilities to this end. Sustainability concerns are

IESC AUDIT REPORT

October 2013 47059086.STG5

58


Standard TS06: Supplier and Contractor Management Vedanta Technical Standard TS17: Site Closure

applied to new projects and site closure process (MS03), to training across the Group (MS06) and to relations with suppliers and contractors (TS06).

3. Uphold fundamental human rights and respect cultures, customs and values in dealings with employees and others who are affected by our activities.

Human Rights Policy Vedanta Technical Standard TS02: Employee Consultation and Participation Vedanta Technical Standard TS03: Land and Resettlement Management

The Human Rights policy explicitly supports the Universal Declaration of Human Rights. The Guidance Note on Human Rights provides guidelines on how UN Human Rights Framework’s Foundational and Operational Principles for Business are reflected in Vedanta Sustainability Framework and how they should be rolled out by the subsidiaries (See Section 3.1, Recommendation 2.5.16). The Technical Standard on Indigenous People was recently updated to reflect international standards and supported by a Guidance Note to ensure its understanding across the Group - see Section 4.7 for further details. Extensive efforts are deployed in terms of training on human rights and social issues (see Section 3.1, Recommendation 2.5.9). Protection of labour rights and decent working conditions is ensured for direct and indirect workers: See Section 4.2 for further details. The Social Policy and TS03 on Involuntary Resettlement are substantially aligned with IFC PS5 with regard to minimisation and fair compensation in case of resettlement; however progress can be made with regard to assistance beyond compensation, categorisation of PAPs, disclosure requirements, etc. See Section 4.5 for further details.

4. Implement risk management strategies based on valid data and sound science.

HSE Policy. Social Policy. Vedanta Management Standard MS03: New Projects, Planning Processes and Site Closure Vedanta Management Standard MS02: Stakeholder Materiality and Risk Management Vedanta Technical Standard

The documentation is globally satisfactory with regard to requirements set out for the participatory identification and monitoring of risks and impacts of Project activities with external stakeholders, and for the preparation and communication on Emergency Preparedness and Response Plans.

IESC AUDIT REPORT

October 2013 47059086.STG5

59


TS05: Stakeholder Engagement Vedanta Technical Standard TS13: Emergency and Crisis Management

However more guidance should be provided on how to effectively manage Community H&S risks and inform them of the risks/potential impacts of Project activities on them (See Section 4.4 for further details).

5. Seek continual improvement of our health and safety performance.

HSE Policy. Vedanta Management Standard MS06: Competency, Training and Awareness Vedanta Management Standard 11: Incident Reporting and Investigation Vedanta Technical Standard TS10: Safety Management Vedanta Technical Standard TS12: Health Management Vedanta Guidance Note GN 18: Machine Guarding; Vedanta Guidance Note GN 20: Log Out / Tag Out (LOTO).

The documentation is very comprehensive and covers the identification and management of H&S issues for direct employees, contractors, supply chain and local communities – although improvements with regard to this last category may be required (see Section 4.4 for further details). The procedure of incident reporting and investigation is very thorough and ensures continuous analysis of root causes and corrective action plans.

TS10 outlines strong requirements in terms of hazard identification and methodological prevention through safety management systems, whileTS12 provides strong requirements for health risk assessment, health management and surveillance. See Section 4.2 for further details.

6. Seek continual improvement of our environmental performance.

HSE Policy Vedanta Management Standard MS03: New Projects, Planning Processes and Site Closure Vedanta Technical Standard TS11: Environmental Management Vedanta Technical Standard TS09: Resource Use and Waste Management Vedanta Technical Standard TS17: Site Closure

The standards referenced set out Vedanta’s commitment to seek continual improvement of its environmental performance.

7. Contribute to conservation of biodiversity and integrated approaches to land use planning.

Vedanta Technical Standard TS07: Biodiversity Management and supporting Guidance document GN 04.

TS07 and GN04 provide extensive requirements and guidance for biodiversity conservation, preparation, implementation and monitoring of Biodiversity Management Plans, although a few possible improvements were identified - See Section 4.6 for further details. In particular, GN04 provides

IESC AUDIT REPORT

October 2013 47059086.STG5

60


five checklists for biodiversity protection during exploration, construction, operation and closure, stakeholder analysis and engagement, and biodiversity rehabilitation and enhancement, all adapted from the ICMM Good Practice Guidance for Mining and Biodiversity.

8. Facilitate and encourage responsible product design, use, re-use, recycling and disposal of our products

HSE Policy Energy & Carbon Policy Vedanta Technical Standard TS16: Energy and Carbon Management Vedanta Technical Standard TS11: Environmental Management Vedanta Technical Standard TS09: Resource Use and Waste Management

Principles of cleaner production in product design and production processes with the objective of conserving raw materials, energy and water are outlined in TS09 and TS11. TS09 also discloses and provides guidance on the waste hierarchy (Avoid, Minimise, Recycle and Re-Use, Treat and Process, Dispose). Responsible use of energy at each step of the value process is also highlighted in the HSE Policy, the Energy and Carbon Policy and in TS16.

9. Contribute to the social, economic and institutional development of the communities in which we operate.

Social Policy Vedanta Technical Standard TS05: Stakeholder Engagement Vedanta Technical Standard TS08: Conducting ESIAs to International Standards Vedanta Management Standard MS02: Stakeholder Materiality and Risk Management Vedanta Technical Standard TS22: Indigenous Peoples / Vulnerable Tribal Groups and accompanying Guidance Note GN00

The identification and mitigation of impacts, as well as the process for engaging with affected communities is required at the very early stage of Project development (TS08). Requirements are further supported by a management standard for stakeholder risk and materiality (MS02) and a technical standard on stakeholder engagement (TS05). Culturally appropriate means of engagement with Indigenous People / Vulnerable Tribal Groups and respect of the FPIC principle are ensured through TS22 and GN00. The Value Statement mentions Vedanta’s role in contributing to the social and economic welfare of communities and development of sustainable livelihood opportunities (See Section 3.1, Recommendation 2.5.4). This contribution is also highlighted in the Social Policy: “Put in place an appropriate institutional structure to plan and implement community development initiatives

IESC AUDIT REPORT

October 2013 47059086.STG5

61


prioritizing local needs and ensuring long-term sustainability benefits to communities.” TS19 specifies how to translate this commitment into practice: understanding the community environment and needs, engaging with communities, developing and implementing community investment programmes in cooperation with third parties. TS22 and accompanying GN00 set high standards and provide guidelines for the preparation of community development plans and coordination with Government and external actors (See Section 4.7 for further details).

10. Implement effective and transparent engagement, communication and independently verified reporting arrangements with our stakeholders.

Social Policy Vedanta Technical Standard TS05: Stakeholder Engagement

Vedanta has published a Social Policy which commits to consulting and informing stakeholders, a management standard for stakeholder risk and materiality (MS02) and a technical standard on stakeholder engagement (TS05). The last requires individual companies to prepare stakeholder engagement plans and is quite comprehensive in detailing requirements for stakeholder identification, ways of engaging with them and of recording and responding to stakeholder enquiries and grievances. Vedanta publishes a yearly Sustainable Development Report that discloses the Group’s environmental and social performance and is verified by an independent external agency. Furthermore, an efficient centralised system for answering all stakeholder queries was put in place – the number, nature and status of queries are disclosed in the SD Report in an accurate manner.

IESC AUDIT REPORT

October 2013 47059086.STG5

62

Finding

Although the Vedanta Sustainability Framework provides no specific focus on mining and metals sector-specific requirements, the set of policies, standards and guidelines substantially reflects the ten ICMM Principles.

Further refinements and specifications should be added with regard to:

- The integration of business ethics issues into the Vedanta Sustainability Framework (VSF) and Sustainability Assessment Process (VSAP);

- Risk management strategies towards local communities, beyond Emergency Preparedness and Response.

4.10 OECD Guidelines for Multinational Enterprises

The table below maps how VSF documents relate to OECD Guidelines for Multinational Enterprises which were revised in 2011.

OECD Guideline VSF references Finding

1. Contribute to economic, environmental and social progress with a view to achieving sustainable development

VSF policies

Vedanta Value Statement

Vedanta’s value statement is substantially aligned with this guideline, and states the Group’s commitments to encourage social and economic welfare, environmental protection and strong engagement with all stakeholders, including local communities.

Evidence of this was observed at sites visited, where various benchmark projects have been implemented and innovative solutions developed which could lead the way for others in the industry.

This commitment is supported by the Vedanta Sustainability Framework as a whole.

2. Respect the internationally recognised human rights of those affected by their activities.


The Human Rights policy explicitly supports the Universal Declaration of Human Rights. The Guidance Note on Human Rights provides guidelines on how UN Human Rights Framework’s Foundational and Operational Principles for Business are reflected in the Vedanta Sustainability Framework and how they should be rolled out by the subsidiaries (See Section 3.1, Recommendation 2.5.16).

IESC AUDIT REPORT

October 2013 47059086.STG5

63


3. Encourage local capacity building through close co-operation with the local community

Social Policy

TS 19 Community Investment

Vedanta Technical Standard TS22 on Indigenous Peoples / Vulnerable Tribal Groups

The Social Policy requires that Vedanta operations “put in place an appropriate institutional structure to plan and implement community development initiatives prioritizing local needs and ensuring long-term sustainability benefits to communities.”

TS19 specifies how to translate this commitment into practice: understanding the community environment and needs, engaging with communities, developing and implementing community investment programmes in cooperation with third parties. In addition, TS22 and accompanying GN00 set high standards and provide guidelines for the preparation of community development plans and coordination with Government and external actors (See Section 4.7 for further details).

4. Encourage human capital formation

Vedanta Management Standard MS06: Competency, Training and Awareness

While strong engagement to respect human and labour rights is presented in the Policies, no much focus is put on human capital formation. MS06 details training and competency review requirements for all employees and contractors in order to develop appropriate knowledge, skills and behaviours which will enable individuals to become competent in their roles and to fulfil their responsibilities. However, full alignment with this Guideline would also require specifying how Vedanta broadly intends to contribute to individual human development (life-long learning process, promotion system, career development, etc.)

5. Refrain from seeking or accepting exemptions not contemplated in the statutory or regulatory framework

Code of Conduct

Vedanta Management Standard MS04: Compliance and Other Requirements

While compliance with international standards is sought, compliance with all laws, rules and regulations applicable to the Group’s operations is a core principle outlined in VSF documentation.

IESC AUDIT REPORT

October 2013 47059086.STG5

64


The Vedanta Sustainability Assurance Process aims at verifying in the first place compliance of operations with the statutory and regulatory framework in which they operate.

MS04 sets clear processes for identifying, tracking and understanding regulatory and other requirements that apply to Vedanta in relation to sustainability. The identification and correction of non-compliances is strictly supervised.

6. Support and uphold good corporate governance principles and develop and apply good corporate governance practices

Vedanta Sustainability Committee Mandate Vedanta Technical Standard TS 02 Employee Consultation and Participation Vedanta Technical Standard TS05 Stakeholder Engagement

Sound corporate governance practices are ensured through the involvement of the Board and of the CEO in the Sustainability oversight (See Section 3.1, Recommendation 2.5.7), training on business ethics and on the Code of Conduct at all levels, and strong coordination between Group executives and senior managers from subsidiaries on the VSAP.

7. Develop and apply effective self-regulatory practices and management systems that foster a relationship of confidence and mutual trust

VSF Policies

Vedanta Sustainability Assessment Process (VSAP)

Vedanta has developed the VSF and integrated management systems (certified to international standards) at company level. These systems include a self-audit/assessment process- the Vedanta Sustainability Assessment Process.

Although onsite self-regulatory practices were observed during the audit (for example, for the dust monitoring systems with public displays), guidelines for self-regulatory practices are not provided as part of the VSF.

In order to be aligned with this Guideline, TS5 on Stakeholder Engagement could be extended to cover such practices as means to reinforce trust with stakeholders.

8. Promote awareness of and compliance by workers employed by multinational enterprises with respect to company policies through appropriate dissemination of these policies and training

VSF as a whole

All Policies, Management and Technical Standards and Guidelines are disseminated across the Group and supported by extensive training.

IESC AUDIT REPORT

October 2013 47059086.STG5

65


9. Refrain from discriminatory or disciplinary action against workers who make bona fide reports on practices that contravene the law or company policy

Whistle-blowing Policy

Vedanta Technical Standard TS04 Grievance Mechanism

A Whistle-blowing Policy has been adopted to govern the receipt, retention, and treatment of complaints or reports of non-compliances with regulations and the Code of Conduct. The Policy protects the confidential, anonymous reporting of the same.

In addition, TS04 mentions that employees raising grievances are treated with respect and not subject to discrimination or disciplinary procedures.

10. Carry out risk-based due diligence to identify, prevent and mitigate actual and potential adverse impacts

Vedanta Management Standard MS02: Stakeholder Materiality and Risk Management

Vedanta Management Standard MS08: Acquisitions, Divestment and Joint Venture Due Diligence

MS02 provides a comprehensive and rigorous risk analysis process and approach to engage with stakeholders to identify material and potentially material sustainability issues, risks and opportunities and include these in business planning processes.

MS08 provides specific guidance for impact identification and risk control for all types of transactions. The risk due diligence covers the following aspects: Health, safety, environment including biodiversity, water and CO2, social and community / human rights / vulnerable social group and cultural heritage (hereafter collectively sustainability).

11. Avoid causing or contributing to adverse impacts on matters covered by the Guidelines, through their own activities, and address such impacts when they occur




Suitable framework for avoiding environmental and social risks and impacts.

In particular:

- TS8 sets out the requirements for avoidance, assessment, minimisation and mitigation of adverse impacts for all project developments;

- MS02 stresses the need to establish a programme of mitigation and performance improvement measures that address the identified social and environmental risks and impacts; and to involve representatives from Affected Communities to complement or verify monitoring activities where appropriate.

IESC AUDIT REPORT

October 2013 47059086.STG5

66


12. Seek to prevent or mitigate an adverse impact where they have not contributed to that impact, when the impact is nevertheless directly linked to their operations, products or services by a business relationship.



Requirements set out in TS8 also apply for situations “Where the project involves specifically identified physical elements, aspects, and facilities that are likely to generate impacts, environmental and social risks” (i.e. associated facilities, unplanned but predictable developments, indirect impacts, impacts related to the supply chain, etc.)

13. Encourage business partners, including suppliers and sub-contractors, to apply principles of responsible business conduct compatible with the Guidelines.

Supplier and Contractor Management Policy

Vedanta Technical Standard TS06: Supplier and Contractor Management

Sustainability concerns are applied to relations with suppliers and contractors. Supplier and Contractor management Policy covers general requirements on legal, human rights, health and safety and sustainability that Vedanta companies have to apply to their suppliers and contractors. TS6 provides more detailed requirements for each stage of supplier and contractor engagement (screening, selection, contractual arrangements, monitoring, etc.).

14. Meaningfully engage with affected stakeholders in order to provide opportunities for their views to be taken into account in project planning and decision making

Social Policy

Vedanta Technical Standard TS5 on Stakeholder Engagement


Vedanta Technical Standard TS08: Conducting ESIAs to International Standards (Section 4) and supporting Guidance document GN 16.

Vedanta Technical Standard TS22: Indigenous Peoples / Vulnerable Tribal Groups (Section 4).

Vedanta has published a Social Policy which commits to consulting and informing stakeholders, a management standard for stakeholder risk and materiality (MS02) and a technical standard on stakeholder engagement (TS05). The last requires individual companies to prepare stakeholder engagement plans and is quite comprehensive in detailing requirements for stakeholder identification, ways of engaging with them and of recording and responding to stakeholder enquiries and grievances.

The identification and mitigation of impacts, as well as the process for engaging with affected communities is required at the very early stage of Project development (TS08). Requirements are further supported by a management standard for stakeholder risk and materiality (MS02) and a

IESC AUDIT REPORT

October 2013 47059086.STG5

67


technical standard on stakeholder engagement (TS05). Culturally appropriate means of engagement with Indigenous People / Vulnerable Tribal Groups and respect of the FPIC principle are ensured through TS22 and GN00.

15. Abstain from any improper involvement in local political activities

Code of Conduct The Code of Conduct explicitly forbids any political contributions from the Group.

Finding

The Vedanta Sustainability Framework is quite comprehensive and addresses all of the OECD Guidelines, except for two of them for which recommendations are:

- On human capital development, the VSF is currently more focused on respect of human and labour rights and training specifically focused on employees’ roles and responsibilities, but should expand to a broader long-term capital development support;

- The development of self-regulatory practices and management systems should be part of the stakeholder engagement process.

IESC AUDIT REPORT

October 2013 47059086.STG5

68

5 EFFECTIVENESS OF VEDANTA SUSTAINABILITY FRAMEWORK

This section of the report examines the effectiveness of Vedanta's implementation of its Sustainability Framework across the Group based on sample site audits of:

Konkola Copper Mines Zambia (KCM),

Vedanta Aluminium Limited’s, Lanjigarh Refinery India (VAL), and

Sterlite’s Tuticorin Copper Smelter India.

5.1 KCM

The general finding is that the company has been very effective in implementing VSF with policies, procedures and systems in place to measure, monitor and manage sustainability risks and impacts. The organisational structure and systems are robust for ensuring compliance against VSF requirements which is underpinned by a culture where sustainability is embedded in workplace behaviours and decision-making. There were many examples of how teams and disciplines have worked together and with stakeholders (including contractors, suppliers, service providers and communities) to meet VSF requirements and capture further social and environmental benefits that add real business value to operations. There is an area of non-conformance in relation resettlement where further work is needed to comply with IFC PS5 and VSF TS3 and GN 03. KCM’s recent establishment of a Land Committee offers the potential to both address the challenges of encroachment of illegal settlements, Artisanal and Small-scale mining (ASM), involuntary resettlement and livelihood restoration by improving land use management practices.

Findings are presented under each IFC performance standard as follows:

PS1: Assessment and management of environmental and social risks and impacts

Policy

The Vedanta Sustainability Framework, as implemented by KCM, provides an overall statement of environmental and social objectives and principles consistent with the IFC requirements. Training in the Framework has been provided to all senior staff to supervisor level and is being communicated to all staff. Copies of the policies are prominently displayed in all offices and communal areas.

Identification of Risks and Impacts

KCM maintains a Risk Register, Part 1 of which deals with Business Risks and Part 2 with Operation and HSE including environmental risks. Some 89 risks are identified. Each is allocated an “owner” and the impacts and likelihoods of the risks are assessed before and after current control measures. Where necessary, action plans are identified. Environmental issues in the current Risk Register include noise and dust nuisance in possible contravention of ZEMA limits and the risk of cracking in houses arising from mining activities. This Register, which is reviewed annually, is a useful method of identifying risks arising from operations, securing appropriate action and monitoring results.

PS 1 is largely about new projects. An ESIA was prepared for the Mimbula II Open Pit development. The draft has been approved by the Zambian Environmental Management Agency (ZEMA) subject to further additions and amendments. The ESIA was reviewed and a few weaknesses were identified. These include:

IESC AUDIT REPORT

October 2013 47059086.STG5

69

A weak assessment of the impact of the development on ecological services (IFC PS 6, paragraphs 24-25) – although mentioned, the identification process should be

strengthened and documented more clearly;

Limited and non-quantified assessment of the visual impact of raising the waste tips;

Imprecise mitigation measures for limiting the impact of the haul road on adjacent communities; and

A failure to identify clearly the requirement for and impacts of economic displacement.

The ESIA was prepared prior to the issue in March 2013 of the Vedanta Guidance Note (GN16) on preparing ESIAs to international standards. It is to be hoped that the new guidance will strengthen future ESIAs and, indeed, the final version of the Mimbula II assessment. It is important that when tendering for ESIA preparation, that KCM should incorporate into the Terms of Reference a clear statement that the ESIA must be produced in accord with the IFC Performance Standards and that this compliance should be readily apparent in the report. It is also worth repeating the recommendation, from the original Scott Wilson report, that selected ESIAs should be subject to independent review.

Management Programs

KCM has prepared a series of management standards, technical standards and guidelines to guide its social and environmental management. These are implemented via an Environmental Management Plan (EMP) and an Occupational Safety and Health Management Plan (OSHMP). A Biodiversity Management Plan (BMP) has yet to be completed.

The mitigation measures for the Mimbula II Open Pit Project will be managed, implemented and monitored via an Environmental and Social Management Plan which is a component part of the ESIA.

Overall, therefore, KCM has in place of series of management programs which appear fit for purpose and consistent.

Organizational Capacity and Competence

KCM has an Executive Director for Sustainability, a General Manager Sustainability and Managers for Safety, Health and the Environment and Community Relations. A Sustainability Committee provides Board guidance. The manager posts provide clear responsibility for implementing the management programs thus, for example, the Head of Community Relations is responsible for implementing the Stakeholder Management Plan.

All senior and middle management and some 1000 employees have been provided with a half day training course on the Vedanta Sustainability Framework. This is now being cascaded down to all staff via trained facilitators using an abbreviated version of the main training module. There is an established range of training courses which are organised annually on the basis of need. Recent significant risk training has included courses on battery maintenance, driving and high voltage switching. In relation to HSE, the emphasis has been on courses relating to electrical isolation, confined spaces and ergonomics. There is a recognised need to provide more training in the fields of community consultation, stakeholder engagement and human rights. Training is provided mainly by in-house staff with outside consultants engaged for specialist areas.

Emergency Preparedness and Response

KCM has Emergency procedures and response plans as part of the externally certified management system. Regular emergency drills are conducted at the all KCM operations. These drills are analysed and learnings from the exercise are distributed. An example sighted was an underground shaft fire that was undertaken in May 2013.

IESC AUDIT REPORT

October 2013 47059086.STG5

70

Based on discussion with personnel, it is understood that the KCM emergency response team regularly responds to incidents in the community e.g. providing assistance in the 2010 floods as well as day to day incidents like fires.

Monitoring and Review

Overall sustainability performance is assessed through the Vedanta sustainability self-assessment and audit process. This is a rigorous assessment process based on a series of questions derived from implementation of the Vedanta Sustainability Framework. Topics covered include leadership, competency and training, new projects and human rights and social security. Scores are awarded for the level of achievement. KCM has demonstrated improvement over the last year although the auditors have pointed out a number of shortcomings in performance, perhaps most notably a failure to realise targets for reduced water and energy use and for reductions in fatalities and injuries. However, in relation to the last it should be noted that there has been a reduction in both fatalities and lost time due to injury over the last six years. The auditing process culminates in the preparation of a Corrective and Preventative Action Plan (CAPA). The use of both self-assessment and independent audit is a valuable twofold approach to monitoring and review.

A further innovation is the use of Tele Presence sessions to exchange information between different companies within Vedanta and to encourage lesson learning and the development of best practice. Regular Tele Presence sessions are held for safety and environment staff and similar sessions for community relations and occupational health staff are proposed.

Stakeholder Engagement

KCM has a Stakeholder Engagement Policy which makes reference to stakeholder identification and analysis, the preparation of Stakeholder Engagement Plans and to “free prior and informed consent.”

KCM has also produced a draft Stakeholder Engagement Plan which identifies and categorises stakeholders and identifies key social risks associated with the operation of the site. These include community overdependence on KCM, illegal mining and encroachment on to KCM land for farming. The draft plan focuses on those communities most affected by KCM’s operations. This is a useful development. The challenge now is to deploy KCM’s proven expertise in community development and livelihoods enhancement to the communities close to the operational area. Livelihoods enhancement is critical to addressing current problems such as illegal mining and encroachment.

The Stakeholder Engagement Plan has yet to be fully implemented but provides a suitable basis for realising the requirement of IFC PS 1.

External Communications and Grievance Mechanism

KCM has an External Stakeholder Grievance Mechanism Policy which covers the procedures to record and respond to grievances. A Community Consultation Procedure has been designed to invite public comment on operations and to address grievances. The one page flyer describing the procedure provides information on how to contact KCM’s Community Relations Department by phone, email or letter. It also provides information on how KCM will respond referring to the allocation of a case number and the appointment of a liaison officer. The flyer is distributed by Community Relations staff on all field visits as part of the Stakeholder Engagement process. The process could be enhanced by seeking to set deadlines for a company response.

On-going Reporting to Affected Communities

Reporting to local communities has primarily been undertaken as a component part of work of the community relations team with community meetings arranged to address specific issues. The Stakeholder Engagement Plan provides for more regular, quarterly meetings with affected communities.

IESC AUDIT REPORT

October 2013 47059086.STG5

71

Finding

The field visit confirmed that KCM has worked hard to adopt the Vedanta Sustainability Framework and that its operations are substantially consistent with IFC PS1. The one area of concern relates to the Mimbula II ESIA which has a few weaknesses when compared to international best practice. The Stakeholder Engagement Plan is also new and has yet to be fully rolled out but marks progress towards more comprehensive and sustained engagement.

PS 2: Labour and working conditions

Working conditions and management of worker relationship

The Vedanta Sustainability Framework, as implemented by KCM, provides an overall framework for meeting the labour and working conditions objectives of IFC PS2 as it applies to direct, contracted and supply chain workers. KCM policies that apply to IFC PS 2 include:

Social;

Human Rights;

HIV/AIDS;

Health, Safety and Environment; and

Supplier & contractor management.

KCM engages both union and non-union labour. Human resource policies are in place including KCM’s code of ethics for employees which has been revised regularly to ensure any changes in workers terms and conditions are updated annually to reflect the outcomes of collective bargaining agreements. A whistle-blower policy is in effect with an Integrity Committee in place to investigate allegations.

Limited accommodation services are provided to employees with a standard of 1 employee per house with eligibility based on grade. Where accommodation is not provided, an allowance is paid to workers based on the grade of their position.

Vedanta Technical Standard (TS) 02: Employee Consultation and Participation and Zambian law governs how the company engages with workers’ organisations for its union based workforce. Annual reviews of workers’ terms and conditions are conducted in September each year. KCM has also consulted with workers’ organisations in workforce planning and has recently accommodated VAL engineers temporarily while operations in Lanjigarh were suspended.

Vedanta Technical Standard TS04: Grievance Mechanisms governs KCM grievance policies and practices. KCM employee grievances may be either individual or collective where by complaints about workers’ rights, conditions and terms of employment may come through the company or workers’ organisations.

Protecting the workforce

KCM does not have any employees, contractors or employees who are under the age of 18 years old. The gate pass system requiring official proof of age identification as well as contractor compliance systems and supplier risk assessments and checks provide practical measures to ensure the company policy of not engaging minors is enforced.

IESC AUDIT REPORT

October 2013 47059086.STG5

72

Occupational health & safety

KCM’s SHE policy complies with Vedanta TS 12: Occupational Health Management and recognises the importance of a health and safety culture of accident and injury elimination by assisting in the recognition and mitigation of workplace hazards.

KCM’s safety performance has improved significantly over IESC audits. Fatalities have fallen from 7 in 2010/11 to 2 in 2012/13 with lessons learned from investigations shared among the group and a risk assessment and management program (RAMP-K) introduced as an action plan measure to achieve zero fatalities. With regard to LTIs, they have fallen from 111 in 2008/09 to 42 in 2012/13. Action plans for LTI include:

SHE Accountability File for Managers;

Hazard identification and closure for the following:

o Fall of Ground;

o Electrical;

o Working at Height; and

o Moving Equipment.

A LTI in May 2013 involving a machine operator at the Nkana refinery was investigated following KCM procedures that identified the causes and remedial actions to control the risk of recurrence. Evidence shows the corrective actions to revise the SOP, install an alarm at the APM, counsel the affected employee and provide refresher operator training were implemented in a timely manner.

Workers engaged by third parties

KCM demonstrated a robust system for contractor selection and management that includes checks to ensure that third party workers are engaged by reputable, legitimate enterprises. Checks are made with both contractors and authorities to ensure certification of professional, skilled and semi-skilled workers are bonafide. Monthly performance scorecards of contractors are used to monitor safety, staff numbers, equipment use, production targets and contractual issues/ disputes with vendors. Regular meetings are conducted by KCM with contractors to discuss performance. Claims for payment of contractor invoices must be substantiated by details of employee wage and benefit payments required under Zambian law.

Supply chain

KCM has a supplier sustainability management policy and robust supplier management process which was recently launched as a SAP application for supplier relationship management. KCM demonstrated that it conducts risk assessments of high risk supplies that may involve child or forced labour and that may be environmentally unsustainable. Evidence was provided of risk assessment of suppliers that provide bricks that are at risk of using child/ forced labour, timber suppliers that are sourced from nearby forests and robust selection of responsible waste oil disposal suppliers. KCM has also chosen to use bamboo charge sticks instead of plastic sticks which demonstrates a commitment to both environmentally responsible sourcing from plantation bamboo and local supplier development to support local livelihoods. Another example includes offering a long-term supply contract to a local manufacturer to allow them to invest in new plant and equipment to reduce costs and be cost and technically competitive with international suppliers. KCM’s Commercial Manager has also engaged with industry associations (e.g. Mines Suppliers and Contractors Association [MSCA]) to communicate KCM supplier policies and statutory compliance requirements and explore other possibilities to strengthen local capacity and improve competitiveness in supplying to KCM.

IESC AUDIT REPORT

October 2013 47059086.STG5

73

Finding

The field visit confirmed that KCM has adopted the Vedanta Sustainability Framework into its human resource and procurement functions. Risk assessments of supplies (such as timber and bricks) demonstrate good industry practice in ensuring protection of the workforce and responsible procurement. KCM’s proactive approach to local supplier development and industry engagement warrants special mention as a leading practice to broaden business and livelihood opportunities to nearby host communities. KCM labour and working conditions are consistent with IFC PS2 with on-going implementation of OHS action plans to reduce fatalities and the LTI frequency rate.

PS 3: Pollution prevention and resource efficiency

Resource efficiency and pollution prevention principals

Pollution prevention and resource efficiency are addressed in the Vedanta Sustainability Framework and in particular Technical Standards (TS11 – Environmental Management, TS14 – Water Management, TS16- Energy and Carbon Management). There is a clear commitment to the adoption and implementation of the Vedanta Sustainability Framework across the various business units at KCM. This is demonstrated through the allocation of champions in the various business units each responsible for driving an element of the framework in their business unit.

Pollution Prevention and Resource Management

The KCM environmental teams participate in Vedanta Tele Presence meetings, where learning from implementation of the frameworks and other environmental management issues are presented, discussed and peer reviewed. The teams value this tool and continued use should be encouraged.

Personnel interviewed were well aware of the VSF and the relevant technical standards as they relate to resource efficiency and pollution control. KCM faces the on-going challenge of implementing current standards at aging facilities; however various business units demonstrated that there are a number of initiatives in place to address these challenges.

The following are examples of challenges discussed during the audit and demonstrate that KCM, through the implementation of the Vedanta Sustainability Framework and supporting site procedures, is able to identify impacts and implement appropriate mitigation measures:

Noise at SAG Mill – Since the installation of the new SAG Mill, a number of noise complaints were received from the neighbouring hospital. The cause was identified and mitigation measures are being put in place, including additional shielding. Lining the drum is also being considered.

Dust at Concentrator (East Mill) – Dust is being generated at the stockpiling area. Existing dust control measures (manual sprinklers and curtains) are not effective in particular when the stockpile levels are low. Alternate sprinkler technology has been identified and it is understood that the procurement process has commenced.

Scheduling of demolition – Demolition of legacy infrastructure has commenced. Representatives indicated that currently the demolition contractors cherry pick demolition areas based on high value materials, leaving the demolished areas partially completed. Not only is this inefficient from a KCM viewpoint, the partially demolished infrastructure creates an untidy image and could have a negative impact on good practice awareness raising initiatives. It is recommended that contractors be held accountable to delivery schedules.

IESC AUDIT REPORT

October 2013 47059086.STG5

74

Pollution Control Dam (PCD) – The pollution control dam is the final “line of defence” for the Tailings Leach Plant, however due to its location it not only captures site run off but also includes a catchment from Chingola town. This has the potential to place an extra liability on KCM to manage potential pollution sources from the township. However it was demonstrated that the KCM team have identified the management regime required to de-silt the dam. De-silting is expected to be completed in approximately 4 years. Management of this facility should remain a high priority for KCM to minimise the consequence of an uncontrolled release.

It should be noted that that KCM implemented a number of successful initiatives to minimise pollution and improve resource efficiency. These include but are not limited to:

Chemical Storage Area (Nchanga Concentrator) – Since the last visit the chemical storage area has been refurbished including repair of floor, segregation of different materials, access control and solid fencing (including ventilation requirements).

Acid Plant Nchanga Smelter – The smelter is a relatively new development, never the less the standard of housekeeping was very high. Personnel interviewed demonstrated a commitment to sound safety and environmental management, as well as a commitment to investigating and learning from reported incidents. The automated control system has engineered out a number of emergency situations and improved response time thus minimising the consequence of potential impacts.

Suspended Solid Management at Konkola Underground – Though strong leadership and change in behaviour of personnel, significant success has been achieved in reducing suspended solid loads. Particularly encouraging is the team’s commitment is to continue improvement beyond compliance, which has already been achieved. It is also clear that these initiatives have corporate support through the allocation of funding for the necessary equipment upgrades.

Efficiency in consumption of resources

In accordance with the technical standard the site requires a Water Risk Screening Assessment, Water Resource Management Plan, Water Balance, Water Use Reduction Pl an and Waste water discharge plan. These documents exist in the KCM system, although not always under the same structure. There are procedures in place (e.g. KCM-EP-48 – Conducting Impact Assessments) which ensure that new projects (i.e. since implementation of VSF) address all these requirements. Historic projects and operations are managed differently but are systematically being aligned with the VSF.

However it should be noted that this section of the performance standard is focussed on improved efficiency in consumption of resources and while KCM is focussed on the on-going business improvement of their performance there are a number of examples of resource efficiency initiatives. These include but are not limited to:

Tailings Leach Plant/ Nchanga Concentrator - There are a number of good recycling initiatives being implemented to minimise water and material use.

Konkola Underground – There is an extensive program to improve performance of electric water pumps, used to de-water the mine. Improved performance is not only a business benefit but also directly reduces energy consumption.

Reduction of Greenhouse Gasses

There is a KCM team dedicated to energy and carbon management. They are responsible for the identification of opportunities to minimise energy use and carbon. This includes identification of greenhouse gasses. This team together with operational teams have implemented a number of initiatives to reduce greenhouse gasses. To date the team has focused on greenhouse gasses related to energy sources but they plan to include process emissions in the near future. Greenhouse gas volumes are reported to Vedanta Corporate monthly, as the total volume exceeds 25,000 t CO2-equivalent.

IESC AUDIT REPORT

October 2013 47059086.STG5

75

Waste Management

Waste management has been identified as a risk and included in site management system documentation. At corporate level Vedanta has developed technical standard TS9 Resource Use and Waste Management, and to support this, KCM has also developed a waste management procedure (KCM-EP-47). There are a number of initiatives to segregate waste.

Another waste management initiative is the reprocessing of old waste dumps and re processing of silt from the pollution control dam.

Technology in the concentrator has been implemented to improve resource recovery and minimise waste.

Hazardous Material Management

Each business unit has a hazardous material register identifying material location and access to MSDS.

High risk hazardous materials have been identified in the risk registers. Site requirements for the management of hazardous waste are managed through TS 9.

Pesticide Management

Based on interviews with personnel, KCM teams are aware of the requirements of pesticide management and the selection of pesticides that are not included in the WHO Hazard Category 1a. This was achieved through training sessions (e.g. Vedanta Sustainability Management Training – May 2012) and regular team meetings. KCM identify banned pesticides, through a KCM procedure, which includes banned pesticides in an annexure. Evaluations are conducted, to identify requirements of ZEMA Pesticide management requirements. Examples of these were sighted during the audit.

Finding

Based on the evidence presented there is a clear commitment from the KCM team to adopt and implement the Vedanta Sustainability Framework as it related to IFC PS3 – Resource Efficiency and Pollution Prevention and current practice is consistent with the requirements of IFC PS3.

PS 4: Community health, safety and security

Evaluate risks and impacts to the health and safety of affected communities

KCM has risk registers for all the business units. Where the business units activities have the potential to impact on neighbouring communities, risks related to these activities are included in the register (e.g. Overflow of the pollution control dam – the levels in the dam are monitored to ensure sufficient capacity in the event of an incident). Incidents related to neighbouring communities are also registered and mitigations measures implemented were appropriate. For example, noise from new SAG Mill resulted in complaints from the hospital. Complaints were investigated and noise abatement has commenced.

KCM has a robust system for validating the certification of professionals, skilled and semi-skilled workers amongst its direct and contracted workforce. KCM checks with the authorities, professional bodies and educational institutions to ensure that certification is bonafide and current to ensure structural elements of KCM infrastructure is designed, constructed and maintained by competent professionals.

IESC AUDIT REPORT

October 2013 47059086.STG5

76

Dam and ash pond safety checks are conducted regularly by qualified professionals to monitor the structural soundness of dam walls and implement measures to mitigate against failure or malfunction that may threaten the safety of communities.

KCM has assessed community risks to hazardous waste materials and substances which are largely confined to chemicals used at plant concentrators. Risks include, but are not limited to tailings dam failure, uncontrolled discharge of toxic materials from tails and leachate plant and stack emissions. In addition, KCM has investigated the feasibility of measures to eliminate, substitute, minimise and better transport, handle and store hazardous materials. Waste oil is now stored in bulk containers and safely disposed of by accredited suppliers that also filter and recover up to 70% of the waste oil that can be used for the furnace. KCM Procurement worked with a cross-functional team including Environment and Health to determine how to safely dispose of a large store of X-ray films from Nchanga South hospital operated by KCM and also recover tracings of silver from the film.

Ecosystem services

Currently KCM operations do not significantly impact on ecosystem services which are important for local communities. As part of undertaking a new project, it is a requirement under the VSF and supporting KCM procedure (KCM –EP-48 Conducting ESIA) to assess potential impacts on ecosystem services and implement mitigations measures where required. An example of this is documented in the Mimbula II ESIA, where an initial assessment was undertaken and a more detail risk assessment later in the project.

Community exposure to disease has been assessed by KCM and it has long standing public health promotion and prevention programs to avoid and minimise communicable disease. Endemic disease programs include a malaria prevention program including a household fogging program that has seen prevalence rates drop by 50% within 10 years. Similarly a HIV/AIDS prevention program targeting employees and the community has resulted in a decline in workforce HIV/AIDS infection rates of 50% over the 2001 to 2012 period.

Emergency preparedness and response

KCM has included potential impact areas on the business unit risk registers and have in place response plans in the events of an incident impacting neighbouring communities.

Based on discussions with personnel, it is understood that the KCM emergency response team regularly responds to incidents in the community e.g. providing assistance in the 2010 floods as well as day-to-day incidents like fires.

Security personnel

KCM has a security policy which builds on IFC PS 4 and the Vedanta Technical Note TS15 on Security Management.

The large size of the KCM land holdings means that the mining sites are not fenced, nor can be fenced except partially at enormous cost. Given the very high levels of unemployment in the locality this means that encroachment whether for farming, housing or the theft of minerals is a major issue. Consequently the security department employs a large number of personnel comprised of some 225 in-house staff, 1332 contract staff and 50 State Police who come under control of the Head of Security. Notwithstanding the size of the security force, they are experiencing real problems in controlling illegal mining because of the size of the area to be patrolled and the sheer numbers of people involved. In addition, violence occurs both between different groups of miners and between the miners and security staff.

In these circumstances, care is necessary in responding to the requirements of PS 4. Over 90% of staff have now been trained in relation to human rights. Specialist training has been provided in relation to the role of security staff during a strike/industrial unrest and in respect of crowd and mob control. There is an established grievance mechanism for affected

IESC AUDIT REPORT

October 2013 47059086.STG5

77

communities who might seek redress from the Security Department and all interviews are videoed to ensure that rights are respected.

Finding

The field visit confirmed that KCM has worked hard to adopt the Vedanta Sustainability Framework and that its operations are consistent with IFC PS4: Community health, safety and security.

PS 5: Land acquisition and involuntary resettlement

General

KCM has recently prepared draft Resettlement Action Plans for Overburden Dump 26 (OB 26) and commenced negotiations to compensate illegal farmers for perennial crops at Mimbula II open pit expansion. Key document reviewed include ESIAs, OB26 RAP, Mimbula II compensation agreements, signed approval note and public disclosure meeting records.

The standard requires the proponent to document alternative design to avoid or at least minimise displacement particularly for the poor and vulnerable such as landless farmers (IFC PS5:8). This element is tied to a key objective of PS5 and is therefore considered non-compliant.

KCM is committed to compensating for loss of crops using Government rates. However the evidence provided does not show what inputs (labour, materials, equipment) have been used to calculate the replacement cost value(IFC PS 5:9, GN10, VSF GN03:2.1). For example rates for mango and avocado trees are the same whereas the inputs, growth cycle and yields differ which would be expected to result in different values. Hence the evidence provided does not support compliance with the requirement to compensate at full replacement cost.

The OB26 RAP and Mimbula II consultation records indicate that limited ICP has occurred with PAPs on disclosing the valuation methods for crop compensation, resettlement site selection and livelihood restoration. Evidence is needed to show valuation methods for assets (crops, non-residential structures) and how PAP views have been incorporated in KCM decision-making and how PAPs have been informed on how their concerns have been considered (IFC PS1:31, PS5:10, VSF GN03:3.12). The evidence provided on valuation is limited to a Zambian Government Valuation Department (GVD) without an independent market valuation of replacement costs (IFC PS5:GN10, VSF GN03:3.9, 3.10).

KCM has a project grievance mechanism. In the case of OB26 RAP, there is no evidence to demonstrate that the mechanism was identified as part of public disclosure and consultation activities ZEMA also noted that the mechanism could better defined particularly for handling potential land disputes.

Resettlement planning and livelihood restoration planning is limited. The RAP and Mimbula II census and socio-economic baseline data lacks detail on lost assets (IFC PS5: GN32), such as cultivated land area data provides a livelihoods baseline and may be needed to design land-based livelihood restoration programs. KCM has accepted that Mimbula II farmers have rejected its compensation offer and remains committed to a negotiated settlement over forced evictions.

Displacement

With respect to physical displacement, the OB26 RAP was rejected by the Zambian Environmental Management Agency (ZEMA) citing the need to document project designs to avoid or minimise displacement, legislative framework, more baseline date, entitlement,

IESC AUDIT REPORT

October 2013 47059086.STG5

78

resettlement packages, resettlement site selection, livelihood restoration programs and stakeholder engagement including grievances.

The Mimbula II compensation agreements and the approval note provide for cash compensation for perennial crops. Transitional support is based on a percentage of perennial crop value rather than an estimate of the time required to restore income-earning capacity (IFC PS5:29). Measures to restore livelihoods (PS 5:25 GN56, and VSF GN03:3) and address the vulnerability of landless farmers (IFC PS5:27-28) beyond cash compensation are not evidenced.

Therefore the IESC finds KCM is not able to demonstrate compliance with the physical and economic displacement elements of IFC PS5.

Private sector responsibilities for Government managed resettlement

Resettlement is not Government managed in Zambia. Therefore this requirement of the Performance Standard does not apply.

Finding

Based on the documentation available and site interviews, the IESC considers that KCM meets the majority of basic requirements but is not compliant with several requirements of PS5: Land Acquisition and Involuntary Resettlement at the time of the close-out audit.

PS 6: Biodiversity and sustainable management of living natural resources

General

There is a clear commitment to the adoption and implementation of the Vedanta Sustainability Framework across the various business units at KCM. The fundamental requirement of this performance standard is the identification and mitigation of project impacts on biodiversity. Biodiversity management is addressed in Vedanta Sustainability Framework and in particular Technical Standard (TS7 – Biodiversity Management). KCM has also developed a Biodiversity Policy and procedures.

The potential impact of KCM operations on biodiversity has been assessed including an analysis of habitat using the IBAT system and various ecological reports, which had been prepared over time. A number of business unit level risk registers were sighted. These included biodiversity risks. The ESIA for the Mimbula II project included a biodiversity and habitat assessment and no critical habitat was identified.

Based on observations during the site visit, biodiversity assessment appears to be documented in multiple areas, and while the intent of PS6 has generally been addressed, this could be done in a more efficient manner through consolidation of information in a single easy to access repository.

Protection and Conservation of Biodiversity

Habitat classification – The standard requires classification of potentially impacted areas in modified, natural and critical habitat. This has been undertaken for new projects e.g. the ESIA for Mimbula II Project includes a habitat assessment and is evidence that the VSF is being implemented.

The technical standard TS7 commits all sites to prepare and implement a Biodiversity Management Plan, and has prioritised development and implementation of these plans according to occurrence of critical habitat. As no critical habitat has been identified this site is considered a low priority and has committed to development and implementation of a Biodiversity Management Plan by 2015. This does not imply that no biodiversity management

IESC AUDIT REPORT

October 2013 47059086.STG5

79

planning has been undertaken, but rather the documentation of planning will be revised to meet corporate standards.

Projects in Legally Protected and Internationally Recognised Areas - Currently there are no KCM operations or proposed projects in Legally Protected and Internationally Recognised Areas.

Invasive Alien Species

Based on interviews with personnel, KCM teams are aware of the requirements of alien species. This was achieved through training sessions (e.g. Vedanta Sustainability Management Training – May 2012) and regular team meetings. In addition there is a KCM Biodiversity procedure (KCM-EP-BM), which implies the need for alien species management in operational areas. Finally, it was noted that the requirement for identification and management of alien species in the Terms of Reference for the Satellite Mining Project (Chillabombwe) demonstrates implementation of VSF requirements for this element.

Management of Ecosystems Services

The current impact assessment process implemented by KCM includes identification of potential impacts on ecosystem services and implementation of management programs where mitigation is required. The Mimbula II Draft ESIA was sighted as an example, although it has

been found that the identification process could be strengthened and documented more clearly.

Sustainable Management of Living Natural Resources

KCM is not engaged in primary production of living natural resources therefore this element is not applicable.

Supply Chain

KCM has a supplier sustainability management policy and robust supplier management process. KCM demonstrated that it conducts risk assessments of high risk suppliers that may be environmentally unsustainable. Evidence was provided of risk assessment of suppliers that provide timber suppliers that are sourced sustainably from nearby forests. Supplier management at KCM is discussed in more detail under IFC PS2 (above).

Finding

Based on the evidence provided and discussion with site personnel, it is considered that the implementation of the VSF substantially meets the requirements of IFC PS6 Biodiversity Conservation and Sustainable Management of Living Natural Resources, except for the development of biodiversity management plans, which are scheduled for 2015. On-going internal corporate monitoring will be required to ensure the biodiversity management documentation is revised and compiled as per schedule.

PS 7: Indigenous People

General

The criteria for determining ‘indigenous status’ as stated in PS7 have been the subject of debate in the African continent. The existence of ethnic groups in Zambia is common to most of Africa. There is no evidence of people claiming, or aspiring to claim, a physical and spiritual attachment to land as their ancestral domain for time immemorial in KCM project areas.

IESC AUDIT REPORT

October 2013 47059086.STG5

80

The traditional tenure system is administered by the Chiefs with oversight by the Lands Department. The two systems are not mutually exclusive: a Chief’s jurisdiction is curtailed in terms of entering into land transactions with, for instance, mining companies and the transfer of more than 250ha to a private owner has to be vetted by the appropriate Ministry. Certain transactions also need to be supported by the municipal councils.

No ethnic groups living in the project area of influence are identified as Indigenous Peoples as provided for under the scope of PS 7. Thus, this Performance Standard does not apply to KCM.

Finding

The field visit confirmed that IFC PS7 on Indigenous Peoples does not apply to KCM operations and project development activities.

PS 8: Cultural heritage

Protection of cultural heritage in project design and execution

The fundamental requirement of this performance standard is the identification and mitigation of project impacts on cultural heritage. Cultural Heritage Management is addressed in the Vedanta Sustainability Framework and in particular Technical Standard (TS1 – Cultural Heritage Management). KCM have procedures in place to identify and implement mitigation measures where required. An example of this is the removal of the Cooling Towers. The Zambian Government identified the Cooling Towers, as a cultural heritage site, but KCM have identified them as a safety risk. The team interviewed were able to explain the process to date, supported by documentation and correspondence which demonstrates that the KCM cultural heritage process is effective, and when required is undertaken in conjunction with external stakeholders. The final decision was removal of the towers and development of a scale version of the towers in a prominent spot in town to ensure the history was not lost.

Chance find procedure

KCM has developed and implemented a Chance Find Procedure (KCM-EP-12). This procedure is referenced in the Mimbula II Project ESIA, demonstrating KCM’s effective implementation.

Consultation

The Cooling Tower example above demonstrates KCM’s commitment to consulting with stakeholders and regulatory bodies to achieve an acceptable outcome.

Community access

No sites of cultural heritage importance, other than the Cooling Towers, have been identified on KCM sites, and therefore at the time of the audit this element was not applicable. It should be noted that the ESIA reviewed do make provision for archaeological studies, including cultural heritage and commitment to prepare a cultural heritage management plan if required.

Removal of Replicable Cultural Heritage

The Cooling Tower example above demonstrates KCM’s commitment to contributing to replication of cultural heritage items, where removal is not avoidable.

Removal on Non-Replicable Cultural Heritage

No sites of Non-Replicable Cultural Heritage have been identified on KCM sites, and therefore at the time of the audit this element was not applicable. It should be noted that the ESIA

IESC AUDIT REPORT

October 2013 47059086.STG5

81

reviewed do make provision for archaeological studies, including cultural heritage and commitment to prepare a cultural heritage management plan if required.

Critical cultural heritage

No sites of Critical Cultural Heritage have been identified on KCM sites, and therefore at the time of the audit this element was not applicable. It should be noted that the ESIA reviewed do make provision for archaeological studies, including cultural heritage and commitment to prepare a cultural heritage management plan if required.

Project use of cultural heritage

No sites of cultural heritage importance, other than the Cooling Towers, have been identified on KCM sites, and therefore at the time of the audit this element was not applicable. It should be noted that the ESIA reviewed do make provision for archaeological studies, including cultural heritage and commitment to prepare a cultural heritage management plan if required.

Finding

Based on the evidence presented there is a clear commitment from the KCM team to adopt and implement the Vedanta Sustainability Framework as it related to IFC PS8 – Cultural Heritage. KCM have demonstrated that they have identified Cultural Heritage on the current site, according to the procedures in place. As the site expands, there will be a need to more fully survey cultural heritage, both tangible and intangible, in and around the site to ensure full compliance with the requirements of IFC PS8.

IESC AUDIT REPORT

October 2013 47059086.STG5

82

5.2 Lanjigarh Refinery India

The general finding is that VAL Lanjigarh has worked hard to adopt the Vedanta Sustainability Framework and that its operations are substantially consistent with IFC requirements. With regard to the assessment and management of environmental and social risks and impacts, a robust planning process has been undertaken and a comprehensive framework established. However there is one concern relating to the Project Expansion ESIA which is considered not adequately to reflect IFC Standards and international best practice. Compliance with IFC PS 2, 3, 4 and 8 has been found satisfactory. However, additional work is deemed necessary to strengthen compliance with IFC PS5 (especially with regard to general, displacement and private sector responsibility requirements), IFC PS6 (for the development of biodiversity management plans) and IFC PS7 (need to further demonstrate measures put in place to avoid, minimise and mitigate adverse impacts on the Kondh groups including the requirement for ICP in project decision-making that affects them).

PS 1: Assessment and management of environmental and social risks and impacts

Policy

VAL-L is committed at an overall policy of zero harm, zero waste and zero omissions. This is an ambitious and imaginative aim which goes beyond Vedanta’s corporate sustainability commitments. It is incorporated in VAL-L’s Quality, Environment, Occupational Health, Safety and Community Policy. In addition, VAL-L has adopted all the policies, technical and management standards and guidance notes from the Vedanta Sustainability Framework.

Identification of risks and impacts

VAL-L maintains a Risk Register which deals with environmental risks. Each risk is allocated an “owner” and the impacts and likelihoods of the risks are assessed before and after current control measures. Where necessary, action plans are identified. This Register, which is reviewed annually, is a useful method of identifying risks arising from operations, securing appropriate action and monitoring results.

The Environmental and Social Management Plan identifies environmental and social risks at a strategic level, then details company commitments, the policy and regulatory context, specific activities and responsibilities. Environmental risks identified include reduction in river flows and increases in air pollution. Social risks identified include loss of productive land and potential impacts on community health. The implementation of the ESMS is overseen by the Head of HSE, the Sustainability Officer and the Sustainability Committee. It is proposed to review the ESMS on a biannual basis. The first review will be due shortly.

A supplementary ESIA was prepared for the refinery expansion project in March 2012 and has been submitted to the regulator. This ESIA was produced prior to the publication of the Vedanta Guidance Note (GN16) on preparing environmental assessments to international standards. The ESIA does reference the IFC Standards but only as an example of Vedanta’s commitment to international best practice. The ESIA does not consider which IFC Standards are relevant to the ESIA and fails to demonstrate fulfilment of the Standards. Whilst preparing ESIAs to international standards was a recommendation of the original Scott Wilson report in 2010, it is recognised that this ESIA was produced to satisfy the specific requirements of the Ministry of Environment and Forests. Nevertheless, it is critical that when tendering for ESIA preparation, VAL-L should incorporate into the Terms of Reference a clear statement that the ESIA must be produced in accord with the IFC Performance Standards and that this compliance should be readily apparent in the report.

Management Programs

The Environmental and Social Management Plan (ESMS) is the principal management program. It sets out project commitments, the regulatory framework, targets, specific actions

IESC AUDIT REPORT

October 2013 47059086.STG5

83

and responsibilities. The ESMS is amplified and developed through four annexes dealing with Stakeholder Engagement, Grievance Mechanism, Resettlement and Rehabilitation Plan and Tribal Development Plan. It is noted that efforts have been made to increase cross referencing between the plans to facilitate a more integrated approach. It would be appropriate to more clearly identify the officers responsible for overseeing implementation of each plan and for formalised monitoring and review.

No Biodiversity Action Plan has been prepared. However, a preliminary survey of sites of ecological interest has revealed that there are no identified sites close to the plant. In addition, over a quarter of the operational area is devoted to green belt planting with native species and VAL-L is committed to a policy aim of no net loss of habitat. Hence, the lack of priority attached to preparing a Biodiversity Plan is understandable but the recommendation remains outstanding.

Organisational Capacity and Competency

VAL-L has a Head of HSE, Sustainability Officer and a Sustainability Committee. In addition, the Chief Operating Officer plays a key leadership role in promoting sustainability and takes a personal interest in all initiatives. The new management structure is quite recently established. The August meeting of the Sustainability Committee was reviewing its mandate and discussing roles and responsibilities relative to the different management programs. The September meeting was largely given over to discussing arrangements for the URS audit. It is therefore too early to confirm that the organisational capacity is absolutely adequate to the tasks and, as noted above and in the Committee minutes, some further clear statement of responsibilities is needed. However, existing managers demonstrated during the audit an appropriate familiarity with the Vedanta Sustainability Framework and sufficient technical knowledge to implement sustainability policies with additional specialist support as necessary.

Senior staff of VAL-L have undertaken a five-day corporate training programme on sustainability. The Vedanta Sustainability Framework is being communicated to all staff via an on-line training module which is then assessed via an on-line examination. The majority of the staff have undertaken and been assessed for this module. VAL-L has established an integrated programme of training which is delivered according to need on an individual basis. Thus, at the beginning of each year, an individual training needs assessment is made and attendance at training sessions arranged. A training of trainers programme ensures adequate in-house training resources.


As at KCM, overall sustainability performance is assessed through the Vedanta sustainability self-assessment and audit process. This is a rigorous assessment process based on a series of questions derived from implementation of the Vedanta Sustainability Framework. Topics covered include leadership, competency and training, new projects and human rights and social security. Scores are awarded for the level of achievement. VAL-L has demonstrated improvement over the last year with particularly high scores relating to compliance, leadership and resource use and waste management. The auditing process culminates in the preparation of a Corrective and Preventative Action Plan (CAPA). The use of both self-assessment and independent audit is a valuable twofold approach to monitoring and review.


VAL-L’s stakeholder engagement plan provides a comprehensive review of the rationale and process of engagement. It identifies and classifies stakeholders in terms of expectations and influence and develops a matrix listing the stakeholders, the objectives, method and frequency of engagement. This provides a solid basis for developing regular and informative stakeholder engagement which will help stakeholders to better understand VAL-L’s operations and help VAL-L better appreciate the aspirations and expectations of all its stakeholders.

IESC AUDIT REPORT

October 2013 47059086.STG5

84

The Stakeholder Engagement Plan is relatively new and the means of implementing the Plan have still to be finalised. In the interim, reports of all forms of stakeholder engagement by all VAL-L departments are being collated in a central register. This marks progress towards a comprehensive approach to stakeholder engagement.

External communications and grievance mechanism

VAL-L established a grievance mechanism by developing a reception point at the plant gate which was open on Friday afternoons. Those with a grievance were invited to complete a proforma setting out their name, address and the nature of their concern. This system has now been further liberalised in accord with Technical Standard TS4 so that those with a grievance may bring their concerns to the factory gate at any time and also that community relations staff seek out and record grievances in the course of their field visits.

On-going reporting to affected communities

VAL-L has pioneered a system of real time recording of dust emissions which is reported on an electronic screen at the entry to the plant. This supplements a notice board giving further details of the plant’s environmental performance.

Finding

VAL-L has adopted an approach to sustainability that is substantially consistent with IFC PS1. A robust planning process has been undertaken and a comprehensive framework established. Implementing all aspects of the various plans will require further organisation and apportionment of responsibilities. The one concern relates to the Expansion Project ESIA which is considered not adequately to reflect IFC Standards and international best practice. There is still an opportunity to address this in the final document and thus reach compliance with both the Vedanta Sustainability Framework and the IFC Standards.


The Vedanta Sustainability Framework, as implemented by VAL Lanjigarh, provides an overall framework for meeting the labour and working conditions objectives of IFC PS2 as it applies to direct, contracted and supply chain workers. VAL policies that apply to IFC PS 2 include:

Human Rights;

Quality, Environment, Occupational Health, Safety and Community;

HIV/AIDS;

Prohibition of sexual harassment; and

Supplier and contractor management.

Human resource policies are in place including VAL’s code of conduct and ethics for employees which is a condition of contract and covers expected behaviours and a whistle-blowing policy where allegations of misconduct may be referred to the immediate manager or Group Head, Management Assurance of Vedanta Resources plc. The policy protects privacy of whistle-blowers and prohibits retaliation against workers who report suspected violations of the code in good faith. Standing orders provide terms and conditions of employment for employees that have been certified by the Office of the Deputy Labour Commissioner as per the Industrial Employment (Standing Orders) Act, 1946. Terms and conditions of employment form part of the letter of offer and employment contract so workers are informed of their rights and responsibilities.

IESC AUDIT REPORT

October 2013 47059086.STG5

85

VAL has an accommodation policy where eligibility is based on grade and whether employees are accompanied by family members. A standard operating procedure is in place for contractor worker accommodation covering assessment and review of accommodation supported by a checklist, action plan and redress measures. Quarterly site visits to contractor accommodation is undertaken by a cross functional team comprising of personnel from HR, HSE, Commercial and CR (Community Relations) who use the checklist to verify that the accommodation meets VAL standards. Contractor accommodation must meet Vedanta standards as stipulated in contracts with provisions for penalties where standards are not met. Contractors are also required to self-assess accommodation using the checklist each month which must be signed. The completed checklist, accompanied by evidence of worker wage and benefit payments, is submitted with monthly contractor invoices. Examples of completed contracted accommodation checklists and photos of upgraded living conditions were on record providing confidence that the system is in effect.

VAL has a retrenchment policy that has been regularly revised that explicitly refers to IFC PS2 and statutory requirements. The policy aims to avoid collective dismissals and reduce the adverse impacts of retrenchments. It proactively identifies business risks such as acute raw materials shortage, environmental incident and unrest and commits to an action plan where retrenchments are unavoidable. The most recent version updated in October 2012 reflects revisions to community communication of the policy.

Drawing on Vedanta Technical Standard TS04: Grievance Mechanisms, VAL has developed and implemented a grievance handling procedure that took effect in March 2010. VAL employee grievances about workers’ rights, conditions and terms of employment are recorded, investigated and handled within prescribed timeframes. The grievance management system was observed to be fully functional with monthly management reporting on grievances by status- open, pending and closed.


VAL does not have any employees, contractors or employees who are under the age of 18 years old. The gate pass system requiring official proof of age identification as well as contractor compliance systems and supplier risk assessments and checks provide practical measures to ensure that the company policy of not engaging minors is enforced. VAL’s Quality, Environment, Occupational Health, Safety and Community policy explicitly addresses forced labour stating that it is committed to a workforce that is free from bonded labour of any nature, violence or discrimination of any kind.


VAL’s Quality, Environment, Occupational Health, Safety and Community principle of ‘zero harm, zero waste and zero emission’ commits to developing standards to improve the health and safety of people and the environment. VAL’s supplier and contractor management policy also explicitly addresses the company’s commitment to minimise occupational hazards and prevent injury and ill health to contractor employees working at Vedanta sites.

There were 10 safety incidents in VAL Lanjigarh over 2012/13, with one fatality recorded over the period. VAL Lanjigarh provided evidence of an incident investigation and proof that corrective actions have been identified and implemented.


VAL has a supplier and contractor management policy supported by an effective system for contractor selection and management that includes checks to ensure that third party workers are engaged by reputable, legitimate enterprises. Checks are made with both contractors and authorities to ensure certification of professional, skilled and semi-skilled workers are bonafide. Claims for payment of contractor invoices must be substantiated by a completed contractor accommodation checklist and evidence of employee wage and benefit payments required under Indian law. Workers Engaged by 3rd Party: Depending upon the type of

IESC AUDIT REPORT

October 2013 47059086.STG5

86

contract a Performance Bank Guarantee is kept by VAL up to 10% of the total value of the contract, which may be used for unpaid wages and benefits to the workers.

Supply chain

VAL has a supplier management policy including anti-bribery and corruption provisions and a code of conduct supported by six-monthly performance assessments. Vendor registration requires evidence of compliance with statutory requirements and reference checks with other Vedanta companies. VAL demonstrated that it responsibly handles and disposes of hazardous materials throughout the supply chain and has implemented initiatives to eliminate and substitute the use of hazardous materials including substituting furnace oil with coal gasification, eliminating chlorine gas use and gasification of lime bags to avoid emissions.

Finding

The field visit confirmed that VAL Lanjigarh has worked hard to adopt the Vedanta Sustainability Framework and that its operations are consistent with IFC PS2.


Resource efficiency and pollution prevention principals

Pollution prevention and resource efficiency are addressed in Vedanta Sustainability Framework and in particular Technical Standards (TS11 – Environmental Management, TS14 – Water Management, TS16- Energy and Carbon Management). There is a clear commitment to the adoption and implementation of the Vedanta Sustainability Framework, and in particular a “zero discharge” Philosophy at VAL Lanjigarh. This is demonstrated through documentation and continued improvement of pollution control and resource efficiency initiatives. The site also has plans for a “zero waste” plant by 2017.


The VAL environmental teams participate in Vedanta Tele Presence meetings, where learning from implementation of the frameworks and other environmental management issues are presented, discussed and peer reviewed. The teams value this tool and continued use should be encouraged.

Personnel interviewed were well aware of the VSF and the relevant technical standards as they relate to resource efficiency and pollution control. Strong leadership at VAL encourages innovative thinking to promote initiatives that support the intent of the VSF, and not to accept the status quo.

Details of environmental management requirements at the site are documented in the Environmental and Social Management Plan (February 2013). This is a comprehensive document covering both construction and operations within the plant. The detailed management plan within this document address the majority of the requirements of this performance standard.

One challenge that the site is currently facing is monitoring of levels in the Red Mud Dam. Due to technology restrictions the site relies on manual monitoring of levels. The frequency of these monitoring events is increased in the wet season.

The following are examples of initiatives that have been trialled and were successfully implemented to improve resource efficiency at Lanjigarh:

IESC AUDIT REPORT

October 2013 47059086.STG5

87

The First Powdery Red Mud Filtration facility across the Globe (excluding China) to eliminate risks because of dyke failures/earth movement and ground water contamination;

Utilization of red mud towards value added products;

Conversion of the extracted fine iron into commercial grade iron ore;

Caustic Reduction – Residual caustic reduction facility to be commissioned shortly, improves caustic recovery and reduces total caustic required;

Water – Water recycling and reuse has resulted in zero discharge and 40% reduction in use;

Dust Monitoring System – The real time dust monitoring system is available in real time to the public via display board at plant entrance as well as being available to the regulator. This demonstrates transparency and confirms VAL’s commitment to deliver on environmental performance commitments;

Vanadium Recovery;

Stone aggregate from Fly Ash is used in cement manufacture;

Robotic Cleaning of Equipment and Pipelines has reduced exposure of personnel to caustic and at the same time reduced use of caustic because cleaning can take place more regularly.

The list above is not exhaustive and demonstrates the level of commitment to sound environmental management.


There is a VAL team dedicated to energy and carbon management. They are responsible for the identification of opportunities to minimise energy use and carbon. This includes identification of greenhouse gasses. The team together with operational teams have implemented a number of initiatives to reduce greenhouse gasses. Greenhouse gas volumes are reported to Vedanta Corporate monthly, as the total volume exceeds 25,000 t CO2-equivalent.

The Lanjigarh site monitors scope 1 and 2 emissions and reports these emissions to the corporate level monthly. The site is also currently monitoring Scope 3 emissions, which is an internal initiative and not required by the VSF.

Waste Management

Waste management has been identified as a risk and included in site management system documentation. At corporate level Vedanta has developed technical standard TS9 Resource Use and Waste Management; requirements are documented in the site ESMP. There are a number of initiatives to segregate waste, among which:

Lime Bags – Waste lime bags are collected and sent to a gasification plant as a fuel source;

Used oil - Used oil is collected and sent for recycling;

Batteries - Used batteries are returned to the supplier;

Scrap iron and steel is recycled;

Sewage - Sewage from plant and colony is treated and effluent and sludge are used on facility gardens. Soils are tested regularly to minimise the risk of contamination;

Biogas – The site prepares approx. 20,000 meals per day for local children. Waste sludge from the rice cooking process is collected and treated in a Biogas facility.

IESC AUDIT REPORT

October 2013 47059086.STG5

88

This produces methane which is piped to a nearby accommodation unit and used for cooking.


The government monitors hazardous material vendors and suitable vendors are nominated on an approved list. The site follows a formal waste tracking system that documents origin of waste, final destination and who transported the waste.

Requirements for managing hazardous materials and wastes are documented in the ESMP.


A qualified pest controller undertakes Pest management. Pesticides used are listed on a register and pest management is documented in the ESMP.

The ESMP also includes a commitment to:

Not purchase, store or use pesticides that fall under the WHO Recommended Classification of Pesticides by Hazard Class (1a or 1b) or Class 2 pesticides;

Make use of pesticides for pest control activities through subcontractor;

Not store these pesticides on VAL premises;

Ensure substitution of pesticides used in the past e.g. Bromadiolone, Deltamethrin and Fipronil (not recommend for use by WHO).

Finding

Based on the evidence presented there is a clear commitment from the VAL team to adopt and implement the Vedanta Sustainability Framework as it related to IFC PS3 – Resource Efficiency and Pollution Prevention and current practice is consistent with the requirements of IFC PS3.


Community health and safety


VAL has implemented the Quality, Environment, Occupational Health, Safety and Community Policy. This policy commits VAL to protecting communities from potential impacts of its operations. This commitment is further documented in the VAL Environment and Social Management Plan. The ESMP identifies potential risks to the community and provides mitigation measures. Examples of these include:

o Red Mud Dams and Ash Pond – Dam safety is assessed by qualified consultants, water levels are monitored and alternative use of these materials is being implemented to reduce the amount of material stored.

o Air quality information is presented (real time) on displays at the entrance to the plant.

VAL has an effective system for validating the certification of professionals, skilled and semi-skilled workers amongst its direct and contracted workforce. VAL checks with the authorities, professional bodies and educational institutions to ensure that certification is bonafide and current to ensure structural elements of Lanjigarh infrastructure is designed, constructed and maintained by competent professionals.

IESC AUDIT REPORT

October 2013 47059086.STG5

89

Hazardous materials management and safety

VAL maintains registers of types of materials stored on site. The series of dykes and drains ensures that any major loss of containment will be contained on -site. In addition VAL has installed a piezometer to check for leakage from the Red Mud Dam. Water quality at community bores is also monitored to identify an impact from operations on community water sources. Management of Hazardous Materials is discussed further under PS 3 – Pollution Prevention and Resource Efficiency.

Ecosystem services

Current operations do not impact on ecosystem services. VAL, through implementation of the VSF and the VAL Environment and Social Management Plan, will assess the potential impact of new projects on ecosystem services and implement mitigation measures were appropriate. Managing impacts on ecosystem services is discussed in more detail in PS 6 – Biodiversity Conservation and Sustainable Management of Living Resources.

Community exposure to disease

VAL has prepared a Disaster Management Plan (DMP) which was most recently revised in December 2011. The DMP covers on- and off-site emergency management plans linked to project risks and impacts, procedures for handling emergencies to structural elements of the plant that pose inherent risks to community health and safety such as the ash pond, red mud pond and process water lake. The DMP also extends to emergency scenarios related to railway incidents which may arise from the inward transport of raw materials or outward movement of finished products. The plan demonstrates that VAL has coordinated with local authorities in emergency preparedness and response planning. Personnel interviewed indicated that training in the DMP had been provided. Photographs of VAL personnel attending this training were sighted.

Security personnel

VAL has a security force of 170. VAL has a core security staff of five people with the remaining personnel supplied by an agency. The staffs are principally drawn from retired military personnel. Training in human rights has been provided to all staff including advice on policing demonstrations and industrial unrest. Violent attacks on security staff has been an issue of concern and has led to the formation of a Quick Response Team (QRT) which comprise staff trained to manage potentially violent situations.

Finding

The field visit confirmed that VAL has worked hard to adopt the Vedanta Sustainability Framework and that its operations are consistent with IFC PS4: Community health, safety & security.


General

VAL has prepared draft Resettlement Action Plan (Appendix D to the ESMP dated February 2013) for Rengopalli, Bandhuguda and Kothaduar villages which is compliant with statutory requirements. The legal requirements for land acquisition are well articulated, mapped and understood.

The RAP does not document project boundaries nor demonstrate how VAL has avoided or at least minimised land acquisition and displacement in project design (IFC PS5:8). However the ESMP does outline how project boundaries were determined. To fully comply with PS5, the

IESC AUDIT REPORT

October 2013 47059086.STG5

90

RAP needs to outline how displacement impacts were considered in project design with reference to the ESMP and supporting technical studies.

VAL is committed to compensating for loss of assets using Government rates to meet statutory requirements. However the evidence provided does not show what inputs (labour, materials, equipment) have been used to calculate the replacement cost value (IFC PS 5:9, GN10, VSF GN03:2.1). Hence the evidence provided does not support compliance with the requirement to compensate at full replacement cost. IFC PS5:GN10 recommends verification of compensation values by an independent qualified valuer.

There is limited documentation in the RAP on the informed consultation and participation (ICP)/ Free Prior Informed Consent (FPIC) process showing how PAP concerns have been incorporated in project decision making (IFC PS1:31). ICP on resettlement site selection and livelihood restoration options and resettlement packages needs to be shown to meet IFC PS5:10.

VAL has a project grievance mechanism. The evidence provided does not specifically address cultural appropriateness as required under (IFC PS1:35) which is considered necessary to cater to the specific needs of the Kondh groups.

The RAP provides some socio-economic baseline asset data. Further detail is needed to be used for determining eligibility for resettlement compensation and assistance including livelihood restoration and improvement (IFC PS5: GN32),

Displacement

VAL demonstrated good examples of livelihood improvement projects during the site visit (cash cropping, double-triple cropping, agricultural extension support services, materials and equipment) for rural communities as part of its social investment program. The success of these projects may be of relevance as an option in the design of land-based livelihood restoration programs for PAPs displaced by any expansion to VAL Lanjigarh facilities.

Conformance with displacement requirements for PS5 is further addressed under private sector responsibilities under Government managed resettlement.

Private sector responsibilities under Government managed resettlement

Evidence was not produced to satisfy the requirement for a supplemental RAP that documents the identification of PAPs and the supplemental measures to achieve the requirements of IFC PS5 that extend beyond statutory requirements (IFC PS5:31). Specific areas that the need to be addressed to meet PS5 requirements include differences in eligibility by family and household, for encroachers (IFC PS5:23), economically displaced people (IFC PS5:GN38). Justification for compensation and resettlement assistance also needs to address IFC (PS5:GN24) which advocates land-based resettlement for physically and economically PAPs whose livelihoods are land-based as the lowest risk option of restoring livelihoods and avoiding short-term consumption of cash. Similarly the special provisions under Orissa law that provide additional cash compensation for tribal groups outlined in the Tribal Development Plan needs to be reconciled against IFC PS5:GN24,GN66) which favours lowest risk mitigation options wherever possible, e.g., in-kind compensation over cash-compensation.

Finding

Based on the documentation available and site interviews, the IESC considers that VAL is only partially compliant with requirements of IFC PS5. However VAL did not demonstrate compliance with several general, displacement and private sector responsibility requirements of IFC PS5: Land Acquisition and Involuntary Resettlement at the time of the close-out audit.

IESC AUDIT REPORT

October 2013 47059086.STG5

91


General

There is a clear commitment to the adoption and implementation of the Vedanta Sustainability Framework at VAL. The fundamental requirement of this performance standard is the identification and mitigation of project impacts on biodiversity. Biodiversity management is addressed in Vedanta Sustainability Framework and in particular Technical Standard (TS7 – Biodiversity Management). VAL has also developed a Biodiversity Policy and procedures.

The potential impact of VAL operations on biodiversity has been assessed including an analysis of habitat using the IBAT system and various ecological reports, which had been prepared over time. Risks related to biodiversity are listed in a risk register and documented in the ESMP.

Previous assessment of the operation site, including an IBAT survey, has not identified any areas of critical habitat. However it was noted that the green belt which was established as a condition of operation, has been a successful initiative. Anecdotal evidence from a forestry officer on site indicated that since the development of the green belt there has been an increase in species diversity. Therefore this may have become a valuable biodiversity asset.

Based on observations during the site visit, and discussion with the VAL team it was apparent that the development and progress of the greenbelt could be better documented, thus enabling the site to clearly demonstrate the progress made in this area.


Habitat classification – The standard requires classification of potentially impacted areas into modified, natural and critical habitat. Since the development of the performance standards and the VSF, no new areas have been included in the site footprint. In the event that any future expansions projects are considered, this habitat classification will need to be considered.

The technical standard TS7, commits all sites to prepare and implement a Biodiversity Management Plan, and has prioritised development and implementation of these plans according to occurrence of critical habitat. As no critical habitat has been identified, this site is considered a low priority and has committed to development and implementation of a Biodiversity Management Plan by 2015. This does not imply that no biodiversity management planning has been undertaken, but rather the documentation of planning will be revised to meet corporate standards.

Projects in Legally Protected and Internationally Recognised Areas - Currently there are no VAL operations or proposed projects in Legally Protected and Internationally Recognised Areas.

Invasive Alien Species – Val has committed through the ESMP to sustainable management of alien species.


The current impact assessment process implemented by VAL includes identification of potential impacts on ecosystem services and implementation of management programs where mitigation is required.


VAL is not engaged in primary production of living natural resources therefore this element is not applicable.

IESC AUDIT REPORT

October 2013 47059086.STG5

92

Supply Chain

VAL has a supplier management policy including a code of conduct supported by six-monthly performance assessments. Vendor registration requires evidence of compliance with statutory requirements and reference checks with other Vedanta companies, to demonstrate that these companies support the VSF.

VAL demonstrated that it has responsibly handles and disposes of hazardous materials throughout the supply chain and has implemented initiatives to eliminate and substitute the use of hazardous materials including substituting furnace oil with coal gasification, eliminating chlorine gas use and gasification of lime bags to avoid emissions.

Finding

Based on the evidence provided and discussion with site personnel, it is considered that the implementation of the VSF is substantially compliant with the requirements of IFC PS6 Biodiversity Conservation and Sustainable Management of Living Natural Resources, except for the development of biodiversity management plans, which are scheduled for 2015. On -going internal corporate monitoring will be required to ensure the biodiversity management documentation is revised and compiled as per schedule.

PS 7: Indigenous People

General

Project screening identified Kondhs as a tribe that fulfils IFC PS7 criteria of a distinct social and cultural group that maintains a collective attachment to ancestral territories. VAL has prepared a draft Tribal Development Plan (TDP) (Appendix C) to the ESMP dated February 2013) which is compliant with statutory requirements. The plan clearly states the legal framework and VSF as it applies to VAL Lanjigarh and presents several impacts, risks and opportunities.

The TDP does not document justification of project boundaries and show how VAL has endeavoured to avoid or at least minimising impacts on Tribal Groups in project design (IFC PS7:8-9). However the ESMP does outline how project boundaries were determined. To fully comply with PS7, the TDP needs to outline how impacts on Tribal Groups were considered in project design with reference to the ESMP and supporting technical studies.

The TDP partially meets basic requirements for a social profile with a focus on population demographics, social infrastructure and access to basic services. However much of the data is based on official statistics for the general population. This data presents a combined picture covering scheduled tribes, scheduled castes and non-scheduled castes. The TDP provides limited information on intangible cultural heritage. However the AISD report (2008) provides information on the values, belief systems, customary laws, language, customs, economy, relationships with the local environment and particular species, social organization and traditions of the Dongria Kondhs. This report and supporting data segmented by sub-groups such as elderly, women and youth as well as upland (Dongria Kondh)and lowland (Kutiya Kondhs) Kondh groups to meet IFC (PS7:8 and:GN10) requirements. The baseline information can also be used to review cultural appropriateness of the grievance mechanism and enhance consultation processes to meet the IFC PS7:10 requirements.

The TDP impact assessment presents an overview of the RAP, traffic, contractor and supplier and influx management.as well as tribal development plans and cultural heritage. However the TDP does not demonstrate a comprehensive impact assessment considering intangible heritage and resettlement risks and impacts. IFC PS7: GN10 suggests the adoption of Akwe: Kon Guidelines for guidance on the conduct of cultural, environmental and social impact assessment. Impacts typically examined include changes to identity, traditional rituals and

IESC AUDIT REPORT

October 2013 47059086.STG5

93

practices, role of traditional authorities, traditional forms of dispute resolution, changes to the role of women, impacts of cash compensation, health impacts, housing and settlement patterns, economic activities including dependence on natural resources and the shift from traditional livelihoods to sedentary agriculture.

The TDP does not demonstrate how the views of affected Dongria Kondhs are reflected in the expected project risks, impacts, and benefits (IFC PS7:9, GN11).

Circumstances requiring Free, Prior Informed Consent (FPIC)

Based on available documentation and site visit interviews, it is understood that there is no customary land that will be acquired as part of the proposed Lanjigarh expansion. Therefore the requirement for Free, Prior Informed Consent (FPIC) is not triggered. Nonetheless the requirement for Informed Consultation and Participation (IFC PS1:32) of Indigenous Peoples remains.

Mitigation and development benefits

The TDP outlines some mitigation measures and development benefits including improvements to social infrastructure, basic services and enhancement of cultural heritage, Further details on the mechanisms for structuring ICP to show how both statutory requirements are being met and the IFC PS7:10 requirements to include IP representative bodies and organisations, directly affected people and provide sufficient time for traditional decision making processes are needed. This extends to the identification of mitigation measures and development benefits (IFC PS7:18-20).

Private sector responsibilities where Government is responsible for managing IP issues

Based on available documentation and site visit interviews, it is understood that Government is not responsible for managing IP issues. Hence the requirements of IFC PS7:21-22 do not apply.

Finding

Based on the documentation available and site interviews, the IESC considers that VAL partially meets the basic requirements of PS7 at the time of the close-out audit. Additional work is needed to demonstrate how VAL meets PS7 requirements to avoid, minimise and mitigate adverse impacts on the Kondh groups and including the requirement for ICP in project decision-making that affects them.


Protection of cultural heritage in project design and execution

The fundamental requirement of this performance standard is the identification and mitigation of project impacts on cultural heritage. Cultural Heritage Management is addressed in Vedanta Sustainability Framework and in particular Technical Standard (TS1 – Cultural Heritage Management).

The VAL Lanjigarh ESMP clearly describes VAL’s commitment to cultural heritage and how items of cultural heritage should be managed during construction as well as operations. In the ESMP it is noted that based on previous cultural heritage surveys, the potential for cultural heritage items to occur on the current site is low.


The ESMP commits the contractor to prepare a “Chance Find Procedure” prior to construction.

IESC AUDIT REPORT

October 2013 47059086.STG5

94

Consultation

Consultation with stakeholders is documented in the Stakeholder Engagement Plan (an annexure top the ESMP).

Community access

No sites of cultural heritage importance have been identified on VAL site, and therefore at the time of the audit this element was not applicable. It should be noted that the ESMP reviewed does make provision for cultural heritage studies if required.


No sites of cultural heritage importance have been identified on VAL site, and therefore at the time of the audit this element was not applicable.






No sites of cultural heritage importance have been identified on VAL site, and therefore at the time of the audit this element was not applicable. It should be noted that the ESMP reviewed does make provision for cultural heritage studies if required.

Finding

Based on the evidence presented there is a commitment from the VAL team to adopt and implement the Vedanta Sustainability Framework as it related to IFC PS8 – Cultural Heritage. The procedures are in place to safeguard cultural heritage and no cultural heritage has been identified. However as the site expands, there will be a need to more fully survey cultural heritage, both tangible and intangible, in and around the site to ensure full compliance with the requirements of IFC PS8.

IESC AUDIT REPORT

October 2013 47059086.STG5

95

5.3 Sterlite’s Tuticorin Copper Smelter India

The field visit confirmed that Sterlite Tuticorin has worked hard to adopt the Vedanta Sustainability Framework and that its operations are substantially consistent with IFC requirements. There is a robust integrated management system and risk assessment registers at multiple levels of the company. On-going monitoring and implementation is more particularly needed for labour and working conditions (IFC PS2) and development of biodiversity management plans (IFC PS6).

PS 1: Assessment and management of environmental and social risks and impacts

Policy

The Vedanta Sustainability Framework, as implemented by Sterlite Tuticorin, provides an overall statement of environmental and social objectives and principles consistent with the IFC requirements. Training in the Framework has been provided to all senior staff to supervisor level and is being communicated to all staff. Copies of the policies are prominently displayed in all offices and communal areas.

Identification of Risks and Impacts

Sterlite Tuticorin maintains a risk register at department level and they are summarised in a company level register. The Copper Management Committee (the most senior committee in the company) reviews the company level risk register. Each risk is allocated an “owner” and the impacts and likelihoods of the risks are assessed before and after current control measures. Where necessary, action plans are identified. This Register, which is reviewed annually, is a useful method of identifying risks arising from operations, securing appropriate action and monitoring results.

PS 1 is largely about new projects. An initial screening has been undertaken for the Desalination Plant and Raw Material Handling Facility. This document identifies the initial potential impacts of the project and a more detailed assessment will be undertaken as part of the ESIA in the next phase of the project.

Management Programs

Sterlite Tuticorin has a management plan as part of the integrated management system. These plans identify tasks to be undertaken, as well as resources and due dates. Sterlite Tuticorin has also prepared a series of management standards, technical standards and guidelines to guide its social and environmental management.

Overall, therefore, Sterlite Tuticorin has in place of series of management plans which support a robust management system.

Organizational Capacity and Competence

Sterlite Tuticorin has a Sustainable development Committee that is chaired by the CEO. A Chief Sustainability Officer has also been appointed. In addition there are Heads of Department for Safety, Health and the Environment. The Copper Management Committee provides company level guidance, whilst department Managers are responsible for each department.

IESC AUDIT REPORT

October 2013 47059086.STG5

96

All senior and middle management and a number of employees have been provided with training on the Vedanta Sustainability Framework. Training on other health safety, environmental and social topics, is provided as needed. Training is documented in a training register and examples were sighted during the audit. The site also utilises external training and personnel are regularly sent overseas to formal conferences as well as site visit tours to benchmark Sterlite Tuticorin performance against international standards.

Emergency Preparedness and Response

Sterlite Tuticorin has a well-managed Emergency Preparedness and Response Program. Depart emergency drills are undertaken monthly, while a site-wide drill is undertaken 6-monthly. Evidence, demonstrating analysis of drills and implementation of learnings was provided.


Overall sustainability performance is assessed through the Vedanta sustainability self-assessment and audit process. This is a rigorous assessment process based on a series of questions derived from implementation of the Vedanta Sustainability Framework. Topics covered include leadership, competency and training, new projects and human rights and social security. The auditing process culminates in the preparation of a Corrective and Preventative Action Plan (CAPA). The use of both self-assessment and independent audit is a valuable twofold approach to monitoring and review. The Copper Management Committee is responsible for company level management review.

A further innovation is the use of Tele Presence sessions to exchange information between different companies within Vedanta and thus to encourage lesson learning and the development of best practice. Regular Tele Presence sessions are held for safety and environment staff and similar sessions for community relations and occupational health staff are proposed.


Sterlite Tuticorin’s stakeholder engagement plan was finalised in July 2013 covering all functions of operations and new projects. It identifies and maps statutory requirements and general stakeholder groups by Sterlite Tuticorin outlining different methods of engagement, disclosure and organisational responsibilities, training and resourcing. This provides a basis for developing regular and informative stakeholder engagement on Sterlite Tuticorin operations and new projects and enables Sterlite Tuticorin to effectively manage expectations of all its stakeholders.

The Stakeholder Engagement Plan is relatively new and the means of implementing the Plan have still to be finalised. In the interim, reports of all forms of stakeholder engagement by all Sterlite Tuticorin departments are being collated in a central register. This marks progress towards a comprehensive approach to stakeholder engagement.

External communications, grievance mechanism and on-going reporting to affected communities

Sterlite Tuticorin register communications with the public, screen and assess them, provide responses and adjust their management plans in compliance with IFC PS1 requirements. All communication is recorded as a grievance which often includes community requests to supply basic infrastructure, services or donations. This practice over-reports community complaints. Sterlite Tuticorin may want to consider a system which records all communications but then has a separate step for classifying them as grievances or requests.

Sterlite Tuticorin produces annual sustainability reports which are publicly disclosed to stakeholders to account for its social and environmental performance. A range of different communication methods are used to engage different stakeholder groups including regulators, the community, employees, contractors and the media among others. The real time reporting

IESC AUDIT REPORT

October 2013 47059086.STG5

97

of emissions at the front gate is a leading practice example of Sterlite Tuticorin’s commitment to transparency and accountability for its performance.

Finding

The field visit confirmed that Sterlite Tuticorin has worked hard to adopt the Vedanta Sustainability Framework and that its operations are consistent with PS 1. There is a robust integrated management system and risk assessment registers at multiple levels of the company.


The Vedanta Sustainability Framework, as implemented by Sterlite Tuticorin, provides the mechanism for meeting the labour and working conditions objectives of IFC PS2 as it applies to direct, contracted and supply chain workers. Sterlite Tuticorin policies and standards that apply to IFC PS 2 include:

Policies- stakeholder engagement, Quality, Environmental, Occupational Health and Safety (QESMS), human rights, HIV/AIDS;

Management standards- leadership, responsibility & resources, competency, training & awareness; and

Technical standards- employee consultation and participation, stakeholder engagement, grievance handling mechanism.

Human resource policies are in place including Sterlite Tuticorin’s code of conduct and ethics (November 2011) for employees is a condition of contract and covers expected behaviours including political donations and a whistle-blowing policy where allegations of misconduct may be referred to the immediate manager or Group Head, Management Assurance of Vedanta Resources plc. The policy protects privacy of whistle-blowers and prohibits retaliation against workers who report suspected violations of the code in good faith. The policy is promoted by screensavers and posters were evident during the site visit. Over 2011/12, Sterlite Tuticorin recorded 4 complaints with one resulting in the dismissal of an offending employee. Terms and conditions of employment form part of the letter of offer and employment contract so workers are informed of their rights and responsibilities.

Sterlite Tuticorin demonstrated a leadership development framework, management structure and systems to embed sustainability into decision-making and workplace behaviours reflected in job duty statements which is a noteworthy initiative.

Sterlite Tuticorin has an accommodation policy where eligibility is based on grade and whether employees are accompanied by family members. A standard operating procedure is in place for contractor worker accommodation covering assessment and review of accommodation supported by a checklist, action plan and redress measures. Regular site visits to contractor accommodation is undertaken by the Commercial team who use the checklist to verify the accommodation meets Sterlite Tuticorin standards. Contractor accommodation must meet standards as stipulated in contracts. Contractors are also required to self-assess accommodation using the checklist either at the start & end of contract period or on a six monthly basis, which must be signed. The completed checklist is submitted with the respective month contractor invoices. Examples of completed contracted accommodation checklists and photos of upgraded living conditions were on record providing confidence the system is in effect.

Sterlite Tuticorin complies with statutory requirements for retrenchment under the Industrial Dispute Act (1947). The company also employs good practices in finding alternatives to retrenchment having found placements with other local employers for 80 graduates recruited

IESC AUDIT REPORT

October 2013 47059086.STG5

98

for the proposed expansion which was suspended leaving the new recruits as surplus to requirements.

Drawing on Vedanta Technical Standard TS04: Grievance Mechanisms, Sterlite Tuticorin has developed and implemented a grievance handling procedure that took effect in March 2010. Sterlite Tuticorin employee grievances about workers’ rights, conditions and terms of employment are recorded, investigated and handled within prescribed timeframes. The grievance management system was observed to be fully functional with monthly management reporting on grievances by status- open, pending and closed.


Sterlite Tuticorin does not have any employees, contractors or employees who are under the age of 18 years old. The gate pass system requiring official proof of age identification as well as contractor compliance systems and supplier risk assessments and checks provide practical measures to ensure the company policy of not engaging minors is enforced. Statutory requirements prohibit the use of child and forced labour which is also enforced as part of SEC’s contractor and supplier management systems.


Sterlite Tuticorin’s Quality, Environment, Occupational Health, Safety (QESMS) and Supplier and Contractor Management policies commits to eliminate or at least minimise adverse environmental and occupational health &safety risks, and to prevent injury and ill health by adopting state of the art technology and world class HSE practices. The site visit confirmed procedures, risk assessment, management plans and improvement opportunities are in place with incentives for good safety behaviours. Records show that emergency response and preparedness capacity is strong with regular 6 monthly safety drills at plant levels and monthly drills at department level.

Sterlite Tutucorin's performance is benchmarked against other organisations and Sterlite Tuticorin performs well in comparison.


Sterlite Tuticorin has a supplier and contractor management policy supported by an effective system for contractor selection and management that includes checks to ensure that third party workers are engaged by reputable, legitimate enterprises. Checks are made with both contractors and authorities to ensure certification of professional, skilled and semi-skilled workers are bonafide. Claims for payment of contractor invoices must be substantiated by a completed contractor accommodation checklist and evidence of employee wage and benefit payments required under Indian law. Contractors are also bound by a Security Bond equivalent to 2-3 months billing, held by SEC, which may be used for unpaid wages and benefits. Sterlite Tuticorin’s HR manager is legally bound to report non-payment of contract workers to the authorities.

Supply chain

Sterlite Tuticorin has a supplier management policy including anti-bribery and corruption provisions and a code of conduct supported by six-monthly performance assessments of suppliers. Vendor registration requires evidence of compliance with statutory requirements and reference checks with other Vedanta companies. Sterlite Tuticorin demonstrated that it responsibly handles and disposes of hazardous materials throughout the supply chain with checks on the validity of hazardous materials handling and disposal licenses. Sterlite Tuticorin Procurement has a program of vendor engagement which forms part of the stakeholder engagement program. Procurement has also worked with local suppliers to develop the supply chain and increase local spending.

IESC AUDIT REPORT

October 2013 47059086.STG5

99

Finding

The field visit confirmed that Sterlite Tuticorin has worked hard to adopt the Vedanta Sustainability Framework and that its operations are consistent with IFC PS2: Labour and working conditions but requires on-going implementation. The leadership development framework, management structure and systems are mature.


Resource efficiency and pollution prevention principles

Pollution prevention and resource efficiency are addressed in Vedanta Sustainability Framework and in particular Technical Standards (TS11 – Environmental Management, TS14 – Water Management, TS16 - Energy and Carbon Management).

There is a clear commitment to the adoption and implementation of the Vedanta Sustainability Framework, and in particular a “zero discharge” philosophy at Sterlite Tuticorin. This is demonstrated through a robust and well-implemented integrated management system and continued improvement of pollution control and resource efficiency initiatives.


Personnel interviewed were well aware of the VSF and the relevant technical standards as they relate to resource efficiency and pollution control.

Cross learning and international benchmarking related to improved pollution control and resource efficiency is a well-established philosophy at Sterlite Tuticorin. The environmental teams participate in Vedanta Tele Presence meetings, where learning from implementation of the frameworks and other environmental management issues are presented, discussed and peer reviewed. The teams value this tool and continued use should be encouraged. In addition to this, there is a well-established program of sending team members to international destination to access international practice. A number of examples of learnings implemented at Sterlite Tuticorin were observed.

Details of environmental management requirements at the site are documented in a robust integrated management system. This system includes a number of management programs addressing pollution control and resources efficiency programs. Therefore it addresses the requirements of the performance standard.

The main challenges faced by the site are air emissions (stack emissions and dust) and water management. These have been identified by site and documented in the risk registers. There are a number of initiatives in place to improve or manage these challenges. These include but are not limited to:

Dust Management:

o Electrostatic Precipitators (ESP) at Primary & Secondary Smelter;

o Wet ESPs at Sulphuric Acid Plant;

o Bag Filter prior to ISA HVS & Secondary Gas Scrubber;

o Tail Gas Scrubber in Sulphuric Acid Plant;

o Raw materials are transferred through closed conveying system;

o Covered Shed for raw material storage;

o Permanent water sprinkler installed at Gypsum Pond;

o Pavement of all roads;

IESC AUDIT REPORT

October 2013 47059086.STG5

100

o 2 vacuum trucks and 2 tankers engaged for road sweeping / water sprinkling.

Water Management:

o Separate Storm Water;

o Dyke arrangement for all Chemical storage;

o Test bore around Secured landfill and Gypsum pond area.

The following are examples of initiatives that have been trialled and successfully implemented to improve resource efficiency at Sterlite Tuticorin:

Water Use Reduction has enabled growth in the plant without increased demand on water;

Energy Reduction – Technology was introduced to harness excess heat in the smelter to generate steam, resulting in a reduction of energy use at the Smelter;

Reuse of waste - Iron Slag is now in process and the product is used as road base or for manufacture of pavers;

Gypsum is reused in cement manufacture;

SO2, SPM, NOX and CO Monitoring System– The real time SO2, SPM, NOX and CO Monitoring System is available real time to the public via display board at plant entrance as well as being available to the regulator. This demonstrates transparency and confirms Sterlite Tuticorin’s commitment to deliver on environmental performance targets. The site also plans to include an additional air monitoring system on the fence line. In the event of community complaints, this will allow site to distinguish between Sterlite Tuticorin emissions and other industry emissions.

The list above is not exhaustive and demonstrates the level of commitment to responsible environmental management.


There is a Sterlite Tuticorin team dedicated to energy and carbon management. They are responsible for the identification of opportunities to minimise energy use and carbon. This includes identification of greenhouse gasses.

The Sterlite Tuticorin site monitors scope 1and 2 emissions and reports these emissions to corporate monthly. The site is also currently monitoring Scope 3 emissions, this is an internal initiative and not required by the VSF. Greenhouse gas volumes are reported to Vedanta Corporate monthly, as the total volume exceeds 25,000 t CO2-equivalent.

The team together with operational teams have implemented a number of initiatives to reduce greenhouse gasses. Energy and carbon management projects include:

One CDM project was registered in The United Nations Framework Convention on Climate Change (UNFCCC). This project will reduce CO2 emissions by 40000 tonnes;

GHG emission inventory reported for past five years as part of Sustainable Development report and Carbon Disclosure Project (CDP);

100 % of the plant steam requirement is met by waste heat based steam generation from the smelter and Sulphuric Acid Plant;

6.5 % of power requirement is met from the waste heat from copper smelter exhaust gases;

IESC AUDIT REPORT

October 2013 47059086.STG5

101

Stakeholder consultation was conducted as part of CDM projects development. NGOs, local Panchayat heads, TNPCB, TNEB, equipment suppliers, nodal agencies participated.

Waste Management

Waste management has been identified as a risk and included in site management system documentation. At corporate level Vedanta has developed technical standard TS9 Resource Use and Waste Management; requirements are documented in the site management system. Documentation includes a detailed Waste Management Plan (Hazardous and Non-Hazardous) which details nature of waste, method and location of disposal. There are a number of initiatives to segregate waste, which include but are not limited to:

Hazardous waste is stored on site in a purpose built double lined landfill. The landfill is operated the same as an external landfill, requiring clear documentation of nature and quantity of waste stored in the facility;

All non-hazardous process waste is reprocessed for sustainable or useful applications such as road, cement, abrasives & for filling low lying areas.


The government monitors hazardous material vendors and suitable vendors are nominated on an approved list. The site follows a formal waste tracking system that documents origin of waste, final destination and who transported the waste.

Requirements for managing hazardous materials and wastes are documented in the management system.


A qualified pest controller undertakes Pest management. Pesticides used are listed on a register and pest management is documented in the Integrated Management System. It was noted that Phorate (Haz Class 1a) and Monocrotophos (Haz Class 1b) were used in the green belt. However since the site visit, site personnel confirmed that these substances had been identified as hazardous and were removed from site. A substitute chemical was sourced and is now used.

Finding

Based on the evidence presented there is a clear commitment from the Sterlite Tuticorin team to adopt and implement the Vedanta Sustainability Framework as it related to IFC PS3 – Resource Efficiency and Pollution Prevention and current practice is consistent with the requirements of IFC PS3.


Community health and safety


Sterlite Tuticorin documents potential risks to the community and related mitigation measures in a series of risk registers at department level as well as company level. Examples of these include:

Air quality emissions from stacks – Uncontrolled emissions are prevented by automatic high level cut off switch, while an extensive air quality monitoring system will detect failure of the cut off system.

IESC AUDIT REPORT

October 2013 47059086.STG5

102

There was a recent incident where the emission levels from the stacks were reported to the regulator as exceeding the allowable limits and the smelter was required to close. The regulator along with the other expert committee members investigated the incident and confirmed that the annual calibration of the online stack SO2 analysers was the reason for high emissions seen at the analyser end. To check the reliability of the monitoring equipment, the technician introduces a sample of gas at a concentration exceeding the allowable limit. The regulator along with the other expert committee members concluded that no illegal emission had occurred from Sterlite Tuticorin processes. Sterlite Tuticorin has committed to closer coordination with the regulator on stack shut-down mechanism testing to avoid the potential for misunderstandings.

Land fill leachate – The landfill is been constructed with double liner and piezometers have been installed to identify leaks and potential contamination.

Sterlite Tuticorin has also championed a number of initiatives to eliminate or reduce risks and impacts to community health. These include zero effluent discharge with the installation of reverse osmosis plants and a sewage treatment plant, solid waste reduction through copper slag usage as a road base and gypsum sales and significant reduction in SO2 emissions to less than 1kg/T of sulphuric acid produced as a result of convertor modifications and upgrades and tail gas scrubbers for acid plants.

The large number of heavy vehicle movements, which can peak as high as 600 movements per day, bringing raw materials to the plant and exporting finished products post processing is recognised as a significant risk to both employees and the community. This is further complicated by the high turnover of lorry drivers. Sterlite Tuticorin manages the risk by implementing a rigorous program of driver induction and safety training, enforcing speed limits as a condition of contract and plant entry and RTO road safety programs. Drivers also participate in public health and safety promotion including HIV/AIDS prevention.

Sterlite Tuticorin demonstrated it has an effective system for validating the certification of professionals, skilled and semi-skilled workers amongst its direct and contracted workforce. Sterlite Tuticorin checks with the authorities, professional bodies and educational institutions to ensure that certification is bonafide and current to ensure structural elements of Sterlite Tuticorin infrastructure are designed, constructed and maintained by competent professionals.

Hazardous materials management and safety

Sterlite Tuticorin’s hazardous waste management reduction program includes the installation of bag filters prior to the scrubbers, ETP-4 using Sodium Sulphide treatment technology and forced oxidation system to convert from sulphites to sulphates for converting TGS cake as non-hazardous. Subject to pending statutory approvals from the Central Pollution Control Board (CPCB), scrubber cake may be saleable gypsum and the Cansolv process may eliminate the need for scrubbing SO2 gas.

Ecosystem services

Sterlite Tuticorin has a well-defined emergency response procedure and precautions to address operational health and safety risks and impacts to the community. The plan covers on- and off-site emergency management plans linked to project risks and impacts, procedures for handling emergencies to structural elements of the plant that pose inherent risks to community health and safety such as the gypsum pond, landfill and slag dump. The plan demonstrates that Sterlite Tuticorin has coordinated with local authorities in emergency preparedness and response planning. The challenge Sterlite Tuticorin faces is influencing the authorities to update the Off-Site Emergency Response Plan for Sterlite Tuticorin which was originally prepared in April 2010 and is scheduled for bi-annual reviews.

IESC AUDIT REPORT

October 2013 47059086.STG5

103

Security personnel

Sterlite Tuticorin security maintains a risk register which determines the content of the operations manual. Background checks are conducted by contracted agencies to verify the credentials and service records of applicants to make sure they do not have any record of unlawful acts/ security abuses. Staffs are principally drawn from retired military personnel. Training in human rights is provided to all security staff as part of the induction process. Training records show 100% of direct and contracted security staff have completed human rights training. No Government security forces are engaged by the Company.

Finding

The field visit confirmed that Sterlite Tuticorin has worked hard to adopt the Vedanta Sustainability Framework and that its operations are consistent with IFC PS4: Community health, safety & security.


General

Sterlite Tuticorin was established in 1996 and leases 102.6 hectares of SIPCOT Industrial complex land from the Government of Tamil Nadu. The bulk material handling facility is planned within the existing industrial plant site presenting no resettlement impacts. The proposed desalination plant will include a captive power plant and will be located on public land at Mullakadu which is approximately 22 kms away from Sterlite Tuticorin’s existing 4LTPA plant. Sterlite Tuticorin records show that project screening followed TS8 and is consistent with IFC PS1.

There is an opportunity for process improvement to add names and signatories of Sterlite Tuticorin staff involved in preparing, reviewing and approving the screening checklist. The site inspection confirmed that there is likely to be loss of income impacts on sea grass cultivation which is dried and sold to beverage and pharmaceutical companies. Sterlite Tuticorin provided terms of reference for the ESIA which show that displacement impacts are included in the scope.

Finding

The field visit confirmed that Sterlite Tuticorin has worked hard to adopt the Vedanta Sustainability Framework and that its operations are consistent with IFC PS5: Land Acquisition and Involuntary Resettlement.


General

The fundamental requirement of this performance standard is the identification and mitigation of project impacts on biodiversity. Biodiversity management is addressed in Vedanta Sustainability Framework and in particular Technical Standard (TS7 – Biodiversity Management). Sterlite Tuticorin is located in an industrial estate; however they have undertaken an IBAT assessment and prepared a simple biodiversity management plan.


Habitat classification – The standard requires classification of potentially impacted areas in modified, natural and critical habitat. This has been undertaken for new projects e.g. the initial

IESC AUDIT REPORT

October 2013 47059086.STG5

104

screening for Desalination Plant includes a habitat assessment and is evidence that the VSF is being implemented.

The technical standard TS7, commits all sites to prepare and implement a Biodiversity Management Plan, and has prioritised development and implementation of these plans according to occurrence of critical habitat. As no critical habitat has been identified this site is considered a low priority and has committed to development and implementation of a Biodiversity Management Plan by 2015. This does not imply that no biodiversity management planning has been undertaken, but rather the documentation of planning will be revised to meet corporate standards.

Projects in Legally Protected and Internationally Recognised Areas - Currently there are no Sterlite Tuticorin operations in Legally Protected and Internationally Recognised Areas.

Invasive Alien Species – As the site is located in an industrial estate, there are no natural habitat areas. It was noted however that subcontractors are used to manage the green belt and one of their responsibilities is to manage and remove any pest species


The current impact assessment process implemented by Sterlite Tuticorin includes identification of potential impacts on ecosystem services and implementation of management programs where mitigation is required. The initial impact assessment for the Desalination Plant was sighted as an example.


Sterlite Tuticorin is not engaged in primary production of living natural resources therefore this element is not applicable.

Supply Chain

Sterlite Tuticorin has a supplier management policy including a code of conduct supported by six-monthly performance assessments of supplier. Vendor registration requires evidence of compliance with statutory requirements and reference checks with other Vedanta companies. Sterlite Tuticorin demonstrated that it has responsibly handles and disposes of hazardous materials throughout the supply chain with checks on the validity of hazardous materials handling and disposal licenses. Supplier management at Sterlite Tuticorin is discussed in more detail under IFC PS2 (above).

Finding

Based on the evidence provided and discussion with site personnel, it is considered that the implementation of the VSF meets the requirements of IFC PS6 Biodiversity Conservation and Sustainable Management of Living Natural Resources, except for the development of biodiversity management plans, which are scheduled for 2015. On -going internal corporate monitoring will be required to ensure the biodiversity management documentation is revised and compiled as per schedule.

PS 7: Indigenous Peoples

General

There is no evidence of people claiming, or aspiring to claim, a physical and spiritual attachment to land as their ancestral domain for time immemorial in Sterlite Tuticorin project areas. The Government of India does not recognise any scheduled tribes in Tamil Nadu. Given that there are no distinct social and cultural groups living in the project area of influence, this Performance Standard does not apply to Sterlite Tuticorin.

IESC AUDIT REPORT

October 2013 47059086.STG5

105

Finding

The field visit confirmed that IFC PS7 on Indigenous Peoples does not apply to Sterlite Tuticorin operations and project development activities.


The fundamental requirement of this performance standard is the identification and mitigation of project impacts on cultural heritage. Cultural Heritage Management is addressed in Vedanta Sustainability Framework and in particular Technical Standard (TS1 – Cultural Heritage Management). Sterlite Tuticorin has procedures in place to identify and implement mitigation measures where required. No sites of cultural heritage significance, close to the site, are listed on the government website.

Initial screening for the proposed Desalination Plant has identified a few areas (e.g. temples) which have the potential to be impacted by the project. The requirement for external cultural heritage specialists has been identified for next phase. This demonstrates Sterlite Tuticorin’s effective implementation of the VSF as it relates to Cultural Heritage.


Sterlite Tuticorin has included a Chance Find Procedure in the management system, and will be implemented during the execution of new projects.

Consultation

Potential cultural heritage sites have been identified at the site of the Raw Material Handling Facility. It is understood that the development teams has consulted with stakeholders regarding potential cultural heritage sites.

Community access

No sites of cultural heritage importance are listed on the government register for the area occupied by Sterlite Tuticorin sites, however there is one temple identified at the Sterlite Tuticorin site which has local cultural heritage importance. Sterlite Tuticorin manages this site by maintaining the basic infrastructure and providing support and safe access to local people, whenever they visit during annual festival periods. It should be noted that the initial screening for the Desalination Plant identified potential sites and if confirmed during the detailed study, then access would be provided to stakeholders.


No sites of Replicable Cultural Heritage have been identified on Sterlite Tuticorin sites, and therefore at the time of the audit this element was not applicable. It should be noted that the initial screening (Desalination Plant and Raw Material Handling) reviewed do make provision for cultural heritage studies, and commitment to prepare a cultural heritage management plan if required.


No sites of Non- Replicable Cultural Heritage have been identified on Sterlite Tuticorin sites, and therefore at the time of the audit this element was not applicable. It should be noted that the initial screening (Desalination Plant and Raw Material Handling) reviewed do make provision for cultural heritage studies, and commitment to prepare a cultural heritage management plan if required.

IESC AUDIT REPORT

October 2013 47059086.STG5

106


No sites of Critical Cultural Heritage have been identified on Sterlite Tuticorin sites, and therefore at the time of the audit this element was not applicable. It should be noted that the initial screening (Desalination Plant and Raw Material Handling) reviewed do make provision for cultural heritage studies, and commitment to prepare a cultural heritage management plan if required.


No sites of Cultural Heritage have been identified on Sterlite Tuticorin sites, and therefore at the time of the audit this element was not applicable. It should be noted that the initial screening (Desalination Plant and Raw Material Handling) reviewed do make provision for cultural heritage studies, and commitment to prepare a cultural heritage management plan if required.

Finding

Based on the evidence presented there is a clear commitment from the Sterlite Tuticorin team to adopt and implement the Vedanta Sustainability Framework as it related to IFC PS8 – Cultural Heritage. The procedures are in place to safeguard cultural heritage and no cultural heritage has been identified. As the site expands, there will be a need to more fully survey cultural heritage, both tangible and intangible, in and around the site to ensure full compliance with the IFC 8.

IESC AUDIT REPORT

October 2013 47059086.STG5

107

6 AUDIT CONCLUSION AND RECOMMENDATIONS

The IESC is satisfied that Vedanta management systems are in place to effectively manage the inherent social and environmental risks of Vedanta operations and new projects. Strong leadership and a genuine commitment to sustainability framework implementation was evident at executive and senior management levels that has created a culture of continuous improvement and aspiration to find new ways to avoid or mitigate adverse impacts and find opportunities to create shared value with affected communities, supplier and customers. The Tele Presence (TP) technology employed by Vedanta promotes a blend of virtual and real communities of practice in health & safety, environment and community relations. Good practices, shared problem solving to common issues and knowledge sharing promote organisational learning across Vedanta businesses and geographies. In turn, the TP support innovation and effective adoption of leading practice sustainability initiatives. Vedanta companies demonstrated a range of high profile sustainability performance improvement initiatives that is delivering environmental, social and business value. The challenge moving forward is to balance efforts to progress new initiatives with conscientiously maintaining supporting systems and practices to manage social and environmental risks and impacts. It is also evident that several plans, for example for stakeholder engagement, are at an early stage of implementation and further monitoring will be needed to ensure successful execution. The significant progress Vedanta has made in implementing IESC recommendations and embedding the VSF into businesses decision-making and behaviours in a relatively short period warrants acknowledgement. In many areas, Vedanta has demonstrated excellence in initiatives to improve its sustainability performance while there are a few areas that require further strengthening. However, whilst the VSF framework and procedures are in place, there are a few areas that require further strengthening. In particular, it was found that: - Some of the initial VSF documents require revision, as envisaged by Vedanta’s

commitment to annual review of technical standards, to ensure full alignment with international standards;

- Implementation at site level, particularly in relation to social topics such as stakeholder engagement, ESIAs, resettlement and indigenous peoples remains very new and unproven. Despite substantial efforts deployed to embed the VSF framework into routine practices, the effectiveness of such efforts and the maturity of local processes are yet to be assessed.

Key recommendations to further strengthen Vedanta sustainability performance are summarised in the table below. It is recommended that these actions are addressed by Vedanta through a specific Remedial Action Plan, which would comply with the proposed timeframe for each of them, and that they are subjected to a further audit within 12 months from November 2013.

IESC AUDIT REPORT

October 2013 47059086.STG5

108

Table 6-1: IESC Close Out Audit recommendations

# Recommendation IESC Audit ref Timeframe

1

Revise the following core VSF documentation to address IESC findings presented in this report:

- TS03 Land and Resettlement Management

- TS07 Biodiversity Management

-TS01 Cultural Heritage

4.5

4.6

4.8

6 months

2 Improve draft ESIAs to ensure compliance with international standards – in particular for the Mimbula II Pit at KCM and for the refinery expansion project at VAL-Lanjigarh.

5.1 – PS1

5.2 – PS1

9 months

3 Develop and ensure internal monitoring of biodiversity action plans and wider land management proposals

5.1 – PS6

5.2 – PS6

5.3 – PS6

15 months (due for 2015)

4 Demonstrate effective implementation of recently finalised Stakeholder Engagement Plans

5.1 – PS1

5.2 – PS1

5.3 – PS1

12 months

5 Review cultural heritage, tangible and intangible, assess cultural resources and develop action plans.

5.1 – PS8

5.2 – PS8

5.3 – PS8

12 months

IESC AUDIT REPORT

October 2013 47059086.STG5

109

APPENDIX A – AUDIT PLAN

DAY INDICATIVE ACTIVITIES

1

Site Safety inductions

Close-Out Audit Introduction

o Purpose to introduce the Audit Team to Site Representatives

o Audit Team to present Audit Approach and Plan

o Site representatives to provide:

Overview of Site Operations

Top 5 Successes related to Environment, Social, Health and Safety, Labour

Top 5 Challenges related to Environment, Social, Health and Safety, Labour

Summary of past IESC site audit recommendations and implementation progress update

Site Familiarisation Tour

Audit Team Debrief and Planning for following day

2-3

Morning Briefing (Approx 30mins) to Site Representatives on plans for the day, addressing any unexpected logistical challenges

Breakaway to various disciplines. These may include:

o Further visits to site locations if we need to focus in on issues identified during tour on Day 1

o Visits and meetings with external stakeholders including but not limited to regulators, municipal / local authorities, directly impacted communities, NGOs

o Interviews with Site Reps

o Review of new documentation identified

Afternoon (Approx 4:00pm) – 1 hour Audit Team Debrief

5:00 Summary of days findings and planning for next day

4

(Final Day of Site Visit)

Briefing to Site Representatives on plans for the day, addressing any unexpected logistical challenges

Breakaway to various disciplines

Afternoon (Approx 2:30pm) – 1 hour Audit Team Debrief

3:30 – 5:00 Summary of Site Visit Preliminary Findings to Site Representatives

NOTE: Times are indicative only and subject to working within the roster times of site representatives.

IESC AUDIT REPORT

October 2013 47059086.STG5

110

Please refer all questions on this report to the Agent for the lenders to Vedanta Resources – Standard Chartered Bank at [email protected]

mailto:[email protected]