Freeport Investors Voice Environmental Fears Over Goldmine


Jonathan Wootliff, The Jakarta Post

Date of publication: 
2 June 2009

One of the world’s largest gold, silver and copper mines can be found deep in the heart of one of Indonesia’s most remote landscapes. Located in the isolated highland area of West Papua close to Puncak Jaya, the highest mountain in the province, the multibillion-dollar Grasberg mine has more than 8,000 employees and is a major contributor to the economy.

Producing more than a quarter of a million tons of ore each day, the crater-like open pit mine measures nearly 2 kilometers across its surface on a site close to 10,000 hectares in size. But the financial value of this massive operation, which represents an estimated 2 percent of Indonesia’s entire gross domestic product, appears to come with a large environmental price tag.

Every day, hundreds of thousands of tons of slimy residue finds its way into the nearby Aikwa River and Arafura Sea, causing alarm among naturalists keen to preserve one of the world’s last untouched jungle landscapes. They contest that the soot-colored acidic waste, comprising an acidic runoff, poses a serious threat to the biodiversity of this environmentally sensitive area. Its majority owners, the giant US Freeport-McMoRan mining company, say that the discharges meet regulatory requirements.

The Grasberg mine is close to rare equatorial mountain glaciers that serve as indicators of climate change in the region. Steepening of slopes related to mining activities, as well as earthquakes and frequent heavy rainfall, has resulted in deadly landslides.

While the company has introduced various environmental protection programs and reclamation projects to mitigate possible damage, conservation groups are becoming increasingly concerned about the potential for copper contamination and acid rock drainage into the extensive surrounding river systems. Freeport argues that its actions meet industry standards and have been approved by the requisite authorities.

But their defense has not succeeded in placating a coalition of some of the world’s biggest pension fund investors from Europe and the United States, which is campaigning to persuade the company to clean up its controversial pollution record by appointing an environmental expert to its board.

> From the other side of the globe, such reputable institutional investors
as the New York City pension funds have joined forces with such reputable investors as the Dutch ABP pension fund for civil servants, the Swedish government pension funds and the General Board of Pension and Health Benefits of the United Methodist Church in the US to put the proposal on the ballot at Freeport’s annual general meeting, due to be held next week in Wilmington, Delaware.

The investors are going head-to-head with Freeport’s board of directors, which has unanimously recommended that shareholders oppose the motion. But the company’s environmental record has been a regular target of institutional investor discontent. In 2006, the huge Norwegian Government Pension Fund blacklisted the company over its disposal of waste residue into the local riverine system.

Investors contest Grasberg’s waste management practices are illegal in many other countries where Freeport operates. Earlier this year, the Norwegian fund also withdrew more than $600 million in investments from Rio Tinto, the London-listed international mining group, because of a joint venture with Freeport at the Grasberg mine. It is worth noting that the Indonesian government is a major shareholder in this enterprise.

In the latest campaign, the Freeport investors say the company has been slow to issue what they consider to be full information on its assessment and monitoring of the environmental and health risks associated with the residue disposal at Grasberg. The funds say this is damaging to their interests as shareholders because of risks that the company’s environmental performance falls short of internationally accepted standards leading to difficulties in accessing capital for new projects and obtaining necessary regulatory licenses. Grasberg is no stranger to controversy, having been the target of significant criticism for its questionable human rights issues, which it has since resolved.

“We believe it could be highly beneficial for the company to address the environment at the most strategic level in the same way that it has addressed human rights – in other words, to appoint an appropriate specialist to the board,” states the coalition of institutional investors.

Taking on the role of environmental activists, the consortium of concerned investors says, “We envisage a board director whose background combines acknowledged environmental commitment and expertise with leadership experience in a business or other appropriate context. This appointment would place Freeport at the forefront of board-level practice on environmental and social issues in the mining industry.”

The investors hope to mirror the success of a 2005 campaign led by institutions including the New York City pension funds that was critical of Freeport’s human rights practices and links with the Indonesian military. As a consequence of that shareholder campaign, Freeport commissioned independent audits of Grasberg and appointed an eminent judge as a director and special counsel on human rights.

Freeport appears to have responded positively and transparently on human rights. Now it’s time for this world-leading mining corporation to address these serious environmental concerns.

Conservationists have the right to be worried about Grasberg’s potential threats to nature. The company must convene more discussions with environmental NGOs and local communities in a bid to allay their fears. And if Freeport is to protect its reputation and prove its credentials as a responsible company, it must surely meet what appears to be a quite reasonable demand of some of its key investors.

Jonathan Wootliff is an independent sustainable development consultant specializing in the building of productive relationships between companies and NGOs. He can be contacted at jonathan [at] wootliff [dot] com