Hungary toxic spill is symptomatic of poor safety in the extractives sector

Last week’s toxic industrial spill in Hungary is symptomatic for extractives sector laggards. They fail to address fundamental safety concerns and adopt available best practice in the field of contaminated waste management. The October 5 toxic sludge spill in Hungary is quickly turning into a national ecological disaster. It has led to at least 7 deaths and 120 injuries and forced the Hungarian government to declare a state of emergency. However, the incident cannot be considered unavoidable. Failures of tailings storage facilities are among the greatest environmental concerns for the extractives industry worldwide, accounting for the majority of serious mining related environmental accidents. Major accidents seem to occur, on average, once a year. There are many other smaller events than the Hungary spill that do not attract media attention. Tailings are the finely ground host rock from which the desired mineral values are extracted using chemical reagents. The residue takes the form of slurry that is at least half water and can be transported by pipeline. It is usually discharged into storage facilities and retained by dams or embankments constructed of the tailings themselves, mine waste, or earth or rock fills. Unlike water storage dams, which are usually built in one operation and can then be given a rigorous final inspection, tailings storage facilities are built continuously, possibly over the many years of a mine’s life. This means quality control is much more difficult. If the facility is a hazard, risks do not necessarily vanish when the mine closes. If the facility is badly sited, designed, or constructed, rains, floods, or earthquakes can cause failure even long after closureof the mine. Failures of tailings storage facilities tend to be the results of a combination of inadequate application of known prevention methods, bad design or poor safety supervision during the construction phase. Thus in principle avoidable, gross toxic spills cause not only environmental costs to individual polluters but to their stakeholders also. In turn, they lead to significant reputational damage to the extractives sector in general. Lagging mining and metals processing companies that tend to be responsible for most spills should be stimulated by peers and required by governments to apply available best practices in terms of safety and pollution prevention. The safe and environmentally sound storage of tailings is possible. An International Council on Mining and Metals report on tailings, indicates that “today our knowledge of design methods and experience with both embankment dams to retain water and tailings dams are such that safe and environmentally acceptable dams can be built.” Responsible investors should demand that investment entities take appropriate measures to avoid excessive environmental damage. Given the presence of adequate safety and pollution prevention standards within the industry, SNS Asset Management excludes those mining companies from its investment portfolio that are involved in grave and repeated spills of (contaminated) waste. In case of doubt regarding companies’ environmental performance, we enter into dialogue with (senior) management. The aim is to first understand in detail what prevention and mitigation policies and measures a companies takes, and to exert influence should changes

be desired. Extractives industry leaders take increasing efforts to contribute to the sustainable development of environments and communities in which they are active, in addition to putting safety and environmental pollution prevention management systems in place. However, this has generally not translated into a positive public image of the sector. It appears that the positive effects of these leaders’ efforts are not immediately visible to the public. Such negative exposure, caused by sector laggards, tends to dominate public opinion.
Consequently, if the extractives sector wants to improve its reputation, leading companies should not only havetheir own measures and initiatives in place to prevent environmental accidents and contribute to sustainable development.
Neither will it be sufficient to rely on often weak regulators to require the extractives sector to implement adequate safety and environmental damage prevention management systems. Sector leaders should force their lagging peers to apply available best practices to prevent these accidents from happening and avoid negative publicity for the entire industry.
Kristel Verhoef is an ESG-analyst at SNS Asset Management.