Anil Agarwal-led Vedanta Resources is now perceived to be repeatedly breaching environmental norms which is not just expected to hurt its brand image but could also make investors more watchful when the globally diversified natural resources company chalks out its next expansion plan.
Last month, the Madras High Court ordered permanent shut down of Sterlite Industries’ copper smelter in Tuticorin after the protest from local residents led to death of 13 people as police opened fire to bring situation under control. The protests had started in February as local residents demanded permanent closure of the 400,000 tonne plant on environmental grounds.
This, however, is not the first time Vedanta is facing heat from local authorities and residents. A slew of incidents can be enlisted where Vedanta Resources and its subsidiaries are alleged to have violated environmental norms both in India and overseas.
In September last year, Chhattisgarh Environment Control Board (CECB) served notice on Bharat Aluminium Company Limited (Balco) to close its 1,200 Mw power plant for allegedly violating green norms. In Zambia, Vedanta-owned Konkola Copper Mines Plc (KCM) faced protests from residents stating that the company violated Zambian environmental laws as waste from the copper mine was alleged to have polluted local waterbodies.
“Protests in India have started to mature now and can make themselves heard even at global level. It is, therefore, important that global organisations act consciously and cautiously where ever they do business else the brand image will surely take a beating,” explained Harish Bijoor, chief executive officer at Harish Bijoor Consults Inc.
In Goa, where Vedanta has its iron ore operations, the Supreme Court has quashed mining leases (in 2014 and 2018) following report of the Justice Shah Commission that stated there have been serious violations of environmental laws by the mining companies including Vedanta.
“It very typical of large organisations to tend to circumvent laws in the name of development. But if this becomes a consistent part of its long journey, the company draws up an entirely new image for itself which is not investor friendly. Brand image, however, may not tarish further as it will have already taken the beating due to consistent injury,” said Ramesh Thomas, president at Equitor Value Advisory Private Ltd.
Calls and email sent to Vedanta remained unanswered.
“Globally people are more enlightened when it comes to human rights and environmental norms. If the brand has taken a drubbing due to these issues, rectifying the image before spreading the business becomes crucial,” said Bijoor.
In case of Vedanta, brand consultants are of the view the company can fully bounce back if it acts with commitment.
“Vedanta needs to focus on crisis management and work towards its social image. It is a process and if worked at it with commitment, the brand image can bounce back in a span of six months. It is possible,” explained Bijoor.
In terms of investment interest, brokerages said such incidents would have no long-term impact on the company but investors would keep note of Vedanta's record when it announces any new expansions.
“Eventually such incidents gets discounted and investors factor it in, in the long run when the company generates adequate cash or profit. However, investors do make note of these incidents and one could see it reflecting perhaps in company's evaluations when compared with peers,” said Giriraj Daga, portofilio manager at Visaria Securities.
Vedanta Resources is listed on London Stock Exchange and has businesses in zinc, lead, silver, copper, iron ore, aluminium, power and oil & gas.
Vedanta Ltd on Monday announced that it has acquired 90 percent stake in Electrosteel Steels Ltd (ESL) under a resolution plan and with that has forayed into steel business. Electrosteel has a planned steel-making capacity of 2.51 million tonne and a commissioned capacity of 1.5 million.