Environment

The Group's performance against environmental standards remained acceptable during the year, with more attention given to recording and reporting of incidents. The group HSE framework has called for explicit measures of environmental performance, including the following lag indicators for environmental incidents:

Proactive indicators are used for stack monitoring, resource usage, waste generation and recycling, and their risk mitigation.

The Group's environmental risk model aims to enable operations to better understand and identify hazards and risks and their potential effects. The model seeks to identify the source of any pollutant, the pathway the pollutant may travel and the downstream receptors. This process is necessary to educate employees about the downstream impacts of on-site activities and the preventative measures required to achieve the group zero harm target.

The major risks identified are presented in the table below:

The Group recorded one significant environmental incident in the year on the Gautrain Rapid Rail Link Project. A formal directive was issued by the South African Department of Water Affairs and Forestry (DWAF) on 12 December 2008, instructing Bombela to cease all pumping of water from the tunnel section, much of which was related to the numerous releases of untreated and non-compliant water (in terms of the Water use License (WuL)) to the natural environment and to sewer. Following engagement with DWAF, certain processes were agreed and Bombela was, as of 17 December, allowed to continue with the release of water from the tunnel subject to the delivery of certain conditions as all stakeholders agreed that to stop pumping water from the tunnels would have the potential to compromise the safety and integrity of the tunnels and personnel working in them.

Key to the rectification of the water quality issues were the following:

This has to date been implemented to our satisfaction.

A formal application has been made to DWAF for permission to have the directive lifted. The latest results are all in compliance with the WuL requirements. There is still much to do and we will continue to monitor the situation.

Resource use is a key operating measure at all Murray & Roberts operations. Work has been done to quantify the amount of resources used as well as the waste generated. The estimated water usage for the Group was about four million kilolitres, mainly supplied by local municipal systems.

Murray & Roberts works with local municipalities and third party service providers and consultants to ensure safe disposal of hazardous waste materials. The amount of waste generated at all operations is measured and monitored, with reuse and recycle opportunities increasingly employed to minimise environmental burden.

Manufacturing operations with the potential to generate oxides of nitrogen and sulphur are continually monitored in accordance with permit requirements. Murray & Roberts participates in benchmarking studies to understand best practices relative to its operations in this respect. Ocon Brick is currently reviewing its processes with the aid of the Clay Brick Association to measure, monitor and reduce airborne pollutants.

All project operations comply with stipulations of the records of decision imposed by environmental impact assessment (EIA) processes. In many instances, Murray & Roberts assists clients with this process and makes use of the EIAs of its clients to develop its own environmental management plans (EMP) for individual projects. These EMPs are critical for the protection of sensitive species, ecosystems and biodiversity. Education and training is provided to employees in this respect. The Gautrain Rapid Rail Link Project covers a large distance across many sensitive areas and the project produces a monthly environmental report indicating performance against agreed targets. The project management team meets regularly with interested and affected parties to mitigate possible disturbances.

The Murray & Roberts environmental policy requires that operating companies adopt the most stringent standards, whether they are imposed by client management plans, local and national legislation, or the Group.

To evaluate the impact its activities might contribute to climate change, Murray & Roberts has undertaken to establish the extent of its carbon footprint. The Group completed the CDP 7 (Carbon Disclosure Project - 7th edition) questionnaire in June 2009 and has used the greenhouse gas (GHG) Protocol to develop the estimated footprint.

The Group's carbon footprint for the year was 1,4 million tonnes (2008: 0,56) of carbon dioxide equivalent (CO2e). This increase is the result of a significant improvement in monitoring and reporting of emissions across the Group, as well as an increase in projects and the production of materials for some of the operating companies.

The table below illustrates the contribution to the footprint.

Approximately 90% of all emissions emanate from the Group's South African operations with the Group's fixed facility operations accounting for 64% of the emissions, as the entire carbon burden is borne by the operating company in product manufacture.

Both mining and construction operating environments rely on products from the manufacturing sector and the energy in the process is human input rather than fossil fuels. The system boundaries currently exclude the transport of products as this is an outsourced activity and is difficult to quantify. The Scope 3 emissions were restricted to employee travel. The system boundary definition will be evaluated annually to ensure an accurate and fair representation of the Group's carbon footprint.

The CDP process assisted in the identification of risks (threats and opportunities) in three categories:

Regulatory threats include introduction of carbon taxes or capping mechanisms. South Africa is under pressure internationally to take on carbon emission targets under the Kyoto Protocol, as it is within the Top 20 global emitters. Much depends upon the talks in Copenhagen this year when the Conference of Parties meets to discuss the post-2012 Kyoto period.

In February 2008, the South African Minister of Finance introduced a two cents per kilowatt-hour levy (2c/kWh) on non-renewable sources of electricity in a bid to spur greater investment in low-carbon technologies. Many regard this as a carbon tax.

In November 2008, the Minister of Environmental Affairs and Tourism announced that South Africa would commit to national emission reductions in one form or another. This will either be as part of a voluntary National Mitigation Strategy, or (depending upon the Copenhagen talks) it will be imposed as part of an International Mitigation Strategy.

South Africa previously undertook a Long-Term Mitigation Scenario (LTMS) Study, which resulted in a parliamentary resolution to develop a legislative package to give effect to South Africa's policy at a mandatory level. The model, yet to be finalised, sets a level of carbon tax at R100/t on carbon dioxide equivalent, rising to R250/t by 2020. The Minister of Environmental Affairs and Tourism indicated that a final version would be presented in 2009. The most likely option is a framework that outlines a combination of measures. Apart from the carbon tax, it will call for investment in new technology, tax incentives for lower carbon resources, consumer behaviour change through subsidies and the move to a low-carbon economy.

A carbon tax could have significant impact on companies that have high Scope 1 emissions. Murray & Roberts understands that by 2012, there will be legislation in South Africa that governs the mandatory reporting of GHG emissions by companies.

Subsequent emission limits which could be imposed may require a change in process or facilities/equipment used, with the resultant financial implication. It is expected that this risk will materialise within the next five to seven years and in response, one Murray & Roberts company has taken active steps, namely, the modification of a plant to reduce the mixing temperature of asphalt to below 130oC which results in lower emissions as well as lower energy consumption.

A draft document, The 2007 National Framework for air quality management in the Republic of South Africa, released in July 2007, forms part of the process as contemplated in section 7 and 15(1) of the Air Quality Act 39 of 2004. At least eight large projects are contributing to this national framework of which the most significant are:

In March 2009, proposed National Ambient Air Quality Standards (AQA) were released for public comment. The assessment of all ambient pollutant concentrations will be conducted in terms of section 5.2.13 of the 2007 National Framework for Air Quality Management (Notice No 1138 of 2007). The Department of Environmental Affairs and Tourism has allocated significant resources to the implementation of the AQA. This will have implications in particular for Cape Town Iron & Steel Works (CISCO), Murray & Roberts' scrap based mini mill, and Ocon Brick, the Group's clay brick manufacturer based in the Vaal Triangle.

Australia has announced that a new greenhouse gas emissions trading scheme will commence in 2010. The details of the scheme have not been announced but we anticipate that our operating assets in Australia will be required to report their direct CO2 emissions and acquire permits to cover those emissions either through purchase, trading, or administrative allocation. It is also anticipated that the carbon emissions trading scheme will create cost impacts for electricity providers which may be passed on to electricity users. Murray & Roberts' direct CO2 equivalent emissions in Australia were 103 786 metric tonnes CO2e in 2008, or 9,3% of the total, while our indirect emissions from purchased electricity were approximately 272 tonnes of Scope 2 emissions.

Physical and general risks (positive and negative) exist in the Group as changing weather patterns require new or 'weather proofed' facilities and relocated sites, with knock-on effects of increased logistics and insurance costs and availability of materials.

Following the baseline process and quantification of energy spend, meaningful targets will be established to reduce consumption and generate savings.

Understanding the quantum and driving forces behind the Group's carbon footprint has led to environmental strategy formulation. The following diagram represents the Murray & Roberts approach to understanding and managing the threats and opportunities posed by climate change.

Murray & Roberts aspires to zero harm consequence from all its business activities, encompassing all aspects of health (societal and occupational), safety and the natural environment. The group climate change strategy must reflect this target and strive to achieve it through comprehensive reporting, understanding the driving forces and then reducing and offsetting emissions to reduce the carbon footprint of the Group's activities.

In addition, the Group's commitment to sustainable earnings growth and value creation is non-negotiable and the strategy must deliver value through our people (training and education), our core competencies (industrial design and innovation) and finally through financial performance in the carbon market.

In the 2010 financial year, Murray & Roberts will focus on reduction mechanisms, identified risks and the education of our workforce to enable the strategy and to start making a positive contribution. In parallel, innovation and carbon markets are being addressed through internal and external processes.