Winning on all fronts

Issues of climate change and corporate environmental responsibility have become so prevalent in the media that we sometimes barely register the words, let alone their significance. But apathy towards information and comment on these issues is perhaps symptomatic of how deeply engrained they now are in society's expectations of business and business' expectations of itself.

RUSAL operates in an industry which historically has faced real challenges in corporate environmental responsibility, both practically and in terms of public perception. Mining, as an industry, is not universally loved and admired, and to some extent that is inevitable. On a scale of cuddliness, miners are never likely to score well, and the physical impact of our activities on the natural world is particularly vivid.

For us as a company and an industry, the priority is not likeability - it is responsibility. And here we have to admit that the historic record of mining is at best mixed, and at worst deplorable. And, as anyone who has seen the results of mining in the former Soviet Union can testify, environmental depredation and social neglect are by no means exclusively the consequences of unrestrained capitalism. We are still dealing with this legacy today in Russian industry.

However, mining has seen a whirlwind of change, and it is not one that is likely to blow over soon. As an industry, we have a key advantage in tackling the challenges, but also an inherent responsibility to use that advantage - our capability in technological research and development - to reduce environmental impact.

I believe the key to achieving this across our industry is in exposing the misconception that investing in being green does not equate with being profitable, and that environmental responsibility is a burden rather than a driver of growth and success. It also means ridding ourselves of the urge to play up to what makes a good media story and stick with what really works.

The development of R&D technologies should be aimed at improving the efficiency of a company's environmental performance, but also at improving production volumes and more effective use of resources.

RUSAL operates across five continents in 17 countries, working in a vast diversity of cultures and environments. Dynamic, value-driven and socially responsible companies see sustainability as one of the key approaches to their business development. Consistent and strong operational performance can only be delivered if underpinned by good working conditions, improved environmental performance and genuine, long-term commitment to employees, their families and the communities in which we operate.

In view of the dramatic influence that human industrial activity exerts on the immediate environment, it is the global majors who should be taking the lead and pushing this issue as a key competitive advantage. If a company is not responsible, it will not succeed: that should be the message across the board.

<B>Increasing investment</B>

In 2002, RUSAL established its own Engineering and Technology Centre, and in 2004 incorporated the Russian National Aluminium & Magnesium Institute into the company structure. Together they formed the engineering and technological base of RUSAL, with the aim of providing the most effective solutions for increasing the production capacity of RUSAL's smelters, along with the development of environmental care programmes aimed at reducing levels of harmful emissions.

RUSAL's investments into environment protection have been increasing gradually since 2000. In 2000-2006, the company invested over $1bn to further the finding of optimal solutions to reduce the environmental impact of the company's activities. With further investment over the next five years, RUSAL's aim is to reduce pollutant emissions by 1.5 times by 2012.

As an optimal example of how investment in environmentally-friendly technologies can also create exceptional competitive advantage, RUSAL uses hydro power for 80% of its aluminium production and has zero indirect emissions from this energy source.

With instability in energy producing regions and a volatile energy price, issues of supply and cost in relation to electrical power have never been so pressing or so urgent for the aluminium industry and the metallurgy sector in general. Electrical power accounts for 25-40% of aluminium production costs, and increasing energy prices have proved a fundamental obstacle to growth.

During the last four years, the average power tariff growth rate for aluminium companies worldwide was 150%. High oil prices and a shortage of oil refining capacity are driving up production costs for alumina refineries and the cost of petroleum coke for aluminium smelters. Some of these cost increases will prove to be cyclical but some will reflect a long-term trend. This has been reflected in the overall reduction of aluminium output, due to the closure of unprofitable facilities in the USA and Europe.

Part of our response has been through using renewable sources in the form of hydro power to fulfil our aim of securing up to 50% of our energy supply through our own generating facilities - developed in cooperation with our own technology and engineering departments. This approach is proving a key competitive advantage, but has also moved the company's strategic focus to developing as both an energy and metals company. It is only when environmental responsibility creates a key competitive advantage within an industry that it comes to the forefront of the CEO's agenda.

<B>Sustainability</B>

In fact, the minimisation of a company's environmental impact is now vital to a company's sustainability. A clear strategy in this area directly links the issues of risk management and project financing. The presence of an environment protection strategy and environmental management system has a favourable effect on an investor's evaluation of the risk of investing in the company, and subsequently directly increases the company's market value.

Shareholders and potential investors want to be confident of a company's ability to manage risk, including environmental risks. From a purely financial outlook, investment in technological R&D is by no means unprofitable. If we consider wasted products and emissions as a loss arising from the inefficient use of resources, the impact on a company's financial and environmental indices is very clear.

Especially in the mining industry, significant change in environmental impact cannot be achieved without ongoing investment in technology. Public perception often lags behind reality in our industry, and in many respects mining has been transformed from being a high labour, low technology industry, to a low labour, high technology industry, capital intensive and highly skilled. Those who still assert that our employees are condemned to back-breaking, brutish labour ignore the modern reality of neatly pressed shirts and air-conditioned haul truck cabins.

The industry faces a similar challenge on the environmental front. How the industry combats this is by using its strengths and by retaining a dedication to responsibility, not likeability. The core products of RUSAL - primary aluminium and alloys - are currently manufactured at five plants: the Bratsk, Krasnoyarsk, Sayanogorsk, Khakas and Novoluznetsk aluminium smelters, two of which - Bratsk and Krasnoyarsk - are the largest and second largest in the world. The transition to dry anode technology reduces harmful emission levels, while other developments have seen the addition of an alumina power feed system in the electrolysis works to decrease the level of emissions into the atmosphere, the installation of new gas-purifying facilities to raise dust and anhydrous hydrogen fluoride suppression by 97-98% and the reconstruction of gas-purifying facilities of sintering furnaces.

Scientists in white coats transitioning plants to dry anode technology and making improvements to Soderberg cells to reduce environmental impact and improve efficiency in aluminium smelting is not a sexy story. But it works and that is all that should matter.