Church accused of unethical investment in aluminium mine

Tribesmen claim project will destroy environment and their livelihoods

The Church of England and one of Britain's leading charities have been revealed as shareholders in a London-based company behind a controversial aluminium mine in India which campaigners allege will wreak environmental destruction.

Vedanta Resources, a FTSE 100 company whose majority shareholder is the Indian billionaire Anil Agarwal, won permission last month for its subsidiary Sterlite Industries to begin work on an open cast mine for bauxite, the raw form of aluminium, in a remote corner of the densely wooded Niyamgiri Hills in Orissa state, eastern India.

The site of the mountain is considered sacred to the indigenous Kondh tribe which worships the hill as a god. The tribe forages in the forest for food and also farms. The villagers and environmental groups claim that the 600-hectare mine will destroy the forest eco-system and threaten the livelihoods of the Kondh tribesmen.

The allegations, which were backed in a 2005 report by the Indian Supreme Court, are disputed by Vedanta, which insists the mine will operate in a sensitive and responsible manner as well as bringing much-needed economic development to the area. An investigation by The Ecologist magazine has found that investors in Vedanta include the Church of England and the Joseph Rowntree Charitable Trust – which uses its £120m endowment fund to make £5m of grants each year – as well as local authorities and major British finance houses.

The trust, which is separate from the Joseph Rowntree Foundation, bought shares in Vedanta late last year worth £1.5m to £2m through its independent fund manager. Both the charity and the Church of England said they were awaiting responses from Vedanta before deciding whether to disinvest.

The investments, many of which are managed by third-party fund managers, have been made or maintained despite a decision last year by Norway's sovereign pension fund to exclude Vedanta from its portfolio on the grounds that such a holding would carry "unacceptable risk of complicity in present and future severe environmental damage and systemic human rights violations".

Pressure to follow suit is expected to be put on investors ahead of Vedanta's annual general meeting in London next month. Activists are calling on investors to sell their shares if Vedanta does not suspend its plans for the mine.

The Niyamgiri Hills, the source of more than 30 springs and two rivers, are renowned for their myriad wildlife – they are home to more than 300 species of rare plants and animals including tigers, leopards, monkeys, deer and elephants.

In 2005, the Central Empowered Committee of the Indian Supreme Court stated: "Any mining in the areas is bound to destroy the biodiversity and affect the availability of water for the local people".

Kondh tribesmen have complained that an existing bauxite refinery owned by another Vedanta subsidiary has led to the eviction of 100 families and the generation of caustic soda waste which has contaminated groundwater. The Orissa Pollution Control Board described the seepage of caustic soda from the site last year as "alarming".

The Church of England said its holding in Vedanta did not contravene its own investment rules and its advisory body on ethical investments was seeking a response from the mining company on the claims against it. A spokesman said: "Disinvestment is the last resort and we would rather use the Church's influence as an investor to get any shortcomings in corporate responsibility addressed. We do engage with mining companies about the effects of their operations on local communities."

The Joseph Rowntree Charitable Trust said it was awaiting a response from Vedanta about the "very serious questions" raised about its activities. Stephen Pittam, the secretary of the trust, said: "If we do not receive a response from Vedanta then we will certainly disinvest. We are surprised not to have heard from them. A company has a responsibility to engage with its shareholders."

Vedanta said it did "not accept" the allegations made by campaigners and said the mine would generate income to tackle disease in the area as well as offering employment and education.

It said in a statement: "The planned bauxite mine was the subject of a detailed and intensive examination by the Supreme Court of India. This examination included its environmental impacts, an assessment of whether it had the support of the majority of the local community and the suggestions that have been made about it. Following this examination, permission was granted for it to proceed."