When Rio Tinto blasted a 46,000-year old cultural site in Juukan Gorge in the Pilbara region of Western Australia back in May, they had met the legal requirements to do so. That said, they have faced severe public and investor backlash for the act – in putting profits ahead of heritage.
Rio Tinto previously stood out for its acknowledgement of Indigenous land rights and was the top-rated mining company in 2018 and 2019 for its corporate human rights. Now, an internal review has concluded that Riot Tinto “failed to meet some of its own internal standards and procedures in relation to the responsible management and protection of cultural heritage” and investors are questioning whether the punishment for executives is too soft.
This issue has only highlighted the growing focus on ESG for the industry and is part of an approach for investors to assess risks and opportunities that looks beyond financial statements. On the mining side, the industry has typically suffered from a problem of perception and bias from the community-at-large. That said, over the years there have been major strides where companies have grown their focus on environmental stewardship, health and safety requirements, transparency, ethics, supply chains, social performance, human rights, and more. In more recent years, mining companies have worked to improve their ESG metrics through the adoption of innovative technologies, the use of Artificial Intelligence, driverless trains/trucks, for example. These such endeavors help on the Environmental focus of ESG, helping to reduce mine footprints, and reduce waste and greenhouse gas emissions.
On the Social front, mining companies have taken meaningful steps to improve the lives of their workers – focusing on health and safety issues and ways to safeguard against the use of child labour. With this growing focus on ESG, companies are increasingly being asked to measure their performance and communicate their solutions to a broad set of stakeholders.
For investors, ESG is increasingly part of the decision-making process when looking at potential investments, and we’re seeing a shift in investment philosophy moving from simple financial analysis to a much more complex labyrinth of factors – such as an organization’s ethics, competitive advantages, culture, and focus on Indigenous rights, the environment, and more.
This is a growing trend we’re seeing across industries – towards impact investing. Impact investing is a strategy which looks to generate positive, measurable social and environmental impact coupled with a financial return – challenging the idea that social and environmental issues need to be solely philanthropic. Since 2014, funds directly attributable to impact investors have grown from US$46 billion to an estimated US$715 billion, and the Global Impact Investing Network and the World Bank anticipate that this trend will accelerate.
Rio Tinto’s punishment for executives over the Juukan Gorge case is likely to provoke an even stronger focus on ESG issues for the industry. With shareholders, investors, and activists increasingly calling for greater transparency and ESG accountability, we expect to see changes in the ways that miners do business, and the ways that investors help to enact that change.
