Evaluation: Shocked by the holy websites explosion, traders urge mining corporations to resume management of the heritage
© Reuters. FILE PHOTO: File photo of a miner holding a lump of iron ore in a mine in the Pilbara region of Western Australia
By Melanie Burton and Clara Denina
MELBOURNE / LONDON (Reuters) – Rio Tinto (NYSE 🙂 's destruction of sacred indigenous rock shelters in Australia this year has dismayed and fueled a number of investors who want big changes in the way mining companies address issues of the bypass cultural heritage and have started to talk about it.
According to Reuters interviews with two dozen major investors and corporate governance advisors, they have stepped up communications with mining companies in terms of both volume and frequency, alerting them to improving accountability and risk management.
Such engagement is no reason to sneeze, they add.
"(For) many of the most influential investors, a quiet conversation with the chairman is enough to make their expectations clear. Often, more transactional approaches are not required," said Susheela Peres da Costa, director of advice at Regnan, an environmental consultant. Social and Governance Issues (ESG).
Regnan is part of the Pendal group, which manages approximately A $ 94.8 billion (USD 70 billion).
However, miners' failure to adequately address concerns could eventually lead to more direct shareholder action, as has been seen with other ESG issues such as climate change and the use of coal, the advisors said.
These actions would generally take three forms: efforts to influence the composition of company boards, decisions taken at annual general meetings on cultural heritage issues, and departure of a company through sale.
"I think we will see investors vote much more proactively about how they vote on directors and how they influence the shape of boards of directors," said Simon O'Connor, executive director of the Responsible Investment Association Australasia, whose members manage more than A $ 9 trillion.
That influence was evident when Rio Tinto split from its CEO and two deputies in September and bowed to an outcry from shareholders about the site being blown up in the Juukan Gorge – which was legal but ignored the wishes of Aboriginal people – as well as Rios original board-led review which found no one was responsible.
Following the explosions, Rio and the other leading iron ore miners BHP Group (NYSE 🙂 and Fortescue Metals Group (OTC 🙂 reviewed their cultural heritage management processes.
In particular, Rio has expanded its oversight and accountability to include reviews of its heritage management by sustainability and board audit committees and has announced that it will evaluate its progress.
BHP has stated that it has since introduced a requirement for a higher-level permit before a site is damaged and has also intensified its discussions with indigenous groups.
Elizabeth Gaines, CEO of Fortescue, told Reuters in a statement that the company operates on a heritage avoidance basis and has avoided nearly 6,000 locations. Its board of examiners, which reports to its board of directors, is responsible for matters relating to Aboriginal heritage.
START WITH LETTERS
Institutional investors are increasingly focusing on ESG issues to reduce the risk on the long-term investments they hold.
According to the Institute for Energy Economics and Financial Analysis, shareholder campaigns against the use of thermal coal have resulted in more than 120 financial institutions restricting the associated financing, insurance or investments.
Often times, the first volley from investors was the humble letter, and investors in miners are now looking for more information about how they interact with indigenous peoples and the standards they apply.
Last month, boards of 78 global mining companies received such a letter from a large group of institutional investors valued at $ 10.2 trillion, including the Church of England Pensions Board and the Australian Council of Superannuation Investors.
Many act independently. HESTA, an Australian A $ 2 billion pension fund invested in mining, has written to 14 miners in which it has an interest. The details sought include how management communicates with indigenous peoples and how they practice obtaining consent.
While Mary Delahunty, the head of HESTA, told a parliamentary inquiry that the divestment was a last resort, at least one prominent fund manager has already gone there.
Education, which had A $ 11.1 billion under management in June, reduced its holdings in Rio to zero in August, ESG research director Mans Carlsson-Sweeny said, citing failed internal governance procedures. Rio was in the fund's top 10 positions just a month earlier.
Business consultants say a focus on heritage issues is likely to be how boards get independent information.
The boards need access to information that management bypasses, said Daniel Smith, governance advisor at CGI Glass Lewis. To that end, a specialist cultural heritage advisor could be appointed reporting directly to the board, or a board could have an ESG sub-committee responsible for stakeholder management, including traditional owners, he said.
Many mining companies have not yet appointed chief sustainability officers to manage ESG exposure, said Henning Gloystein of the Eurasia Group's risk adviser.
He added that companies whose executive rewards are tied directly to clear, measurable ESG outcomes also rate ESG metrics better.