Week of 14 September 2020
Investor and civil society pressure played a significant role in Rio Tinto’s removal of its CEO and two other senior leaders following the company’s reliance on a legal permit to destroy sacred Aboriginal sites in Australia; this outcome—which impacts the top leadership of one of the largest mining companies in the world—is a powerful indicator of a growing shift towards investors holding companies accountable for their impacts on human rights and demonstrates to senior leadership that legal compliance is insufficient where the laws fall short of international standards
In mid-September, several members of Anglo-Australian mining company Rio Tinto’s leadership team—including CEO Jean-Sébastien Jacques and the heads of iron ore and corporate affairs—resigned following the company’s destruction of historical sites sacred to indigenous Australians during mining operations in Australia. The resignations came after significant pressure from the company’s investors as well as indigenous leaders and local communities, who “expressed concerns about executive accountability for the failings identified,” according to a statement by the company’s Board of Directors.
The issue and context
- Rio Tinto is one of the world’s largest miners of iron ore, which is also one of Australia’s largest exports. In 2013, the Western Australian government awarded Rio Tinto approval to expand its iron mining operations in the region around the Juukan Gorge in Pilbara. The area contains significant iron deposits as well as two 46,000-year-old sites sacred to the Puutu Kunti Kurrama and Pinikura (known as PKKP) peoples.
- These cave sites are among the oldest in Australia, with evidence of continuous human habitation starting 46,000 years ago. A report provided to Rio Tinto in 2014 found that the site contained “a cultural sequence spanning over 40,000 years, with a high frequency of flaked stone artefacts, rare abundance of faunal remains, unique stone tools, preserved human hair and with sediment containing a pollen record charting thousands of years of environmental changes.”
- In May 2020, Rio Tinto destroyed both sites in order to expand the mine, citing the consent it received from the Western Australian Registrar of Aboriginal Sites under Section 18 of the Western Australian Aboriginal Heritage Act (which allows mining companies to seek exemptions in the event their operations may damage Aboriginal sites).
- According to a representative of the company, Rio Tinto had engaged with the local communities about the destruction of the sites and “thought [they] had a shared understanding of the future of the caves, that they would, in fact, be mined as part of [Rio Tinto’s] normal mining sequence.”
- However, representatives of the PKKP claim that they did not give consent to destroy the sites, and furthermore, given the way that the law is structured, that they were unable to appeal the government’s decision opening the gorge to mining. In a statement to the Sydney Morning Herald, a spokeswoman for the PKKP Aboriginal Corporation said, “[o]ur focus continues to rest heavily on preserving Aboriginal heritage and advocating for wide-ranging changes to ensure a tragedy like this never happens again. We cannot and will not allow this type of devastation to occur ever again.”
Investors place pressure on Rio Tinto to address its adverse human rights impacts
- Following an immediate backlash from Aboriginal communities and their advocates, some of Rio Tinto’s largest shareholders (including Australian superannuation funds HESTA, Australia Super, and Aware Super, UK asset manager Legal & General, the Church of England Pensions Board, and asset manager Aberdeen Standard International) put pressure on the company to investigate the incident and take immediate action to address the human rights impacts of the sites’ destruction on the local communities.
- According to reporting by the Financial Times, a “top-30” Rio Tinto shareholder expressed concern that the company had “framed the incident as a ‘misunderstanding rather than a grave error.’” The shareholder also pointed to the risks posed to the business by failing to address its human rights impacts: “I think this points to more serious cultural and leadership concerns with how they are approaching community consultations. […] This could have serious long-term ramifications for the business in Australia, which is fundamentally dependent upon social and legal licenses to expand mining operations.”
- The Financial Times also reported that shareholders lacked confidence in the governance of the company following the incident, with one shareholder stating, “[w]e expect the company to demonstrate accountability for the incident, and institute changes to prevent such incidents from happening again.” Another shareholder put blame on the company’s leadership for failing to address community concerns following the crisis.
- In response to shareholder pressure, Rio Tinto conducted an internal investigation into the processes leading up to the destruction of the sites, finding that “systemic failures in [the company’s] cultural heritage management system” and communications breakdowns between the company and the communities led to the conflict. Later, the company also announced the resignations of the CEO and other members of key leadership.
Why this is significant
Rio Tinto’s actions and the backlash against the company are indicative of several trends and forward-looking expectations of companies by their stakeholders. These include:
- A growing trend towards investors holding companies accountable for their human rights impacts: The immediate response of many of Rio Tinto’s largest shareholders is a marker of a larger shift towards investors holding companies responsible for assessing and mitigating human rights risks and for addressing their adverse human rights impacts in line with their responsibilities under the UN Guiding Principles on Human Rights. Financial Times opinion writer Brooke Masters quotes Jamie Bonham, the director of corporate engagement at fund manager NEI, who said, “[i]t’s too early to have a parade, but it does feel that this is part of a greater narrative. […] We wouldn’t have seen this five years ago. Something has changed.” However, Masters also points out that this increasing emphasis on human rights and the environment will pose a new challenge for companies: “Companies are good at maximising profits — they’ve been prioritising that for generations. But now they are being set multiple objectives, including safety and environmental protection. […] The ‘profits first’ philosophy definitely had its downsides, and the world is paying the price for that. But it did at least have the advantage of simplicity. We’ve all heard the phrase ‘jack of all trades and master of none’. The onus is now on investors, activists and governments to come up with new ways to balance competing interests.”
- Reminding companies that legal compliance is insufficient in today’s world, and requiring them to assess whether the laws that enable their operations enable them to meet their responsibility to respect human rights. According to the Financial Times, “[a]nalysts believe that the backlash from the blasts could result in tougher heritage legislation, potentially slowing mine developments in Pilbara,” including others by mining companies BHP Billiton and Fortescue Metals Group that also pose threats to cultural heritage sites. In a statement, Australian indigenous peoples organisation First Nations Heritage Protection Alliance welcomed the removals of Rio Tinto leadership, but emphasized that “the problems of cultural heritage destruction and inadequate heritage protection legislation are much bigger than these three individuals. Although Rio Tinto is responsible for this egregious act, it could well have been caused by another mining company in Australia. […] Until there is industry-wide reform and robust legislative change, there will be other appalling situations like Juukan Gorge.”
- Greater pressure on mining companies to engage meaningfully with indigenous peoples and other project-affected communities: Some investors are highlighting the link between loss of social licence to operate and financial risks. In a statement to the Sydney Morning Herald, HESTA said, “[m]ining companies that fail to negotiate fairly and in good faith with traditional owners expose [themselves] to reputational and legal risk. … Without an independent review, we cannot adequately assess these risks and understand how they may impact value.” Investors are also using this crisis as an opportunity to put pressure on other companies mining in the region. Reuters reports that earlier this week a shareholder group, with the support of Aboriginal leaders, issued a resolution to Fortescue Metals “to commit not to damage or disturb cultural heritage sites and lift any confidentiality provisions for traditional owners” and “to adopt a moratorium on activities that may impact the sacred sites until relevant Australian laws are strengthened.” Fortescue indicated it would not support the resolution, which may open it to further criticism from external stakeholders.