Rio Tinto’s weak response to cave blasts will trigger stronger reaction

The board of Rio cut the bonuses of three senior executives including Chief Executive Jean-Sébastien Jacques as part of the company’s review into the destruction of two historically significant caves in Western Australia state, against the wishes of the Aboriginal traditional owners.

Rio, which overtook Brazil’s Vale as the world’s biggest iron ore miner last year, destroyed the Juukan Gorge caves in May as part of an expansion of its Brockman 4 mine.

While the blasting met legal requirements, Rio has faced a public and investor backlash for allegedly putting profits ahead of heritage, a view amplified by the revelation that the company had alternatives to destroying the caves but chose not to pursue them.

The Rio board review said there was no single “root cause or error” that resulted in the destruction of the caves, rather it was a “series of decisions, actions and omissions over an extended period of time.”

The board recommended improving procedures and setting up new processes to ensure this type of incident doesn’t happen again.

The board’s review likely fails what Australians refer to as the “pub test,” which means whether the average patrons of a typical bar believe the actions are reasonable and appropriate.

The loss of about $3.7 million in bonuses for the three executives is a very mild punishment, given their level of remuneration and the fact that Jacques, along with head of iron ore Chris Salisbury and Simone Niven, the executive responsible for corporate relations, bear responsibility for what has become a public relations disaster for the company.

The board’s soft-pedalling of the cave destruction was condemned by shareholder advocacy group the Australasian Corporate Centre for Responsibility, and several institutional investors.

While Rio will no doubt hope the issue blows over with the passage of time, it’s more likely that it leads to a renewed focus on environment, social and governance (ESG) issues.

Shareholders are becoming increasingly aware of the financial risks of companies that are viewed as not having leading ESG programmes and a culture of doing the right thing.

Social licence to operate, along with climate change, comes up often as the top concerns for miners, with a survey last year by consultants EY showing 44% of mining executives viewed keeping a social licence as their top concern.

Miners to change

Unfortunately, the Rio incident with the Juukan caves shows that miners may still have some way to go in order to be seen to be placing ESG issues at the heart of their operations.

Rio isn’t alone in this, with other leading mining companies seeming to fall short in this area, despite public commitments that it is their top priority.

Like Rio’s corporate affairs boss Niven, other miners have executives listed as having responsibility for ESG issues, such as outgoing BHP external affairs chief Geoff Healy, Tim Langmead at Fortescue Metals Group, Anik Michaud at Anglo American and Luiz Osorio at Vale.

Glencore is unusual among major miners in not having an executive with ESG responsibilities listed on its website.

But merely having an executive named doesn’t mean these people are among the most important decision makers in the companies they work for.

All the executives’ names above have additional responsibilities and none of them have a public profile worth speaking about.

In effect, they are largely invisible and take little or no public part in the debate over ESG issues.

This hardly speaks to mining companies that appear to view ESG issues as front and centre of their existence.

For companies to be taken seriously, it would likely take the appointment of senior executives, with real power over the decision-making process, to become involved in placing ESG at the heart of each company’s mission.

If Rio had somebody like this, somebody could have stopped the blasting even if the CEO wanted it to proceed, somebody who understood that the negative optics of blowing up the caves considerably outweighed the potential profits, then it may have avoided the current mess.

However, it’s likely that ongoing shareholder demands for increased ESG accountability, coupled with activism by interest groups, will force miners down the path of making ESG more than just the current statements of principle.