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UPDATE 1-Rio Tinto exits seen reverberating across boardrooms

Fri, 11th Sep 2020 14:12

(Recasts with fresh comment)

By Paulina Duran and Byron Kaye

SYDNEY/LONDON Sept 11 (Reuters) - The departure of Rio Tinto
Chief Executive Jean-Sebastien Jacques over the destruction of
ancient Aboriginal heritage sites in Australia has put mining
executives globally on notice – ignore cultural and social
issues at your peril.

Tens of billions of dollars have been poured into companies
based on environmental, social and governance (ESG) factors
giving ethically-minded investors greater clout in how companies
handle corporate crises.

Jacques and two deputies resigned on Friday after weeks of
shareholder pressure over what was seen as the miner's
inadequate initial response to the destruction of the
rockshelters - a board-led inquiry found no single individual
was at fault and reprimanded the three senior executives by
trimming bonus payments.

"For the CEO and a couple of senior management to go over an
ESG issue, it's just going to reverberate through board rooms
throughout the resource sector," said Ben Cleary, a partner at
Tribeca Investment Partners.

The backlash over the destruction of the rockshelters
coincided with protests in the United States over racial
injustice and became one facet of the Black Lives Matter
demonstrations in Australia.

As companies in the United States and elsewhere grapple with
addressing racism and inequality, social issues -- the S in ESG
-- are gaining traction where once climate change and executive
pay -- the E and G -- dominated.

In ESG investing, fund managers talk about a company's
'social license'. Unlike a legal license, the social license is
an intangible asset based on the company's ESG reputation.

"Reputation is now the thin red line between license to
operate and failure," said Neville White, Head of Responsible
Investment Policy & Research at Edentree Investment Management.

"The Board has not acquitted itself with glory especially by
assuming a financial penalty would be enough - placing a value
on the irreplaceable added insult to their destructive injury."

One London-based fund manager, who declined to be named,
said miners globally were going to have to be more mindful of
the impact of their operations on indigenous people.

Rio chairman Simon Thompson said on Friday that what
happened at the site had been wrong and that the company was
"determined to ensure that the destruction of a heritage site of
such exceptional archaeological and cultural significance never
occurs again".

Rio's detonations, which allowed it to access higher grade
iron ore, came amid a wider movement in Australia focused on the
treatment of Aboriginal groups, who fall behind the general
population on markers ranging from child mortality to literacy.

Land rights barrister Greg McIntyre said it was too early to
say whether Rio's move signalled a turning point in relation to
dealings with Aboriginal groups.

"What it does indicate is that this issue is being taken
seriously, which is a positive development, but it's not a
solution to the problem."
(Additional reporting by Sonali Paul, Simon Jessop and Zandi
Shabalala; writing by Jonathan Barrett; editing by Richard
Pullin and Carmel Crimmins)

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