Mans Carlsson-Sweeny, head of ESG research at Ausbil Funds Management explained the process, which involved a decline in ESG scoring, at the Morningstar Investment Conference on Friday.
Ausbil had Rio Tinto as a holding within some of its products, including the Australian Active Equity Fund as shown in its March report and the Australian Geared Equity Fund as at August. In September the fund manager’s overweight position in Rio Tinto alongside other companies such as BHP and Seven Group had detracted from relative performance.
Mr Carlsson-Sweeny reported that in the years leading to the Juukan Gorge cave blasting, Rio Tinto had improved across ESG measures including fatalities, climate disclosure, climate change targets and commodity focuses, as the company pivoted away from coal assets and into medium copper and iron ore.
Rio Tinto sold its last coal mine in 2018, for $2.9 billion.
“In the last year, they were actually fatality-free for the first time in its corporate history,” he said.
“And then of course, Juukan Gorge happened.”
Rio Tinto has since publicly apologised after it destroyed a 46,000-year-old Aboriginal site in Juukan Gorge, Western Australia to expand an iron ore mine. The company’s chief executive J-S Jacques stepped down following the debacle in September, with two other implicated executives also departing the group.
Ausbil engaged with the mining giant following the cave destruction four times, meeting with the company chief executive, chair, investor relations and one of its board directors.
“The first meeting was all about understanding how Rio Tinto was engaging with traditional owners following the events and then the second meeting was more about the parliamentary inquiry, and to see how the events unfolded internally,” Mr Carlsson-Sweeny said.
“And the third meeting was about the scope and independence of the board review that Rio Tinto had, but we also spoke about accountability for the independent reports, that had showed that Rio had failed to take into account the significance of those caves. And we wanted to discuss remedy plans and consequent management.”
The fund manager had increased its ESG score for the resources giant over time, but following the blasts, Ausbil docked its ranking twice – firstly for internal governance failings and then following the parliamentary inquiry, when further insights were revealed.
“Every time we reduced the ESG score, we also reduced the Rio Tinto position in the fund and redeployed that elsewhere,” Mr Carlsson-Sweeny said.
“And then finally, the portfolio construction committee, which I’m part of, decided to exit that position completely.”
Although Ausbil has dumped Rio Tinto into the sin bin for now, it is continuing to monitor the company. Mr Carlsson-Sweeny believes the mining group is set to see more reforms, commenting his firm will be having more engagements with it before the end of the year.
“There have been some management changes there, there’s been some system changes internally as well, but I think there could be some more changes at Rio as well,” he said.
“But ultimately we want Rio Tinto to demonstrate that something like Juukan Gorge can never happen again. And we also want them to demonstrate they have strong relationships with traditional elders.
“I think it’s going to be essential because… of societal changes and the world is changing. It’s vital for a company to have a social license to operate and they need to demonstrate that.”
As detailed in a 2019 engagement report, Ausbil has previously engaged with Rio Tinto on governance, emissions reductions targets, climate change strategies, sustainability reporting, as well as reporting for the Modern Slavery Act.
