Premier Asset Management Hold RTZ in an ethical fund.
Is it acceptable for a leading ethical fund to hold RTZ as its fourth largest holding?
Investing in the mining sector has always been an ethical minefield. Mining is a fundamentally unsustainable activity. The extraction of a non renewable resource for uses that do not permit 100% recovery is inherently unsustainable.
However, the mining industry also provides many of the minerals and metals that enable economic development. Their products facilitate the generation and transfer of energy, the creation of machinery, the construction of transport infrastructure and the creation of buildings. The sector allows nation states to realise the market value of any natural resources within their country, to increase employment and to achieve export led growth.
In addition, many near term solutions to sustainable development will require metals such as copper for energy transmission, platinum for catalytic converters, lithium for rechargeable batteries and aluminium for vehicle weight reduction. While problems with collection, contamination and quality keep recycling rates below 100%, and global demand exceeds supply, some mining of these metals will be required.
Premier Asser Management’s ethical fund has RTZ as their fourth largest stock and that is a matter of surprise and dismay to many in the ethical investment world. There is a fundamental difference between buying the product and investing in the stock. One is a matter of necessity and the other of choice.
Mining inevitably damages the environment, it leaves huge holes in the ground many of which are left unfilled and unreclaimed and can cause significant long-term impacts over large areas. More particularly the impact of mine tailings are often more problematic for reclamation than just landscaping over a pit.
The extraction of heavy minerals and the associated waste is very energy intensive and thus produces a large amount of greenhouse gasses. In addition there have been cases of villages and settled communities in developing countries being uprooted, usually against their wishes. In fact at Rio Tinto’s AGM in London yesterday (14 April) the mining company’s environmental and social record came under heavy criticism from advocates and community representatives citing operations in Indonesia, the US (Michigan and Utah), Mongolia and elsewhere. Questioners raised concerns about the Rio Tinto’s position on the rights of Indigenous Peoples to withhold their consent for mining projects, including at the Pebble project in Alaska.
Environmental, political, safety and labour rights concerns have been raised against Rio Tinto by both environmental groups and unions, in particular the Construction, Forestry, Mining and Energy Union (CFMEU). The CFMEU ran a campaign against the company which tried to de-unionise its workforce after the introduction of the Howard Government's Workplace Relations Act 1996.
Another has been Rio Tinto's involvement in Papua New Guinea which triggered the Bougainville separatist crisis. While RTZ has put a lot of energy into cleaning up its tainted human-rights image from the aftermath of crises like the above, many critics feel the company has not substantially changed.
Fleur Scheele of W.I.S.E. (http://www.wise-uranium.org/) says that “In my opinion a company such as this should not be promoted as an 'ethical choice' as an 'ethical choice' to me would be a company which fully invests in CSR, not one which esthetically pimps up its profile. Personally, I feel an ethical investment fund investing in Rio Tinto is seriously cheating its customers. “
This is why most ethical investors are normally very lightly weighted in the extractive industries and particularly avoid RTZ.
In 2008 the world’s second biggest pension fund (Norway’s Government Pension Fund) dumped RTZ saying “Exclusion of a company from the fund reflects our unwillingness to run an unacceptable risk of contributing to grossly unethical conduct. The Council on Ethics has concluded that Rio Tinto is directly involved, through its participation in the Grasberg mine in Indonesia, in the severe environmental damage caused by that mining operation”
Peter Michaelis SRI Manager and Head of SRI funds at Aviva Investments says:
“On many grounds we would find it hard to invest in RTZ. Their actions at the Grasberg Mine, Their record on waste management and their lack of dialogue with the communities in which they operate all make them uninvestable for us.
Some funds exclude extractive industries all together.
Philip Baker of Ecclesiastical says “We have felt that for the Amity range (thus far), the Funds should avoid mainstream mineral extractives on the grounds that overall they do not meet the strict environmental criteria we seek in placing an investment”. Given Ecclesiastical’s performance over the last year one has to see the weight of his argument.
However among the mining companies RTZ seem to be trying to improve.
Research done by Citigroup’s Sustainable Investing team suggests that Rio is top rated amongst its peers for safety when both fatalities and injuries are taken into account. It is also well rated for its alignment with a “low carbon” economy.
The Ethical Consumer Magazine holds a detailed data base for companies. Rio Tinto scores very highly indeed on the various environmental policies and how they report them. The company also scores very well on the advanced nature of its human rights policies and its corporate governance.
So why does Premier invest when no other ethical fund seems too?
It appears that they are concerned that underweighting in this sector would damage the growth of the fund and that RTZ are chosen on a best of sector basis. I believe that there are other extractive companies that would provide the balance Premier are seeking.
BG is a good example,
It clearly is very soundly run in terms of its Corporate Governance Principles. Also according to Citigroup’s various measures related to safety and climate change, BG is one of the most appropriate energy stocks across Europe for sustainability funds, (AMEC being the other) and it ranks high on safety having had no direct employee deaths reported in the last few years. It also has one of lowest rate of greenhouse gases emissions from its operations per unit of market cap.
This comes directly from Premier’s own research!
Alan Kirkham (Director of “investing ethically”) says “There needs to be a constant watch kept on the ethical funds. RTZ is not a company we would expect to be in any fund that claims ethical credentials”
Socially responsible investment poses many dilemmas. The extractive industry is one where there appears to be many good alternatives, some involved directly in extraction, others who provide equipment and services to the mining companies. It should be possible to avoid investing in a company who whilst trying to improve, still has so many unresolved legacy issues.
