Rio Tinto share price slips amid an unrelenting ESG grilling

ESG advocates and investment managers questioned Rio Tinto management at last night's British AGM.

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The Rio Tinto Ltd (ASX: RIO) share price is down 1.30% to $120.23 amid a fresh round of environmental questions being lobbed at management during the miner's UK annual general meeting (AGM).

Held in London last night, Rio Tinto chair Dominic Barton indicated the company would set nature and biodiversity preservation targets for projects in developing nations.

Investors and eco-advocates questioned Rio about the Simandou iron ore project in Guinea and its plans to ensure good environmental, social, and corporate governance (ESG).

The project sits in a forest that is home to the endangered Western chimpanzee.

According to the Australian Financial Review (AFR), Barton told shareholders that civil society groups wanted Simandou sustainably developed.

He said:

We've been encouraged to forge ahead on establishing nature and biodiversity targets. We are recognised as being able to bring international standards with us – wherever we work.

ESG questions from investors and advocates

During the post-AGM investor call, Jonathan Kaufman from Advocates for Community Alternatives in West Africa spoke up.

He told Rio, "We've heard no credible plan for ensuring that high environmental and social standards … will be respected" at Simandou.

Another attendee was acting on behalf of EQ Investors, a specialist sustainable investment wealth manager. They asked Rio to provide "greater detailed articulation of its strategy towards future-facing commodities".

Doug McMurdo, chair of a pension fund forum, pressed Rio Tinto for a commitment to independent water impact assessments.

He said Rio "still has some work to do" in establishing a social license since the Juukan Gorge incident.

"Independent assessments are the only way I can see at this point to establish this social license," McMurdo said.

Barton addressed ESG concerns by saying:

As we prepare for the future, we are working very hard to embed our commitment to ESG and deepen our social license in all aspects of our decision-making.

I and other Board members have had the chance to visit 15 Rio Tinto sites in the last 12 months. And we've been encouraged to see how this commitment extends throughout the mining life cycle, from exploration right through to closure.

Major shareholder considering divestment

The UK investors' questions last night come amid the threat of Rio Tinto losing one of its largest shareholders on ethical grounds.

The Government Pension Fund of Norway is the world's largest sovereign wealth fund. It's held by Norges Bank Investment Management and owns the fifth largest institutional position in Rio Tinto shares.

The position is worth $3.2 billion and accounts for 1.9% of Rio Tinto shares.

The pension fund has strict ethical criteria.

According to The Wall Street Journal, Norway's Council of Ethics, which advises the investment fund, is examining Rio Tinto's ESG credentials.

Reportedly, the council has raised environmental damage in the Brazilian Amazon with the miner. This relates to Rio Tinto's partial ownership of Brazil's largest bauxite producer, Mineração Rio do Norte (MRN). 

The pension fund has kicked Rio Tinto out before. Back in 2008, the fund didn't like Rio's Grasberg mine in Indonesia and the risk of severe environmental damage it posed.

Rio Tinto agreed to sell its stake in 2019 and was readmitted into the fund.

Rio Tinto share price snapshot

The Rio Tinto share price is down 12.1% in the year to date.

It is up 2.95% over the past 12 months.

Rio Tinto will hold its Australian AGM on 2 May.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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