You might have heard negative noise on the lowering importance of ESG issues in financial markets, specifically coming out of the US in the run up to the elections. I had a very different experience at the company annual general meeting (AGM) of one of the UK’s largest listed businesses.
As part of our stewardship activities, we attend AGMs of companies we own on behalf of our clients in the funds we select. While there are often very legitimate reasons to hold companies in specific sustainable portfolios, we see it as our mission to engage with them on their remaining weaknesses and drive change where possible. We also believe that increasing ESG performance drives financial performance and thus is aligned with our clients’ best interests.
Mining is a sector excluded from some of our portfolios, but we hold “ESG leaders” within this (still) essential sector in the EQ Future Leaders & EQ Climate Action portfolios. This is where Rio Tinto fits in. However, based on the inherent negative impacts through extractive activities, we feel this is an important sector to engage on.
On the day, approximately 200 shareholders joined me in the room. From Rio Tinto’s board & executive presentation, it was clear that the company is committed to its science-based decarbonisation targets and working on evolving its historically challenged internal culture.
When the board of directors opened for questions from the investor audience, I expected to be alone in my focus on their remaining ESG shortcomings (like at many other AGMs). However, the ensuing two-hour Q&A session was vastly dominated by ESG-related inquiries, revealing a growing and steady investor focus on sustainability as a risk and opportunity,
Given Rio Tinto is one of the world’s biggest carbon emitters, I asked a question on Rio Tinto’s climate transition preparedness, encouraging greater clarity over their plants to a responsible approach to mining elements needed for the world’s Paris-aligned energy transition. Given greater demands for renewables, electrification, and batteries, the IEA predicts a quadrupling of current “future facing commodities” requirements by 2040.
Amongst the audience were representatives from local communities worldwide who voiced grievances, including allegations of water contamination in Madagascar and conflicts with locals in Serbia’s Jadar Valley, with one of them announcing a new litigation case. These concerns underscored the complex and often conflicting relationships between the mining sectors’ role in providing minerals to future-proof societies and their remaining environmental and social externalities that need to be urgently addressed.
The AGM was deeply moving, humbling, and underscored how important it is that investors take these “democratic” spaces to hold company boards to account. Further, by bringing these well-researched and substantiated sustainability topics to such a public forum, we as shareholders are making these impacts more financially material to other investors’ decision-making. Together this accelerates positive change and supports the dual mandate of sustainable investors.
Next steps
We are now feeding back to the CA100+ engagement group, continuing conversations with Rio Tinto on climate. We will also be engaging with fund managers holding Rio Tinto to engage on its community impact, and culture. We look forward to updating you while we progress with other parts of EQ’s stewardship plan for 2024.