Tag Archives: Sam Walsh

The Limits of Corporate Benevolence, from Mongolia to Michigan

The phrase “human rights” is nowhere to be found in the Oyu Tolgoi Investment Agreement, a document [pdf] that will play a critical role in guiding Mongolia’s development over the next decade. The Agreement sets the terms for the $6.2 billion investment in the Oyu Tolgoi gold and copper mining project, which promises to account for no less than one-third of Mongolia’s GDP by the year 2020. Rio Tinto has a 66 percent stake in the project through its subsidiary, Turquoise Hill Resources Ltd; the Mongolian government owns the rest.

Along with the serious environmental concerns cited by the United States when it abstained, in February of this year, from a World Bank investment scheme in Oyu Tolgoi, there are a host of human rights issues to address — from migrancy to land seizures, rights to the scarce water resources of the Gobi desert region, conditions in Ulaanbaatar’s Ger camps, and the survival of Mongolia’s herder communities. (The Bank Information Center provides an overview of these concerns, here and here.) The Investment Agreement briefly addresses some of these points, but it resorts, in all instances, to what I would call the language of corporate benevolence.

So the Investor agrees to abide by the Extractive Industries Transparency Initiative (a voluntary agreement to publish payments made by the Oyu Tolgoi mine to the government); in another place (section 4.13; but cf. also section 4.6) the Investor consents to “build and maintain productive working relationships, based on principles of transparency, accountability, accuracy, trust, respect and mutual interests, with non-governmental organizations, civic groups, civil councils and other stakeholders.” Beyond this, there is not much else to guide or govern the company’s conduct vis a vis civil society and its responsibility to respect human rights.

Given the high stakes, the scale of Oyu Tolgoi and the involvement of the World Bank and IFC in the project, it is surprising the Agreement does not explicitly incorporate — or reference — the UN Guiding Principles on Business and Human Rights. Instead of creating binding agreements or even practical mechanisms to ensure that Oyu Tolgoi and the government of Mongolia meet their respective human rights obligations as the economy accelerates and the social terrain continues to shift, the Investment Agreement relies on the language of corporate social responsibility to smooth things over.

Part of the trouble with CSR isn’t just that it tends to replace binding agreements and articulated responsibilities with vague sentiments, the language of corporate benevolence, and promises of sustainability and shared prosperity. That’s bound to happen when social responsibility meets public relations. A bigger problem is that the commitments companies voluntarily make to contribute to economic development and social progress — and to respect human rights — will last only as long as the business requires them.

For an example of how abruptly a company can ditch stakeholder communities, what happened in Michigan yesterday with another Rio Tinto project may turn out to be more instructive than what’s happening right now in Mongolia. In the face of serious environmental and human rights challenges to its Eagle Mine project over the last several years, Rio Tinto all along touted its good corporate citizenship, promising to “leave more wood on the woodpile” and to take an active hand in the long term, “sustainable development” of the Upper Peninsula. That is just part of “The Way We Work,” as the title of a Rio Tinto CSR publication would have it — or at least it was the Way We Worked. Yesterday, the company announced that it had sold the Eagle Mine project to Toronto-based Lundin Mining for the tidy sum of $325 million cash — part of CEO Sam Walsh’s strategy to divest from “non-core” assets and protect the single-A credit rating the company currently enjoys. A community of stakeholders whose future Rio Tinto promised to make happy, bright and prosperous became, overnight, a disposable asset.

Rio Tinto and the Rhetoric of Respect – Notes from the 2013 AGM

“Your mining is not unproblematic.” That understatement nicely summed up the Rio Tinto Annual General Meeting held yesterday morning in London. But by the time a representative from the London Mining Network had uttered it near the end of the question period, Rio Tinto Chairman Jan du Plessis appeared to have stopped listening.

Up to that point it had been a lively and contentious meeting. Shareholders were miffed about the company’s blunders in Mozambique and the Alcan write off and confused by the executive compensation scheme. Some wanted to know why Tom Albanese wasn’t there to answer for the company’s troubles in 2012, when he was still CEO; another said it was time to stop scapegoating Albanese, and hold the board accountable: “every few years,” he said, we have “a resounding chaotic blunder…What has the board done?”

They were not the only ones to talk about blunders and bad decisions that put the company at risk. Activists, environmentalists and indigenous leaders who attended the meeting testified to the destructive effects of Rio Tinto’s large-scale industrial mining operations on the land, local communities, and traditional ways of life. These speakers all said they and the groups they represent would continue to oppose the company. In fact, their opposition is only growing; a couple even suggested that Rio Tinto could start cutting costs (a big priority for the mining giant right now) by abandoning or divesting from places where mining operations are not welcome. The message to shareholders was clear: protests, lawsuits and continued local opposition will put projects at risk, disrupt schedules and cost money.

Did the board get the message? Not likely. When an Alaskan Yupik elder spoke in opposition to the Pebble Mine project and urged the company to divest, Rio Tinto CEO Sam Walsh thanked him for his “sincerity” and both du Plessis and Walsh complimented the elder on how “articulate” he was. It was a patronizing gesture, a pat on the head, not serious engagement. There were some further comments shouted from the audience but du Plessis shut the discussion down and moved to the next question.

Du Plessis repeated a talking point about how much he respects those who had to travel long distances to attend the meeting, but (as I saw it) this was an effort to recover from a stumble. Only minutes earlier he had impatiently dismissed a question about the Eagle Mine – citing “shoddy environmental protections,” poor design work, “fraudulently issued permits,” and the fact that the mine desecrates ground sacred to the Keweenaw Bay Ojibwe — as “not particularly new.” He was having none of it.

There was lots of talk at the meeting about respect, and I’m afraid “respect” is becoming a word corporate boards use to deflect criticism and politely dismiss human rights, environmental and ethical issues. (Whether this is the unfortunate rhetorical fallout of the Ruggie Protect-Respect-Remedy human rights framework is a question for another day.)

For example, when asked what Rio Tinto has done to improve the lot of miners in South Africa, du Plessis responded that the company has developed “very healthy, respectful relationships not just with employees but with the community” in its South African operations. But what sorts of real commitments do those relationships entail? While the company is “not anti-union” –Walsh rejected that characterization — it nevertheless wants a free hand to “maintain direct contact with all our employees” for the sake of safety, efficiency, and (Walsh iced the cake with this) “value.”

One participant said that he couldn’t see how Rio Tinto reconciled its “corporate rhetoric” with its “actions on the ground.” At Oak Flat in Arizona, he went on to explain, Rio Tinto is trying to gain control of public lands sacred to the Apache. The reply was (again): “we will be respectful.” The company would like to “open up direct dialogue” on the Oak Flat project; the trouble is, dialogue can only be direct and truly respectful if the other party actually has an opportunity to be heard and – this is important — heeded.

Dialogue, community engagement, respect, responsibility – all these were floated at the meeting as remedies to the many problems communities face when Rio Tinto moves in. But what doesn’t get taken into account is that the company and these communities are not on equal footing. Nowhere near it. Rio Tinto has enormous influence and power, billions to invest, and – it should not be forgotten – shareholders who want a return on their investment.

So, during the question period, a woman representing Mongolian herders who will be displaced and deprived of water by Rio Tinto’s Oyu Tolgoi project spoke eloquently about a looming “catastrophe.” She had a soft voice that trembled a little as she spoke. Walsh listened, thanked her for traveling all that way to speak, and then replied that in Mongolia (as in Michigan and elsewhere) the company has “developed a participatory environmental water monitoring program.” If you see something, say something, I guess.

Never mind that she had just finished telling him about the threat of toxic leaks, environmental damage, pollution and river diversion. The IFC and “the people of Mongolia,” Walsh said, will hold Rio Tinto to account. He can’t really believe they will. The community of herders has little recourse and not even a fraction of the power Rio Tinto has; and Oyu Tolgoi, when completed, will account for 36 percent of Mongolia’s GDP. The scales are hopelessly tipped in Rio Tinto’s favor.

Maybe the question period of a shareholders meeting is not the place to have constructive dialogue on serious issues. Maybe those conversations have to happen after the meeting is over, or even behind closed doors. But if and when they do happen, will Rio Tinto really be listening?

What’s Mozambique to Michigan?

Tom Albanese has stepped down from his position as CEO of Rio Tinto, after the mining giant announced a $14 billion dollar writedown. While most of those losses were connected with Alcan, the aluminum business, the company also lost $3 billion on a coal project in Mozambique. That’s by far the more interesting aspect of the story, and it’s one that deserves attention not just from investors, industry analysts and Africa watchers, but also from those (like me) with an eye on the company’s operations around Lake Superior, in Michigan’s Upper Peninsula.

Here’s how it all went down in Mozambique. A couple of years ago, Rio Tinto acquired Australian-based Riversdale Mining for $4 billion. Riversdale had a number of coal projects going in Mozambique near Tete, “the coal capital of the world.” Logistics – moving coal in significant quantities from the mines in the Moatize Basin – was a challenge. Some coal mined at Benga could move by rail, pending “final approval by government authorities.” Still, that was only a partial solution; “long term logistics,” as a Rio Tinto presentation [pdf] put it, would be required once the Zambeze and Tete East projects were in full swing.

The company proposed moving Zambeze coal by barge on the Zambezi River. Barges would travel from Tete to the port of Chinde, on the Indian Ocean. The promised solution would not only make the coal business boom in Mozambique; it would also allow for “future growth” and “provide a catalyst for further socio-economic development in [the] region.” The company sought approval for its Zambeze River project by autumn of 2011 and planned to start coal barging by 2014.

All very well, except the Mozambique authorities never approved the transport of coal on the Zambezi.

How could the Mozambique authorities refuse Rio Tinto? After all, the company’s own Environmental Impact Report showed that coal-barging on the Zambezi would have no “significant” environmental effects.

Mozambique Transport Minister Paulo Zucula saw things differently: “the impact was seen to be very negative, and there were no plans for mitigation. As proposed it is not doable,” he said. Barging would adversely affect the river’s fish and dredging would increase the likelihood of floods: “every four years we have problems with flooding and killing people. So if you’re going to dredge the river, expand the banks, we will be in trouble.”

Zucula suggested Rio Tinto move its coal by rail. He has championed the construction of a new railway line from Moatize to the port of Nacala, and helped secure a $500 million investment in the $1.5 billion project from the Dutch government and the European Union. So Zucula may not have been solely concerned with the fate of the Zambezi’s fish or the people living along its banks. But the purity of Zucula’s motives is really not at issue. The issue is that Rio Tinto seriously miscalculated and overplayed its hand in Mozambique.

A blogger in the Financial Times today sees here “a useful lesson for other mega-project investors in emerging markets.” He doesn’t say what that useful lesson is. I’m certain it’s something more than the need for prudence, and that it extends beyond emerging markets. It has to do with overconfidence – hubris, even: “Rio knew what the challenge was. It just couldn’t find an effective answer.” And yet, it forged ahead, certain that it would prevail upon the authorities in Mozambique to see things its way. That was just plain arrogant.

Sam Walsh, the new CEO of Rio Tinto, should take this $3 billion lesson in humility to heart. At the very least, he and the board of directors might ask whether the company’s failures in Mozambique are the outcome of behaviors that are in evidence elsewhere.

In Michigan’s Upper Peninsula, where the company is developing the Eagle Mine, it faces a set of challenges of the same kind if not of the same magnitude as those it faced in Mozambique. The mine is being built on a site sacred to Native Americans and will be situated in the heart of the Yellow Dog Watershed, which feeds into Lake Superior. The company has run roughshod over Native American claims and issued familiar and predictable assurances that it will be a responsible steward of the environment – whatever that means when you’re extracting sulfide ore in the middle of a fragile watershed ecosystem. As for logistics, Rio Tinto was banking on the approval and construction of County Road 595, despite local opposition and concern from environmental regulators, just as it banked on the approval of the barge plan in Mozambique.

What could possibly go wrong? Rio Tinto had big Michigan politicians on its side: Debbie Stabinow, Dan Benishek, Rick Snyder, Matt Huuki. Even the Romney campaign was for County Road 595. But the EPA along with local environmental groups objected. After much wrangling, the Michigan Department of Environmental Quality denied the wetlands fill permit for the new road just a couple of weeks ago, on January 3rd: the road did not meet the requirements of the Clean Water Act. Rio Tinto has now had to shift financial support from this $82 million project to improving and upgrading existing roads. It’s as if the company’s blunder in Mozambique found a faint but telling echo in Michigan’s Upper Peninsula.