Before and after: The Juukan Gorge in Western Australia in June 2013 (left) and in May 2020 © HANDOUT/PKKP Aboriginal Corporation/AFP via Getty Images

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The outrage that has greeted Rio Tinto’s decision to dynamite two 46,000 year old Aboriginal heritage sites throws a question about environmental, social and governance investing into the spotlight: how to enforce the societal norms that investors wish to uphold?

The Anglo-Australian miner has just announced that it will dock the bonuses of its chief executive Jean Sebastien Jacques and two others for their role in the episode, which saw the company blow up two rock shelters after what it subsequently admitted was inadequate consultation.

However, Rio declined to pin responsibility on specific employees. An internal inquiry concluded that “no single individual or error” was responsible for the destruction of the site. 

The case is shaping up to be a serious test for the credibility of ESG investing. Like many companies, Rio has been happy to issue worthy promises about its commitment to this agenda and claim that respect for local communities and their heritage is among its “core principles”. 

Yet it is hard to see events at Juukan Gorge as anything other than a serious abdication of responsibility. True, the company had legal approvals to dynamite the site under Australia’s somewhat relaxed planning regime. But it had several other options, which would not have destroyed the shelters. Tellingly, these were not disclosed to representatives of the land’s traditional owners. 

Instead, Rio seems to have been motivated by the shortest of short-term calculations. As Mr Jacques told a parliamentary inquiry, blowing up the Juukan Gorge allowed Rio to get at an extra 8m tonnes of iron ore from the site — or just 2 per cent of the 327m tonnes it removes annually from the Pilbara region.

A Milton Friedmanite might argue that the case shows precisely why professional managers should not get involved in weighing contending political interests. But no one has forced companies or their owners to embrace ESG principles.

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If these aren’t to prove empty words, they need a serious enforcement mechanism. 

For norms to be embedded, companies should pin responsibility on individuals. If, as former Barclays chief executive Bob Diamond, once put it, “culture is how people behave when no one is watching”, then boards must make sure that outcomes will not pass unobserved.

It is in investors’ interests to establish a clear accountability mechanism. After all, they achieve little by divesting transgressing core holdings such as Rio. Far from starving the business of capital, this would simply transfer value to less ethically engaged investors. Better to learn from the debacle and pin cultural failings where they belong — at the top.

JD Wetherspoon: distance memory

Some pub chains introduced social distancing a lot earlier than others, writes Matthew Vincent. In the case of JD Wetherspoon, it was about 1995 — given its reputation as boozer du jour for solitary pensioners nursing pints at separate tables. A colleague of Lombard’s says this stereotype is outdated and “its customers aren’t all grumpy old men”. But Wetherspoons has certainly succeeded in luring back those who enjoy half a mild at two metres.

Monday’s trading update gave details of the new distancing measures — occupancy limits, floor screens and spaced seating — that chairman Tim Martin deems “sensible”. And it showed their effectiveness: only 24 positive Covid-19 tests among 43,000 staff in 844 reopened pubs since July 4. Customers felt so comfortable — or familiar — with drinking Carling in seclusion that sales were only 16.9 per cent lower than normal.

Both the company and the City expect takings to dip again when the drinks are no longer on the chancellor, after his Eat Out To Help Out subsidy ends in a week. However, Peel Hunt analysts think our populist prime minister is likely to go on propping up the industry.

If so, that could push JDW closer to the better-case scenario it envisaged in April: trading down 10 per cent in the month after reopening but then improving to 2 per cent higher than the previous year by seven months in; rather than resuming at 25 per cent down but recovering to be 3 per cent higher after seven months.

Those Peel Hunt analysts, who initially assumed the latter, now feel confident enough to hold their 2021 estimates for pre-tax profit and cash flow — and even upgrade them on continued state support. That just leaves net debt to deal with, which consensus estimates have rising from £825m to £848m — more than three-and-a-half times sanitised 2021 earnings. Still, JDW’s confident talk of securing more leniency from lenders indicates there’s a plan. By 2022, JDW’s measly full-year profits — like its lone pint-nursing pensioners — could be a thing of the past.

Rio: Jonathan.ford@ft.com

JD Wetherspoon: Matthew.vincent@ft.com

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