GES Newsletter
April 12, 2013

Breakthroughs have been achieved recently in engagement with Rio Tinto and Freeport, which GES and investor clients – including Folksam, KLP, Ilmarinen and First, Second, Third and Fourth Swedish National Pension Funds – have been urging for five years to improve their environmental performance at the Grasberg mine based in Papua. Following dialogue with GES Rio Tinto has now established a strengthened waste management standard and some of GES’ recommendations have been adopted in Freeport’s annual environmental report.

Since 1996, Rio Tinto has been a significant joint venture partner in the Freeport McMoRan operated Grasberg gold and copper mine in Indonesian Papua. The project has always been controversial from both human rights and environmental perspectives. The Grasberg mine is one of only a few in the world which disposes of untreated mine wastes into a natural river system, which has resulted in the appropriation of an entire river system well over 100 km long. This environmentally damaging method of dealing with mine wastes is not permitted in most countries of the world, particularly not in those where Rio Tinto and Freeport are registered and listed.

GES and investor clients have been engaging with Rio Tinto and Freeport since 2008 to improve their environmental practices at Grasberg. The engagement is actively supported by a wide network of clients, including Folksam (Sweden), Ilmarinen (Finland) and KLP (Norway), acting as Nordic Engagement Cooperation, and First, Second, Third and Fourth Swedish National Pension Funds, acting as the Ethical Council, as well as a number of other clients who urged for changes via GES Engagement Forum. Specifically GES identified that Rio Tinto could develop a better policy in the area of mine waste management by prohibiting itself from using so called riverine waste disposal practices in future. GES also provided both companies with expert feedback on the Grasberg annual environmental report, produced by Freeport, which was clearly well below best practice.

Late in 2012 some breakthroughs were achieved, when Rio Tinto forwarded GES its strengthened corporate mine waste management standard. The standard is mandatory across all Rio Tinto operations, both operated and joint venture sites.

Whereas the old standard only required the company to: “Avoid any uncontrolled disposal of minerals wastes”, the new revised standard states that: “Riverine and shallow marine disposal of mining and processing mineral waste must be avoided at new operations and projects. Any existing operations which already practice riverine or shallow marine disposal must continuously seek to reduce the environmental impacts.”

At Grasberg this means that a proper program to achieve continuous improvement must be developed by Rio Tinto. It may also mean that Rio Tinto is prohibited from practicing riverine disposal on new projects at Grasberg, depending on how the company interprets its own words. This is something for investors and GES to monitor.

Also, as a direct result of GES’ engagement with Freeport some improvements are being seen at that company. In 2008 GES identified that Freeport’s annual environmental report for Grasberg was far from best practice and did not follow well-established scientific reporting protocols. GES communicated this to the company via a formally documented review, with suggestions for improvement, followed up by conference calls to discuss the review findings. Four years later in late 2012 Freeport forwarded GES its revised monitoring report. Many of GES’ suggestions have been taken onboard by the company, which although not perfect, is now on par with many of Freeport’s peers.

In the experience of Shane Chaplin, Senior Engagement Manager at GES: 

“For companies with high impact operations such as Rio Tinto and Freeport at Grasberg, transparency can be a double-edged sword. An honest report can expose the problems for the world to see, and a stronger standard can make it harder for companies to take the cheap and easy way out. But the alternative, corporate green-wash, really a form of non-reporting, is simply a non-alternative these days, serving only to damage trust and reputation. Reporting the impacts honestly may result in some bad short-term publicity, but at least the truth hits the ground, and a point from which improvement can be measured becomes established. Ideally, the company admits the need for improvement and puts in place a robust program to achieve change. The informed stakeholders then become agents for this change. It is encouraging to see that Rio Tinto and Freeport have listened to GES and shareholders and have made these tangible improvements as a result.”

For more information, please contact:
Shane Chaplin, Senior Engagement Manager