September 10, 2008

Ethical Investors Attack Rio Tinto

By Nick Clark

The Norwegian government has launched an unprecedented attack on the UK mining giant Rio Tinto, selling a 500m holding in the company after accusing it of "grossly unethical conduct" relating to environmental damage.

The Norwegian Ministry of Finance released a statement yesterday, saying it had "decided to exclude the company Rio Tinto from the Government Pension Fund - Global, due to a risk of contributing to severe environmental damage".

The government has blocked its $375bn (213bn) sovereign wealth fund, known worldwide as its "oil fund", from investing in Rio over its mining operations in Indonesia, in a move that could drive other investors to review their holdings in the group.

A Rio spokesman said the company felt "surprise and disappointment" at the decision, adding it had come out of the blue after the company had held meetings with the ministry.

Mark Robertson, a spokesman for the Ethical Investment Research Service (Eiris), said the move might be replicated across the ethical investment sector.

"Norway's decision does send a strong signal, and could be an effective driver for change," he said. "Other investors do look to that fund as a leader in responsible investment. I wouldn't understate the impact."

In the UK, retail investment alone in ethical funds has been on the rise, reaching 9bn, up from 1.5bn a decade ago.

Rio is the third FTSE 100 group on Norway's investment blacklist. It joins rival miner Vedanta Resources, which the state accused of contributing to severe environmental damage and "serious or systematic violations of human rights" in India, and BAE Systems for its involvement in nuclear weapons manufacturing. In total, it has excluded 26 companies from its "investment universe" since 2002.

The government reviews the companies it has excluded "on a regular basis", but so far only one, the energy group Kerr-McGee Corporation, has had its exclusion overturned.

Norway said yesterday it told its bankers to sell the entire holding in Rio at the end of April. The operation has since been completed, raising NOK4.849bn (485m).

The government said its decision was prompted by conclusions from its Council on Ethics over Rio's Grasberg mining operations in Indonesia. Kristin Halvorsen, Norway's minister of finance, said: "The fund cannot hold ownership interests in such a company."

Rio countered the claims in a written statement to the government that it "maintains the highest environmental standards at all its operations wherever they are located, and it contributes technical support to its joint venture partners to ensure that the most appropriate solutions are identified and implemented".

The Grasberg copper and gold mining operations are run by Rio Tinto in partnership with Freeport McMoran Copper & Gold. Freeport has already fallen victim to Norway's ethical cull, excluded in 2006 for the same reasons.

The government's statement said the mine discharges about 230,000 tonnes of waste product - known as tailings - per day into a local river. It added the amount will increase as the mine expands.

"Moreover, there is a high risk acid rock drainage from the company's waste rock and tailings dumps will cause lasting ground and water contamination," it said.

The mine is deemed to remain profitable until 2041, "which must be expected to result in severe long-term environmental damage in the area", the minister said.

Rio disputes the council's assessment on the mine's impact, saying the tailings consist of natural ground rock and are not harmful to the environment.

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