Hugh Wheelan: Today’s huge investor meet on Vale is a test case for responsible investment

Failure to create change is unthinkable in an industry where tragedy and inertia is systemic.

When investors representing $6.5 trillion in assets representing the ‘investor tailings safety initiative’ meet in London today (March 4) their decisions could not be more critical. We are still in the middle of this storm; the departure of Vale CEO, Fabio Schvartsman, at the weekend was an overdue step. But, when the media spotlight moves to another disaster, what happens at Vale and across the mining industry is a test case for the responsibility of corporations and investors to prevent unnecessary death and destruction and make the sector as safe and socially beneficial as possible. It is also an existential challenge for responsible investors to lead this; otherwise the very idea of responsible investment counts for little.
As RI reports today, Brumadinho was a predictable surprise. It is no coincidence that it followed just a few years after 2015’s Samarco disaster that killed 19 and destroyed a village in south-eastern Brazil. That dam was a 50-50 joint venture between Brazilian miner Vale and Australian mining giant BHP Billiton (now BHP). These disasters are statistically measurable and industry-wide. Climate change and extreme weather shifts will intensify the risk. And yet, when the world’s gaze shifts, communities have to pick up the pieces. Vibeka Mair’s excellent interview on RI with the community of Bento Rodrigues (Samarco disaster) in December last year, underscores the point. Their message was simple and damning: “How can they(investors) sleep at night knowing their money has been invested in a crime and in blood? People were killed and they helped fund these social and environmental violations.” If you need a ‘material’ investment case on top of that then there is already a $15bn hit for Vale shareholders – even if rival companies have profited. And Vale’s problems are likely to get a whole heap bigger as the lawsuits and clean-up costs roll in. As we reported last week, investors are stepping up. The Church of England is one of the leaders, with honourable mention to Adam Matthews, Director of Ethics and Engagement at the Church of England Pensions Board, who is co-lead of the investor tailings safety initiative – and banging the drum hard for change. The investors have “cautiously welcomed” a statement put out last week by the International Council on Mining and Metals (ICMM) on measures to create a transparent international risk assessment and review system. They are right to be wary. The ICMM has made similar statements in the past. Compare and contrast its latest response to the statement it released after Samarco.
Such risk review ‘commitments’ will not prevent future disasters and deaths. Only large sums of money and genuine cross-industry solutions will. To pretend otherwise is to publicly concede that mining has a human attrition rate and environmental destruction quotient in the business model. This is not good enough for an industry that is economically vital in many
countries. Ultimately, this is about finding solutions to one of the big ‘externalities’ questions: who pays to clean up the trash from dirty industries.
It is, of course, financial. The oil industry is dealing with a ream of similar clean-up controversies. In the UK, the media is scathing about reports of billions in taxpayer money financing the decommissioning of North Sea oil wells. In Canada, the Supreme Court has put well-abandonment liabilities ahead of all other creditors following the Redwater buy-out case, making it an investment cost that ratings agencies are still assessing for impact on corporate access to credit. These are major shifts. But when the headlines stop citing the Brumadinho deaths, politics and greed will reassert themselves.The Brazilian government is making the right noises about better tailings dam safety. But Jair Bolsonaro came to power in Brazil in January following a campaign promising to slash environmental regulations in order to spur the mining and extractives sector. The ICMM says an expert review from diverse disciplines, and led by an independent chair, will be completed by the end of 2019. At today’s meeting, the investors say they will discuss with ICCM how its proposals “meet the requirements of local communities, workers and investors, so that we have the assurances we need that best practice is being implemented globally.” Their stance will need to be solid and their follow up unflinching to ensure a new international independent tailings safety system is an industry changer.