Rio Tinto: Juukan Gorge

Sep 2022

The issue

In May 2020, Rio Tinto detonated an aboriginal cultural heritage site at Juukan Gorge, Western Australia, causing significant damage to the company’s community relations and wider reputational consequences. Internal and external investigations into the detonation at Juukan Gorge revealed deficiencies in the company’s policies and procedures to manage risk in this area. Initially, the failure resulted in the cancellation of annual bonuses for the CEO and two other senior executives, but this was later escalated to the termination of all three executives. Subsequently, the chairman announced that he would step down from the board in time for the 2022 AGM.

The issue

Engagement type One-to-one

Our engagement

Over the course of the year following the incident, Fidelity held several meetings with the company to discuss community relations management and oversight. This engagement increased our conviction that the company’s management of ESG risks required improvement. Furthermore, prior to casting votes for the 2021 AGM, we spoke with the Senior Independent Director of Rio Tinto plc to better understand the board’s decision not to apply full clawback on equity awards which had been granted to the CEO in prior years. Based on available information, it appeared that the board could have clawed back more of his incentive pay for ‘exceptional events causing material harm’, and we were concerned that its failure to do so would set a negative precedent.

The learnings from our engagements led us to make two voting decisions for the AGM which went against the board’s recommendations:

We voted against the re-election of the chairman (Item 12) as we felt it was important to hold the chairman accountable for the severe reputational damage caused by the Juukan Gorge incident.

We abstained on the remuneration report (agenda items 3 and 4) as we did not think it would be appropriate to endorse the report in light of the board’s decision to not apply full clawback to the CEO’s outstanding equity. However, we accepted the board’s contention that applying clawback would have been difficult in the circumstances since the CEO had not been found personally responsible for any wrongdoing, and we wanted to express support for the board’s amendment to the clawback policy aimed at rectifying this shortcoming.

The outcome

The remuneration report was voted down with an opposition of approx. 61% of participating shares. The re-election of the chairman was approved.