The ethics adviser to the Norwegian sovereign-wealth fund has told the miner it is assessing it for alleged environmental damage in the Brazilian Amazon
The ethics adviser to Norway's giant sovereign-wealth fund is examining whether to recommend the investor sell its multibillion-dollar stake in miner Rio Tinto because of environmental concerns, according to people familiar with the matter.
The Council on Ethics, as the adviser is called, has told Rio Tinto in recent months that it is assessing the mining company for environmental damage from its operations in the Brazilian Amazon, according to a letter viewed by The Wall Street Journal.
In the January letter, the council asked Rio Tinto for comment on its draft recommendation to exclude the company from Norway's $1.6 trillion fund. Since then, Rio Tinto and the council have been in discussions but a final decision hasn't been made, the people said.
The council, which is independent, plays an important role for the world's largest sovereign-wealth fund. Its job is to scrutinize investments made by Norges Bank Investment Management, the fund's operator, to ensure they comply with a strict set of ethical guidelines. It can then make recommendations to exclude companies from the fund or place them on an observation list.
Norges has followed every recommendation related to the environment since 2015, the council says.
Norges holds, on average, a 1.5% stake in the world's listed companies. In recent years it has ramped up divestments related to environmental, social and corporate-governance factors. Its moves are closely watched by other sovereign-wealth funds and large pools of capital.
Getting blacklisted from the fund would be a blow for Rio Tinto, the world's second-largest miner by market value. As of Dec. 31, Norges was one of the company's largest shareholders, with a 2.24% stake worth some $2.7 billion.
A share sale by Norges could be a setback for Rio Tinto's efforts to burnish its reputation after it blew up two ancient rock shelters in Australia in 2020. The company has apologized and taken steps to try to restore trust with the local indigenous community.
The council's concerns about Rio Tinto have focused on deforestation, and its partial ownership of an operation in northern Brazil called Mineração Rio do Norte, or MRN.
MRN says it is Brazil's largest producer of bauxite, which is used to make aluminum, with output of some 12 million tons a year.
Rio Tinto owns 22% of MRN. Its other shareholders are Glencore, with a 45% stake, and Australian miner South32, which has a 33% stake.
South32 is also in discussions with the Norwegian fund's ethics adviser, according to people familiar with the matter. As of Dec. 31, Norges owned a 2.16% stake in South32 worth $223 million.
Norges divested from Glencore, alongside others, in 2020 because of concerns about thermal coal production.
Kjell Kristian Dørum, a chief adviser at the council, confirmed that Rio Tinto and South32 are under assessment but declined to comment further. Norges declined to comment.
A representative for South32 also declined to comment.
A spokesperson for Rio Tinto said it doesn't manage MRN but that the latter is working to improve its environmental and social performance. Rio Tinto will continue to support those efforts, including by providing technical assistance, the spokesperson added.
MRN said mining activities in the area where it operates are subject to a rigorous environmental licensing framework, and that it operates in strict compliance with Brazilian laws and regulations. The company implements procedures to avoid and mitigate environmental impacts and has a program to restore mined areas as close as possible to their original condition, an MRN spokesperson added.
This isn't the first time Rio Tinto has landed in the ethics adviser's crosshairs. Norges sold its stake in the company in 2008, citing environmental damage caused by the Grasberg mine in Indonesia, in which Rio Tinto held a stake. Rio Tinto was allowed back into the fund in 2019 after the company sold its Grasberg stake for $3.5 billion.
Norway has its own history of involvement in the Amazon. Norsk Hydro, a Norwegian aluminum and renewable energy company backed by the Norwegian state, used to partially own MRN and continues to get bauxite from those operations. Spokespeople for Hydro and the Norwegian Ministry of Trade, Industry and Fisheries, which owns the stake in the company, declined to comment.