In good news for the planet, Rio Tinto oustings show shareholders are finally getting tough on bad behaviour. Free market capital saving the planet; who’d have thought it?
Five years ago, the idea that three top executives at an £80bn miner like Rio Tinto would be fired over the fate of a couple of caves in the Aussie outback would have been laughable. While every big company would trot out the obligatory line about its green credentials, it rarely merited even a footnote in the boardroom minutes.
But as the members of the public people investing in these businesses have become more aware, and caring, of the damage companies can do to the planet, so they have started demanding the pension funds managing their savings take notice, too.
Fund managers have seen it as a marketing opportunity, launching “ESG” funds which have proved a big hit with investors.
ESG funds are portfolios of equities and/or bonds for which Environmental, Social and Governance factors have been integrated into the investment process. This means the equities and bonds contained in the fund have passed stringent tests over how sustainable the company or government is regarding its ESG criteria.
Now, if corporates do bad stuff, many asset managers have no choice but to ditch the shares which, in turn, hits the price. So, at Rio Tinto, it was not politicians or pressure groups who did for the top trio, but shareholders. They made it clear to the board that those at the very top had to go.
These oustings feel like a watershed moment to stem bad corporate behaviour. Free market capital saving the planet; who’d have thought it?
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