Corporate Scandal Analysis: Rio Tinto

David MacNeil, Marketing Officer

At Orenda, we aim to provide detailed analytics which present how our ESG data can accurately predict market performance based on a company’s corporate actions which directly impact its Environmental, Social or Governance standing. In this use case, we are analyzing Rio Tinto, an Anglo-Australian multinational mining company, which is the world's second-largest metals and mining corporation for producing iron ore, copper, diamonds, gold and uranium.

CONTEXT

In May of 2020, Rio Tinto was responsible for the destruction of the Aboriginal heritage site, Juukan Gorge, which was claimed to be one of the most historically and archeologically significant sites in all of Australia. In the aftermath, Rio Tinto was publicly criticized by the community’s aboriginal residents, which was backed by the voices of tens of thousands of social media users across the globe.

Rio Tinto’s ignorance and disregard for the cultural significance of this historical site was in an effort to mine the iron that had been discovered in the land below. Of course, this was not viewed as a remotely justifiable reason to destroy such a significant landmark. Despite the public outcry to reconsider, Rio Tinto opted to move forward with the mining project.

The backlash that would follow was so impactful, it lead to Rio Tinto’s Chief Executive Officer’s resignation in September 2020, and the company has even dedicated a page on its website acknowledging its wrongdoings.

FINDINGS

For the purpose of conducting performance analysis, we first compared Rio Tinto’s ESG data with its market performance during the time of the incident and were able to identify some serious connections. Figure 1 below represents Rio Tinto’s Overall ESG score vs its stock price over time.

As you can see, Rio Tinto’s reputation took a big hit in in June in the aftermath of the destruction of Juukan Gorge which took place in late May, as its ESG score plummeted from 3.05 to 2.22.

What is more interesting however is the trend in price. As we can see, Rio Tinto’s price actually reached its lowest point of this sample in March of 2020 – two months prior to the incident. Upon further research, this can be attributed to an outbreak of COVID-19 at a Mongolia Rio Tinto mine location, as well as the halting of a major mining operation in Kennecott as a result of an earthquake. Both occurrences significantly slowed down production for the month.

We do, however, witness another dip in stock price shortly after the destruction of Juukan Gorge, dropping 9.3% from $102 in July to $92.43 in October. This can likely be attributed to the amount of public outrage which took place in the months following the operation, as well as numerous protests.

In Figure 2 below, we break down the ESG analysis even further, outlining how its Environmental score in particular was impacted by this event.

As shown, Rio Tinto’s Environmental score dropped from a 2.87 in April to just 1.75 by the end of June, 2020, proving that its decisions regarding Juukan Gorge had a severe effect on how the public viewed the company’s environmental consciousness.

CONCLUSION

The objective of this case was to identify the correlation between Orenda’s ESG performance data and the change in company stock price during a corporate event, in this case an environmental scandal related to the destruction of a historical Aboriginal site. As presented in the data above, we can conclude that by employing Orenda’s ESG performance data, we are able to make a clear and reliable connection between market impact and ESG-focused corporate events. As such, we can confidently back ESG performance data as a beneficial tool to be implemented into traditional financial investment processes.