Dispatch 2: The Trojan Horse inside ESG: The Cracks Hidden Within the Organization

“You cannot think and act differently externally if you do not think and act differently internally.” 

The destruction of the sacred caves at Juukan Gorge in Western Australia in May 2020 was a tragedy. In a matter of a few minutes 46000 years of continual occupation on the land by the indigenous people of the area was lost. This became a very big story, very quickly. It ensnarled Rio Tinto one of the world’s preeminent mining companies in a whirlwind of publicity. Internal investigations and external inquiries were soon underway. The event cast a dark shadow, for if an event like this could happen under Rio’s watch it could surely happen anywhere across the face of the sprawling industry at the hands by innumerable companies big and small. And it has but few with the visibility of this event. 

 These were no ordinary caves. They were sacred to the Aboriginal people indigenous to this area for thousands of years. Cait Kelly, reporter for the Australian newspaper The News Daily, described the destruction of the caves on a picture-perfect day: 

The hum from the nearby mining area swept on the breeze across the Hamersley Range. The mountains were wrapped in silence. And then an explosion. Two rock shelters in Juukan Gorge blown to bits. In a few loud minutes, evidence of 46,000 years of continual occupation on this land just vanished. The most precious piece – a 4,000-year-old braid of human hair, proving a genetic link to the traditional owners alive today – gone, in seconds. It was the Sunday before Reconciliation Week, and Rio Tinto, one of the biggest mining companies in Australia, just blew up the only inland site that showed signs of continual human occupation through the last Ice Age. 

This was a singular event. There can be no doubt of that given the significance of the loss to the indigenous people, and to humanity’s known history on earth. And it leaves a deep stain on Rio’s storied history and leadership in the industry. Why did it happen? How could it have been prevented? What can be learned from this tragedy to ensure it never happens again, both within Rio and broadly within the industry? How can the world be assured that lessons to be drawn will be incorporated into corporate organizations and decision-making cultures within the industry?  

Regrettably, what happened at Juukan Gorge is not a new story. The extractive industries have left a long trail littered travesties, each unique in their own way, but no less important to the people affected by them. Tailings dam failures have been all too common over several decades with unthinkable consequences to the land and waters, one of the most dramatic being at  2019 at Brumadinoho, Argentina involving the death of 270 people. There is no end to a long litany of such events, from contaminants leaching into waterways to landslides wiping out a community to explosion leaving multiple bodies in their aftermath. 

However, there can be no doubt that in the last twenty years, the mineral industry has upped its game very significantly. Once a magnet for only bad news stories today there are many good news of great successes through proactive efforts to manage operations with ever increasing discipline and building mutually beneficial partnerships with communities. Responsibility, accountability, relationships, transparency are now part of the lexicon in the mining sector. A clear turning point was the 1998 meeting in Davos of nine of the most influential CEOs in the mining world, hosted by Sir Robert Wilson, then CEO of Rio Tinto. Here, they confronted the hard reality that the industry’s reputation around the world was in tatters. Both its access to resources and the security of its operations were under growing threat. There was no denying change; the challenge was how to make change work for the industry.  

This gave rise to the Global Mining Initiative (GMI), launched later that year during a major event in London attended by many of the industry leaders. It was described as “a leadership exercise with the objective of reaching a clearer understanding of the positive role the mining and minerals industries can play in managing the transition to sustainable development.” Those industries’ goals would include an independent process of research and engagement (the Mining, Minerals and Sustainable Development Project, or MMSD), a global conference to discuss the outcome of this work (Resources for the Future, held in Toronto in 2002), and the creation of a new international body to enable the industry to speak with a global voice on these issues (the International Council on Mining and Metals). 

Under the independent stewardship of the highly respected International Institute for Environment and Development, a massive initiative was set in motion to engage all relevant stakeholders, including companies, communities, governments, and civil society, in a process of analysis and consultation. Headquartered in London, the initiative operated through regional centres around the globe, holding over 100 cross-sectoral workshops in different locations. 

GMI and MMSD would be the springboard for an avalanche of standards, analytics, and acronyms that reshaped the industry, its obligations, and its relationships. For a comprehensive review of this period, there is no better source than the excellent report Architecture for Change: An Account of the Mining, Minerals and Sustainable Development Project History, authored by the remarkable Director of the MMSD project, Luke Danielson, assisted by his associate Caroline Digby. It was my privilege to work with Luke and the MMSD team at different points in the process with respect to the design and engagement of the stakeholder communities. Another valuable source is the MMSD Final Report. 

The world never stands still, and the context in which the industry of today must operate has changed dramatically since 1998. The demand for minerals has become insatiable. This has taken on a new urgency, as certain minerals are critical to technologies to meet both the challenges of climate change, and strategic and military imperatives given the rapidly evolving geopolitical order. Industry is on the hunt to source these minerals, many of which are aptly described as “rare” because the known deposits are insufficient to meet pressing demands. And China has at this point a near stranglehold on these minerals and processing them .Inevitably, with great pressures and great rewards comes greater temptation to take greater risks, which in turn creates greater threats to the people, land, and water near the resources. Innumerable events, albeit less dramatic than Jukkan Gorge have occurred involving a host of other companies, communities, and countries before and after sending out a powerful signal that there is much work yet to be done if mining is to move forward responsibly with its neighbours around the globe.  

How could this tragedy have happened? And if it could happen within Rio, a pre-eminent and respected leader in the Industry,  what are the risks hidden within countless other companies than Rio, most of whom are much smaller and less sophisticated? And as the drive for “critical minerals” (or as they are also now being rebranded more benignly “eco-minerals) ramps up red lights are flashing. 

  The Sustainable Minerals Institute at the University of Brisbane became involved in the post-mortem analysis of Rio Tinto’s actions, and Professors Deanna Kemp and Andrew Hopkins took this up and concluded:

First, Rio Tinto’s iron ore division was under extreme production pressure. The iron ore in the vicinity of the caves was very high grade and the company needed as much of it as possible to mix with other grades so as to supply the market with its trademark Pilbara blend. Its reputation as a reliable supplier depended on it. It was authorised under West Australian law to mine the area, even though this would destroy the caves, and it intended to exercise this legal right, regardless of any opposition. 

Second, Rio is siloed. It has a segmented organisational structure. It’s product divisions – iron ore, aluminium, copper and diamonds, minerals and energy – operate as autonomous business units with relatively little control from the corporate centre. When things go well, such an organisational structure is highly profitable for the corporation as a whole, because it leaves each product division free to take advantage of whatever opportunities there are in its particular market. But there is a downside. It leaves the corporation vulnerable to poor decision making by any one of its product divisions, decisions that may have disastrous human and environmental consequences that threaten the social license of the whole corporation. That is what has happened in the Juukan Gorge case. (https://theconversation.com/corporate-dysfunction-on-indigenous-affairs-why-heads-rolled-at-rio-tinto-146001) 

Nothing said here is surprising either in respect to the inevitability of production pressures, and the conventional organizational structure of a typical mining company. In those few sentences they confirm what I have seen repeatedly in my many decades of experience working amidst the complex dynamics of people and resources, inside, between, and among organizations, resolving differences and building relationships and partnerships. The interface between energy, mines and minerals and people and communities has been a major focus throughout my career( www.gemm.ca). What has become increasingly clear to me in countless contexts is that conventional organization structures are obsolete in managing many of the risks and seizing opportunities in today’s world. They need a serious “rethink, and reboot” as a foundation for building the corporate cultures that will drive success in the mineral industry. 

Let me be very clear on this point. The potential for short circuits up, down, or across the organization goes far beyond triggering a disaster. This is a fact of life inside the day to day operating environment , affecting what is said and done, decisions made or not,  conduct and actions in day to day operations. Organizations do not work friction free, nor should they. But what was hidden inside organization takes on an importance and visibility in its external interactions misfires suddenly take on consequences. And if the performance indicators that have proliferated with a parade of acronyms such as CSR, SDG’s, and the now fashionable  ESG do not measure and report on this are they  masking an enemy within? 

 What Kemp and Hopkins describe here is not an isolated situation. This autopsy could have been written for many of the unhappy chapters in the history of the relationship between mining operations and their neighbours. No less importantly, opportunities have been missed to build reciprocal value with the communities and regions where these companies are operating. Whether we’re looking at a risk not managed, or an opportunity not realized, as Pogo was known to say: “We have met the enemy, and it is us.” If ESG, and the other, performance measures do not include a robust tool to assess and report on internal alignment and integration within the enterprise, this cornerstone strategic risk will lie hidden in wait like enemies within a Trojan horse.  

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*This is the second in a series of “dispatches” whose goal will be to provide practical guidance on what it takes to deliver sustainability performance. Extrapolating from broad themes, I will “drill up” from five decades of experience in working as the “man in the middle” of complex challenges involving people and resources, helping to resolve differences and build partnerships. My experience has taken me inside organizations as well as between and among them in diverse sectors: fish and forests, land and water, mines and dams, gas-processing plants and nuclear waste, pipelines and transmission lines, energy, municipal transportation conflicts, and treaty negotiations. In these arenas, values, rights, interests, and power collide, engaging different organizational and governing structures and cultures, distinct “publics,” and the public interest.