Rio Tinto RIOthe world’s second largest mining and metals company is facing a possible divestment from Norway’s sovereign wealth fund.
The Council on Ethics, charged with ensuring compliance with strict ethical guidelines, is considering whether to recommend exiting the $2.15 billion stake due to alleged links to deforestation in the Brazilian Amazon.
According to the Wall Street Journal, the board asked Rio Tinto for comment in January on its draft recommendation to exclude the company from Norway’s $1.6 trillion fund. Since then, Rio Tinto and the municipality have been in discussions, but no final decision has been made.
The board, which is independent, plays an important role in the world’s largest sovereign wealth fund. Its task is to monitor the investments made by Norges Bank Investment Management, the fund operator. It may then recommend excluding companies from the fund or placing them on a watch list.
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Norway’s rigorous approach to ethical investing has also led to disinvestments by other major industry players, such as Glencore ADR GLNCYas the fund exited the Swiss miner in 2020 due to thermal coal production issues.
As Norges has strictly adhered to recommendations relating to environmental, social and corporate governance factors since 2015, the potential exclusion of Rio Tinto from the fund carries significant weight, as the fund is its fifth largest shareholder.
However, this is not the first time Rio Tinto has faced such a situation. In 2008, Norway made headlines by divesting from Rio Tinto due to concerns about the Grasberg mining operations in Indonesia, citing environmental damage. This divestment lasted 11 years until June 2019, when Rio Tinto sold its stake in the mine for $3.5 billion, paving the way for its re-entry into the fund.
Today the dispute concerns Rio Tinto’s 22% ownership of a bauxite producer, Rio do Norte mine (MRN), in northern Brazil. Another MRN shareholder, Australian miner South32 ADR SOHY, which holds a 33% stake, is also under evaluation, as Norges owns 2.18% worth about $223 million. The third largest shareholder is the aforementioned Glencore, with 45%.
As the largest sovereign wealth fund with $1.6 trillion under management, Norges holds an average 1.5% stake in listed companies globally. Due to its size, the fund holds significant global influence. Its actions attract interest from other sovereign wealth funds and large capital pools, potentially shifting sentiment around the companies under consideration.
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