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Sustainability Investments as a Risk Mitigation Strategy. World Mines Ministries Forum Toronto, Canada March 1, 2008 Kariann Aarup Rio Tinto Alcan. Rio Tinto Alcan Today. Our Business Strategy. Be an industry shaper Be a developer of choice Maximise value for all our stakeholders, and

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sustainability investments as a risk mitigation strategy

Sustainability Investments as a Risk Mitigation Strategy

World Mines Ministries Forum

Toronto, Canada

March 1, 2008

Kariann Aarup

Rio Tinto Alcan

our business strategy
Our Business Strategy
  • Be an industry shaper
  • Be a developer of choice
  • Maximise value for all our stakeholders, and
  • Double our value over the next 5 years
shifting operational context
Shifting Operational Context
  • Shifts in our own asset base
    • To meet our growth targets, B&A is expanding into new & challenging markets where risks are high
  • Changing external realities
    • Increased shareholder/stakeholder activism – NGOs, SRIs, institutional investors
    • Increased connection between grassroots NGOs & international movements
    • Increased competition due to globalization
      • differentiation in today’s commodity markets not based on price but being the company of choice globally
    • Increased regulatory standards & international expectations
shifting external realities
Shifting External Realities

Source: Google; Factiva; company Web sites

potential risks
Potential Risks
  • Investment risks
    • Forced abandonment of existing operations
    • Difficulty to access new deposits
  • Financial risks
    • Potential loss of a new project
  • Reputational risks
    • Local actions become global news almost immediately
  • Operational risks
    • Costs, safety standards, production volume, etc
    • Stoppage or delays
  • Political risks
    • Civil unrest
  • Market risks
evidence of risks
Evidence of Risks

A Few Headlines from the Mining Press

Uzbek Government Revokes Oxus License

Kyrgyzstan President's attack sends Oxus shares crashing

Uzbekistan seizes some Newmont mine assets

$1.5 billion project stopped in Trinidad – community protest

Mining operation seized & nationalized by Bolivian Gov’t.

Expropriation of a mine by Zimbabwe Gov’t.

a sustainability imperative
A Sustainability Imperative

To improve financial return as well as to mitigate the potential strategic threats posed by these new realities we embed sustainability in our core business globally

“As proud as we are, many solutions remain ad hoc and reactive rather than systemic and proactive. I find that approach insufficient for the future.

We must close that gap by shifting toward what I call the principle of intended consequences, where sustainability is embraced as a matter ofphilosophy and practicality. ”

- RTA CEO Dick Evans

sustainability guiding principles
Sustainability Guiding Principles

RTA B&A will strive to:

  • Maximize value for all stakeholders by addressing local sustainability issues that directly connect to its business strategy and are in line with local, regional and national development priorities.
  • Become a partner in multi-stakeholder processes instead of being the principal actor in bi-lateral engagements.
  • Leverage partnership funding and expertise to ensure sustainability projects are collaborative.
slide12

Governing Objective:

Maximizing Value

Country Poverty

Reduction Strategy /

MDGs

UN Global Compact / MDGs / RTA The Way We Work

B&A 5-Year

Business Plan

Regional Development

Priorities

Site Strategic Agenda

Local Development

Priorities

Site Operational

Agenda

Multi-Stakeholder Engagement

Contribution to Local Development Plan

Action Plan/Indicators/Communication Plan

Sustainability Framework

Aligning business strategy with development priorities

capacity building of local officials
Capacity Building of Local Officials
  • Rio Tinto Alcan supported locally elected council members to go through a World Bank capacity building training program
a strategic shift in thinking to multi stakeholder partnerships
A Strategic Shift In Thinking:to multi-stakeholder partnerships

Shareholders

RTA

Governments

Shareholders

Special Interests

Governments

Employees

Special Interests

First Nations

Employees

Rio Tinto

Alcan

Local

Dev. Agencies

First Nations

Development

Priorities

Academia

Unions

Unions

Academia

Suppliers

Customers

Customers

Communities

Suppliers

Community

Previous Model:

RTA as Patron

Sustainability as philanthropy

Proposed Model:

RTA as Co-Facilitator/

Co-Initiator/ Supporter

Sustainability as strategy

embedding sustainability at an existing site
Embedding Sustainability at an Existing Site
  • Have a mandate from the top
  • Raise sustainability awareness on site
    • Cross functional workshop for management
  • Start with the business strategic issues
  • Understand the communities’ issues
  • Know the local, regional and national development priorities
  • Know the key stakeholders & establish relationships with them
  • Be transparent about the sustainability strategy and include stakeholders in its development
    • Develop & validate process jointly; monitor jointly
supporting site level sustainability
Supporting Site-level Sustainability

Embedding sustainability into:

  • The 5-year business plan
  • Operational monthly and quarterly reporting
  • Major project reviews & evaluation
  • Procurement: Responsible Supplier Initiative
  • Communications: internal & external
embedding sustainability in green field projects
Embedding Sustainability in Green-field Projects
  • Integrate sustainability into planning templates & processes
  • Start in the earliest of pre-feasibility stages
  • Engage in potential PPP with government, World Bank, African Development Bank, etc. in early stage of pre-feasibility
  • Include the entire initial project team
    • Cultural sensitivity, sustainability and human rights training
  • Implement sustainability across all functional teams
  • Plan for community investments in early feasibility stages
    • Build into project costs & think of as creating an environment conducive for investing
  • Enhance the ESIA process
    • Peace & Conflict, Human Rights and Health impact assessments
slide22

Workforce Skills Development

Investing in workforce skills development can create a tremendous amount of value as well as reduce costs. These investments also contribute to increasing the general living standards of local populations.

slide23

Local Community Development

Community investment is a key component for value protection and creation. These investments also decrease the likelihood of negative impacts due to community protests, work stoppage and site closure.

value creation protection in sustainability investments
Value creation & protection in sustainability investments

Overview of Costs-Benefits of green field project sustainabilityinvestments

Minimum Sustainability Investments

Tangible Benefits:

Value Created & Protected

Intangible

Benefits

  • Reputation
  • Community Engagement
  • Developing local economies
  • Local Industrial Diversification
  • Attraction and retention of employees
  • Improved productivity
  • Contribution to Millennium Development Goals
  • Achievement of B&A Sustainability Vision
  • Average NPV of sustainability in this project is US$200 Million
    • Maximum possible value of US$460 Million.
    • Minimum possible value of US$122 Million.
    • The sustainability investment protects value in all cases.
investment risk mitigation
Investment Risk Mitigation
  • Decrease risk of stoppage, closure, community protest
    • We have multi-stakeholder, open processes to deal with any community issues that arise
    • Local communities are our strongest advocates because we support their priorities and their governance structures
  • RTA seen as the developer of choice by governments & communities
    • Our sustainability reputation precedes us when we explore for new mineral reserves
    • Our competitive advantage is our sustainability approach
reputational risk mitigation
Reputational Risk Mitigation
  • Decrease the potential for bad press & NGO activism
    • We are seen as a leading corporate citizen that engages in local sustainability issues and wider societal debates and invests in the resilience of our host communities
    • We are partnered with NGOs and we are transparent in our actions
    • We engage with the NGOs likely to be in opposition to us from the outset and establish a dialogue
    • Partner NGOs are our best spokespeople
operational risk mitigation
Operational Risk Mitigation
  • Increased productivity
    • Reduced absenteeism
      • Healthier workforce & families
    • Increased skilled labour
  • Reduced health & safety incidents
  • Reduction of work stoppage potential
financial risk mitigation
Financial Risk Mitigation
  • Reduce CAPEX
    • Leverage local government funding to share in infrastructure development
  • Reduce OPEX
    • Reduced costs through hiring local labor and establishing local procurement policies
  • Reduce financial risk
    • PPP established from the outset
mitigating the uncontrollable risks
Mitigating the Uncontrollable Risks

“If any function can mitigate against the uncontrollable risks, sustainability can” – so say our finance team

sustainability is an integral part of our business strategy
Sustainability is an integral part of our business strategy.

Sustainability is like an insurance policy.

redefining success
“In today’s trust-starved climate, our market-driven system is under attack ...large parts of the population feel that business has become detached from society, that business interests are no longer aligned with societal interests ...The only way to respond to this new wave of anti-business sentiment is for business to take the lead and to reposition itself clearly and convincingly as part of society.”

--Klaus Schwab, Executive Chairman, World Economic Forum

Newsweek, February 2003

Redefining Success