Corporate Social Responsibility and Ethics - Report on Rio Tinto

This report analyzes the corporate social responsibility, ethics, and governance structure of Rio Tinto, one of the largest metal and mining companies in Australia and the UK. It highlights the importance of CSR and ethics in building a loyal customer base and long-term growth. The report also discusses instances of gaps in past performance and responses, and the governance structure of Rio Tinto.

CORPORATE SOCIAL
RESPONSIBILITY AND
ETHICS

REPORT 1
Executive Summary
Corporate Responsibility, governance structure and ethics are an important aspect of any
business as they help in identifying the issues and allow the organization to pay back to the
society and all the stakeholders. These practices not only help building a large loyal customer
base, but are also significant for long term growth, goodwill and success. Moreover these
activities strengthen the internal relationships with the employees.
The report highlights the different facets of the CSR, corporate governance structure and
ethically viable efforts of Rio Tinto that has played an important part in making Rio Tinto
one of the largest metal and mining company at Australia and UK.

REPORT 2
Table of contents
Introduction................................................................................................................................3
Background................................................................................................................................4
Analysis of CSR and ethics of Rio Tinto...................................................................................4
Instances of gaps in past performance and responses................................................................9
Governance Structure.................................................................................................................9
Conclusion................................................................................................................................11
References................................................................................................................................13

REPORT 3
Introduction
According to Howard R Bowen’s book namely “Social Responsibilities of the Businessman”,
published in 1953, corporate social responsibility has been defined as the set of obligations
required to be fulfilled by the businessmen, in terms of designing policies and undertaking
decisions which are in line with the objectives and values of the society as a whole (Moon,
2014). The concept of corporate social responsibility is not only restricted to healthy
environmental practices, but it extends towards aligning overall values of an organization
with the aspirations of the stakeholders’ vis-à-vis customers, employees, investors, suppliers,
regulators and society (Zientara, 2017). The international importance of CSR can be easily
traced via the number of international organizations formed for the same, which are
constantly addressing the issues concerning social and ethical responsibilities of organisations
(Katamba, et. al, 2012) Some of the noteworthy names among these are Global Reporting
Initiative, the Organization for Economic cooperation and development, the UN Global
Compact, the World Business Council for Sustainable Development, and the International
Organization for Standardization. Business ethics refers to the application of the moral values
such as trust, openness, integrity, objectivity and respect, the conduct of business. The
various ethical issues as have been recognised are employee conflicts of interest, sexual
harassment, unauthorized payments, employee privacy, environmental issues, insider trading
and many more (Jamnik, 2017). Corporate governance structure refers to the practices,
processes and rules which helps in directing and controlling the entities. It is basically the
framework of rules and practices which enables the management being transparent, fair and
accountable (Tricker, 2015). The corporate governance structure has multiple facets i.e.
people, roles, policies and structures.

REPORT 4
Background
The company chosen for the evaluation is Rio Tinto. Rio Tinto is one of the world’s chief
mineral and metal mining conglomerate having head offices in Australia and UK. The
objective of this report is to analyse the policies of Rio Tinto with respect to governance
structure, corporate social responsibility and business ethics, their implementation as well as
the results. The company carries out its corporate social responsibilities through the
Sustainability Committee, which was headed by the Sustainability Committee Chairman, Ms
Megan Clark for the year 2017 (Rio Tinto, 2018).
Analysis of CSR and ethics of Rio Tinto
In order to have a glance of the CSR policy of the company Rio Tinto, few of the activities
that were undertaken recently and the achievements of the year 2017, are listed below.
 The company championed Australia’s White Ribbon (domestic violence) campaign
which operates on the line of protection and support of families affected by domestic
violence. Rio Tinto became a White Ribbon accredited workplace in Australia in the
month of March 2018 (Rio Tinto, 2018).
 Rio Tinto remains to be one of the leading companies of Australia employing
indigenous Australians. The reported numbers of full time indigenous employees
were 1,431, who constituted approximately eight per cent of the company’s total
Australian employees in 2017 (Rio Tinto, 2018).
 The company runs an employee assistance programme, that deals with providing them
with professional advices and support for employees and their families. More than 95

REPORT 5
per cent of employees of Rio Tinto are covered by the Employee Assistance
Programme (Rio Tinto, 2018).
 There has been a reduction of 27 percent of greenhouse gas emissions in past 10 years
(Rio Tinto, 2018).
 Around 69 percent of the energy sources of Rio Tinto are renewable energy resources
(Rio Tinto, 2018).
A number of models have been developed over the years to assess the corporate social
responsibility framework of the entities. The two techniques that have been used to analyse
the company’s CSR activities and governance structure are Carroll’s Pyramid and Wartick
and Cochrane’s Typology. Archie B. Caroll had developed the Pyramid of CSR, to study the
corporate social responsibilities and social issues in management (Schwartz, 2011). The
technique is based on the CSR definition laid down by Archie B. Caroll himself. According
to him CSR activities of an organization is confined within four kinds of expectations of
society namely, economic, legal, ethical and discretionary.
(Source: Schwartz, 2011)
A company has to be economically responsible by providing quality goods at competitive
prices to the society and by earning profits. Also it is the responsibility of the management to

REPORT 6
maximise the long term economic returns to the shareholders of the company. The economic
benefits can be examined by the consistency of share value in the market and distribution of
the profits in the form of cash dividend. Following graph describes the growth and
consistency of the share price of Rio Tinto over the period of 1 year, apart from the minor
variations.
(Source: marketindex, 2011)
The legal responsibility deals with compliance of applicable laws and regulations. The
company Rio Tinto reports on the corporate social responsibility against the Corporate
Governance Code of UK, the Australian Exchange Corporate Governance Council’s
corporate governance principles and recommendations (also known as the ASX Principles),
and New York Stock Exchange Corporate Governance Standards (Rio Tinto, 2018). Apart
from these, the company follows the Global Reporting Initiative (GRI) Sustainability
Reporting Standards and 10 principles of sustainable development as laid down by the
International Council of Mining and Metals.

REPORT 7
Ethical responsibilities refer to the adoption of moral principles and engagement in activities
that are ethically viable. The management of company Rio Tinto has formulated a code of
business conduct “The way we work”, for its worldwide operations which clearly sets out the
principles of teamwork, safety, respect, integrity and excellence. According to the annual
report of Rio Tinto for the year 2017, the Sustainability Committee works under the guidance
of the board of the directors and is responsible for overseeing and reviewing the policies of
management, standards and strategies formulated to mitigate the risks and challenges
concerning health, employees’ safety, asset security, environmental issues and society. Apart
from this, the committee is also responsible of ensuring that the company operates in a way
that is in line with the mission and objectives of the entity, towards all the stakeholders and
that the activities contribute towards the development of nation and society as a whole.
The philanthropic responsibilities deal with the contribution towards societal issues and
improvement of the overall environment within which company operates (Carroll and
Buchholtz, 2014). According to the data published in the Rio Tinto’s Sustainability Report
2017, company had spent a whooping US $ 176 million in the year 2017, as an amount for
contribution towards the community. The amount was utilized to run 1336 community
programmes covering health, environmental protection, education, housing, and agricultural
and business development. The following image shows the community contributions by Rio
Tinto in year 2017.

REPORT 8
(Source: Rio Tinto, 2018)
Another model for the analysis of the corporate social responsibility function of an
organisation is Wartick and Cochrane typology. Wartick and Cochrane developed this three
dimensional model named as Corporate Social performance Model in 1985, comprising three
elements namely, the subject of social problem, the type of social responsibility and the
nature of corporate responsiveness (Morrison,2015). This model is inspired from that of
Caroll’s pyramid and is based on the principle as to identifying of social problems, problem
analysis and the corporate activities in relation to that. The company Rio Tinto has developed
corporate social responsibility standard which is line with the International Finance
Corporation’s Performance Standard on Environment and Social Sustainability (Rio Tinto,
2018). The company engages in social and economic impact evaluations, in order to
understand the implications of the business activities and thereby reduction of negative
impacts on the surrounding community throughout the life cycle of the operations.

REPORT 9
Instances of gaps in past performance and responses
 During the year 2016, Rio Tinto was in news for delaying the payment to its suppliers
by almost double the normal time, raising the payment terms to 90 days. Rio Tinto
was grossly negligent in performing its ethical duties towards the suppliers, while
most of the suppliers belonged to small and medium size businesses (Pascoe, 2016).
In response to the controversy, Rio Tinto launched the Supplier code of conduct,
which is now issued to all our suppliers. It outlines what the company is expecting of
them in terms of human rights, labour rights, safety and the environment.
 Relations between the Mongolian government and Rio Tinto had soured in 2013,
when a dispute had arisen over costs and taxes related to a proposed expansion of Oyu
Tolgoi copper and gold mine (Burton and Edwards, 2018). The matter was finally
resolved in 2015, when the agreement was signed between the government of
Mongolia and Rio Tinto (Reuters, 2018).
Governance Structure
The governance structure of Rio Tinto as described in the Annual Report, 2017 comprises of
the various parties, and each one of them is described in brief in the following segment.
Chairman: Mr Simon Thompson has taken over the post of the Chairman with effect from
March 5th, 2018. He is responsible for leadership, setting up of board agendas and the overall
effectiveness of the functioning of the board (Rio Tinto, 2018).
Chief Executive Officer: The CEO, Mr Jean Sebastian Jacques is responsible for the day-to-
day management of the business through the delegation of activities and support of various

REPORT 10
committees such as Executive Committee, Investment Committee, Risk Management
Committee, Ore Reserves Steering Committee, Disclosure Committee and Closure
Committee. These are collectively known as the management committees (Rio Tinto, 2018).
Chief Financial Officer: The CFO, Mr Christopher Lynch is entrusted with the
responsibility of financial planning, reporting and analysis, management of investor relations
and overseeing overall capital structure formulation and implementation (Rio Tinto, 2018).
Board of Directors: The board of directors consists of six non-executive directors, who
provide overall leadership and direction to the affairs of the company either directly or
indirectly, in order to provide long-term value to shareholders and other stakeholders. The
board is responsible for establishing corporate policies and strategies, and to ensure that there
is an effective internal control environment for day-to-day operations to take place
efficiently. The board recognises and delegates its functions and authorities the various
committees (Rio Tinto, 2018).
Five Board Committees: The Company Rio Tinto comprises of the following five
committees, through which the various functions are carried out (Rio Tinto, 2018).
 Audit Committee
 Nominations Committee
 Remuneration Committee
 Sustainability Committee
 Chairman’s Committee
Group Company Secretary: Mr Steve Allen and Mr Tim Paine are the joint company
secretaries of the company and are responsible for advising the board of directors on the
various governance related matters (Rio Tinto, 2018).

REPORT 11
Following images describes the governance structure of Rio Tinto.
(Source: Rio Tinto, 2018)
(Source: Rio Tinto, 2018)
Conclusion

REPORT 12
Thus from the discussion undertaken in the previous parts, it can be concluded that corporate
social responsibility, ethics and governance structure play an important part in the overall
functioning of the businesses of 21st century. Over the years the relationship between the
managers, and the quality and detail of CSR reporting has gained a worldwide recognition.
The concept, related techniques and practices have developed a major significance, and the
companies like Rio Tinto voluntary disclose their CSR activities and governance because of
two major reasons. Firstly it enhances their reputation among the stakeholders groups leading
to customer loyalty, long term benefits, and it is a mode of paying back to the society that has
given them the license to work in. Secondly in order to make the reporting practices
transparent and fair. From the analysis of corporate social responsibility policy of Rio Tinto,
it can be concluded that the CSR activities undertaken by the company over the years has
helped the company in building a brand name for themselves not only in metal and mining
industry but globally as well. Though there existed a few instances of gaps in the Corporate
Social Responsibility performance of Rio Tinto, but the company has managed to respond
successfully to such instances and get past them to become the leading global mining group.

REPORT 13
References
Burton, M., and Edwards, T. (2018) Rio Tinto digs deeper into Mongolia. [online] Available
from: https://www.reuters.com/article/us-rio-tinto-mongolia/rio-tinto-digs-deeper-into-
mongolia-idUSKBN1FA17R [Accessed 07/06/2018].
Carroll, A. B., and Buccholtz, A. K. (2014) Business and Society: Ethics, Sustainability, and
Stakeholder Management. 9th ed. Boston, MA: Cengage Learning.
Jamnik, A. (2017) The Challenges Of Business Ethics: The Basic Principles Of Business
Ethics - Ethical Codex In Business. [online] Available from:
file:///C:/Users/System04100/Downloads/RIC_volume_3_issue_3_Anton_Jamnik%20(1).pdf
[Accessed 05/06/2018].
Katamba, D., Zipfel, C., Haag, D., and Kazooba, C. T. (2012) Principles of Corporate Social
Responsibility (CSR): A Guide for students and practicing managers in developing and
emerging countries. Houston: Strategic Book Publishing and Rights Co.
Market Index (2018) Rio Tinto Limited. [online] Available from:
https://www.marketindex.com.au/asx/rio [Accessed 07/06/2018].
Moon, J. (2014) Corporate Social Responsibility: A Very Short Introduction. New York:
Oxford University Press, p. 3.
Morrison, J. (2015) Business Ethics: New Challenges in a Globalised World. London:
Palgrave Macmillan, p. 226
Pascoe, M. (2016) Unethical Rio Tinto seeing shares surge up. [online] Available from:
https://au.finance.yahoo.com/news/unethical-rio-tinto-seeing-shares-surge-up-
034629798.html [Accessed 07/06/18].

REPORT 14
Reuters (2018) Rio Tinto, Mongolia end stand-off to build huge copper mine. [online]
Available from: https://www.reuters.com/article/rio-tinto-plc-oyu-tolgoi-
idUSL3N0Y95MT20150519 [Accessed 07/06/18].
Rio Tinto. (2018) Annual Report 2017. [online] Available from:
https://www.riotinto.com/documents/RT_2017_Annual_Report.pdf [Accessed 07/06/18].
Rio Tinto. (2018) Sustainable Development Report 2017. [online] Available from:
http://www.riotinto.com/documents/RT_SD2017.pdf [Accessed 07/06/18].
Schwartz, M. S. (2011) Corporate Social Responsibility: An Ethical Approach. New York:
Broadview Press.
Tricker, B. (2015) Corporate Governance: Principle, Policies and Practices. 3rd ed. Oxford:
Oxford University Press.
Zientara, P. (2017) Socio emotional Wealth and Corporate Social Responsibility: A Critical
Analysis. Journal of Business Ethics, 144(1), pp. 185–186.