Corporate Finance: Sustainability Analysis of Rio Tinto

This article provides an analysis of the sustainability of Rio Tinto, a multinational corporation engaged in metals and mining. It covers environmental, social, and governance issues, as well as ethics and health of the company.

Running Head: CORPORATE FINANCE: THEORY AND PRACTICE
0
CORPORATE FINANCE: THEORY AND PRACTICE

CORPORATE FINANCE: THEORY AND PRACTICE 1
Table of Contents
Introduction................................................................................................................................2
Analysing sustainability.............................................................................................................2
Environmental............................................................................................................................3
Social..........................................................................................................................................3
Governance issues......................................................................................................................4
Ethics and health of Rio Tinto...................................................................................................5
Conclusion..................................................................................................................................5
References..................................................................................................................................7

CORPORATE FINANCE: THEORY AND PRACTICE 2
Introduction
Rio Tinto is an Anglo Australia multinational corporation which is structured as the dual
listed company with the listings on both the London Stock Exchange and the Australian
Securities Exchange and is engaged in the business of the metals and mining. The company
was incorporated in the year 1873 when the cluster of the investors purchased the complex of
the mine on the Rio Tinto. Currently the company is operating under the income of US$
14.474 billion. The revenue of the company is US$ 40.030 billion for the financial year 2017.
Not only this, the company is engaged in the business of refining which specifically includes
the refining of the bauxite and iron ore (Rio Tinto, 2018). Apart from this the company also
operates for the aluminium and related products, coal and uranium which are also used to
produce the energy, diamonds and other industrial minerals. Moreover the company is also
enhancing itself in the iron products and the titanium.
Analysing sustainability
The Rio Tinto has been acme organisation in the production of the materials which are
essential for human progress. The minerals and the metals that are produced by the Rio Tinto
play a vital role in meeting the needs of the consumers. According to the sustainability report
the safety and the elimination of the fatalities is the prime value that is available for the
purpose of the business. The report is also involved in Rio Tinto’s annual corporate reporting
suite. The sustainability report is also prepared in accordance with the Global Reporting
Initiative, the GRI mining & Metals Sector Supplement and the International Council on
Mining & Metals. The sustainability report discusses the issues relating to the environment,
social and governance issues to ensure the long term and the prosperous community factor of
the organisation (Rio Tinto, 2018).

CORPORATE FINANCE: THEORY AND PRACTICE 3
Environmental
Climate change is one good example of the environmental issue that covers both the internal
and the external issues. The company faced the impacts of the climate change and the
company is also facing the challenge of the low carbon future. Rio Tinto business life cycle
deliberately extends through the exploration, development and the closure of the assets and
the company also believes in leaving the legacy behind. In the year 2017 the environment
strategy the current resources are pooled and aligned with the purpose to be careful with the
environment. In the financial year 2017 the company improved the performances of the
health and safety by 5%. The company also extended CRM to cover the three critical health
risks which could be fatal for the business (Smyth, et al 2015). The environmental standards
are also revised and the introduction of the new environmental and the natural resource
management is what keep the company on going with the business. The major changes that
the company brought in relation to the environmental protection change are reduction in the
greenhouse gas emissions by 27. 69% of the electricity is in the form of the renewable energy
and the decarbonisation plant. Moreover the Paris agreement to limit the global is warming to
less than 2 degree Celsius above the pre-industrial levels. The company also achieved the
GHG emissions in the 30.6 million tonnes of carbon id oxide which is equivalent to 1.4
million in comparison to the year 2016 (Rio Tinto, 2018).
Social
The major response to the Communities and the social performance is to secure and maintain
the relationships that longs for last with those communities and the same is affected by the
operations and the activities. Regional economic development is a crucial part of the
community. In the financial year 2017 the company contributed 1336 programmes which
cover the health education and the environmental protection, housing agricultural and the

CORPORATE FINANCE: THEORY AND PRACTICE 4
business development. In total the business made an expenditure of US $176 million on the
community contribution. All the sites of the Rio Tinto achieved the CSP targets in 2016 and
2017. According to the sustainability report there is an increase of 5% compared to the year
2016. In order to survive in this competitive world the company made the divestment in the
thermal coal assets in Australia did not create much on the local communities in the Hunter
valley (Fonseca, McAllister and Fitzpatrick, 2014).
(Source: Rio Tinto, 2018)
Governance issues
The governance is the key that also decides the future prospect of the business and the nature
of the operations and the inherent risks with the recent factors which are of social and the
economic nature. The Rio Tinto published the second statement of the slavery and the human
tracking statement. The 25% of the land has been rehabilitated and the launch of the Talk to
peggy campaign has helped in improvement of the Corporate Governance. The company also
participated in the global initiatives such as Extractive Industries Transparency Initiative
which aims to maintain the strong governance by blending the transparency and
accountability (Boiral and Henri, 2017). Moreover the culture of the transparency has also
been followed by the encouragement to the employees to speak up about the issues and
concerns with the assistance of the management team or through the Speak Out program

CORPORATE FINANCE: THEORY AND PRACTICE 5
initiated by the management. The rolling out of the human rights training for all employees,
which are functioning specific and therefore the governance of the company has also been
improved.
Ethics and health of Rio Tinto
From the above analysis it can be concluded that the company is maintaining the ethics and
the health of the Rio Tinto is sound as the liquidity position of the company is also sound.
Moreover the company is also following the ethical principles. To put the ethical practices
into action the company has also introduced the training sessions on the modern slavery
which are conducted on the basis of the target with the assistance of the ethical and the
compliance team (Warner and Sullivan, 2017). The health of the Rio Tinto is outstanding as
the company’s net operating margin is 31.60% which increased from 19.44% in the year
2016. Moreover the return on the Equity and the return on the assets have also been increased
from 5.11% to 9.47%. The return on equity also escalated from 12.05% to 20.86% (Sroufe
and Joseph, 2017). However in comparison to the day’s sales outstanding the company
performed a bit hard and shall improve the performance. The free cash flow income is also
reduced in comparison to the previous year therefore the company shall take care of certain
aspects and otherwise the Rio Tinto comes under the healthy umbrella (Gürtürk and Hahn,
2016).

CORPORATE FINANCE: THEORY AND PRACTICE 6
References
Boiral, O. and Henri, J.F. (2017) Is sustainability performance comparable? A study of GRI
reports of mining organizations. Business & Society, 56(2), pp.283-317.
Fonseca, A., McAllister, M.L. and Fitzpatrick, P. (2014) Sustainability reporting among
mining corporations: a constructive critique of the GRI approach. Journal of Cleaner
Production, 84, pp.70-83.
Gürtürk, A. and Hahn, R. (2016) An empirical assessment of assurance statements in
sustainability reports: smoke screens or enlightening information? Journal of cleaner
production, 136, pp.30-41.
Rio Tinto, (2018) Financials [Online] Available from
https://www.morningstar.com/stocks/xnys/rio/quote.html [Accessed on 28th September
2018]
Rio Tinto, (2018) Sustainability Report [Online] Available from
http://www.riotinto.com/documents/RT_SD2017.pdf [Accessed on 28th September 2018]
Smyth, E., Steyn, M., Esteves, A.M., Franks, D.M. and Vaz, K. (2015) Five ‘big’issues for
land access, resettlement and livelihood restoration practice: findings of an international
symposium. Impact Assessment and Project Appraisal, 33(3), pp.220-225.
Sroufe, R. and Joseph, S. (2017) A comparison of environmental management system
components and practices. In Strategic Sustainability (pp. 43-55). California: Routledge.
Warner, M. and Sullivan, R. (2017) Putting partnerships to work: Strategic alliances for
development between government, the private sector and civil society. California: Routledge.