BUACC5934 : Financial Accounting Semester 3 – ASSIGNMENT
Assignment Instructions– Ethics, corporate responsibility and sustainability
Acknowledging the conceptual differences between the three concepts – ethics, CSR and sustainability and their complementariness:
- Review the 2016 or 2017 annual report for two ASX companies from the following list: BHP, Fortescue Metals Group, Rio Tinto Group with a view to understanding how each company integrates the three concepts into their business environment. One of the companies must be BHP. (500 words)
- Has there been any significant environmental disasters reported in the recent annual reports for either company? (500 words)
- Describe the impact of the accident on the natural environment, communities, and global sustainability. (500 words)
- Review the literature on corporate social responsibility with a view to understanding how companies can become more genuine in their operations abroad, especially in remote communities. (500 words)
Rio Tinto Group Vs BHP Billiton – Ethics, Corporate Social Responsibility And Sustainability
Rio Tinto is amongst the leading international mining groups and combines Rio Tinto plc, which is a London-based and listed public company, and Rio Tinto Limited that is also listed on the ASX (Australian Stock Exchange). The two firms have been combined in an organization with a dual listed structure as one economic enterprise known as Rio Tinto Group. The company has diverse interests in products and geography with most of its assets being in North America and Australia. Moreover, Rio Tinto also operates in Africa, Europe and Asia. The company’s core businesses include underground and open pit mines, refineries, smelters and mills, in addition to service facilities, exploration and technology. On the other hand, BHP Billiton was founded in 2001 as a result of a merger between BHP, which is a natural resource-based firm, and Billiton, which is a mining company. At present, the company operates in a total of 25 nations, and employs roughly 41,000 individuals and its current market value stands at over $250 billion (bhp.com, 2017, pp. 1-48). Rio Tinto Group and BHP are involved in a number of corporate social responsibility activities, and also incorporates sustainability and ethics in its operations. These are as discussed below
According to Rio Tinto Group annual report, the company’s products assists in satisfying the needs of consumers and improving their living standards, and this is mainly realized through safe operations and closure of operations, sustainability and responsibility. Rio Tinto’s long term approach to business has ensured sustainability given that the development of first rate ore-bodies into big, long-life and effectual operations, as well as the development and application of technology at the mines, smelters and refineries are performed with sustainability in considerations. This has enabled Rio Tinto to sustain a competitive edge through the use of business cycle.
Through its business cycle, Rio Tinto group has been able to ascertain that its values underpin the manner it manages social, environmental and economic effects of its operations. The company carries out rigorous review processes and evaluations that are targeted at ascertaining that only approved investments offering attractive returns in the long-term, while simultaneously ensuring minimal adverse effects linked to its activities on the environment, individuals and communities (riotinto.com, 2016, pp. 1-99). Further, in closing all its assets’ life cycles, Rio Tinto begins the planning for its operations closure during the initial development stages so as to minimize the risks while maximizing outcomes. The closure planning is mainly targeted at minimizing the social, environmental and fiscal liabilities and the associated costs through discovery of sustainable and beneficial prospective land use. The company also rehabilitate its mining sites whenever probable.
On the other hand, with regards to BHP, it can be observed that to ensure sustainability in its operation, the company ensures protection of the environment by demanding that its suppliers’ operations must be in a manner that is protective of the environment and also compliant to the various applicable environmental laws, standards and regulations, environmental reporting and permitting.
Corporate Social Responsibility
With regards to CSR, Rio Tinto is determined to leave a lasting legacy in areas of its operations. Thus, recognizing that any major production operations tend to have key impacts on the communities where it operates, Rio Tinto has not only created jobs and business opportunities for the locals and local organizations but has also developed infrastructure. Moreover, the company makes efforts towards ensuring that the communities in which it operates are not left devoid of economic engines to drive them. For instance, In the Saguenay, Rio Tinto has extended the life of its investments and also promoted broader investment in the community before closing down its operations. The company has also engaged the community in securing the communities future in Vaudreuil through its aluminium refinery facility which is a significant employer in the community.
Consequently, concerning its CSR activities, BHP defines its CSR policies as requirements for tackling risks, and overtly asserts that it does not tolerate misconducts that are linked to forced, compulsory and child labor. To comply with its various CSR policies, BHP tends to make use of several methodologies. This takes in but is not restricted to carrying out progress evaluations in relation to its performance in comparison to the United Nations’ Global reporting Initiative and the Global Compact Principle that have been developed with the objective of aligning the companies’ operations. BHP also holds a yearly forum on CSR, and this is intended to bring together the various representatives of the company’s senior administrators, the communities’ opinion leaders and major non-governmental organizations with the objective of debating and discussing environmental issues that are pertinent to the organization. Investing in various community projects and also documenting its contributions to the community and spending to facilitate the achievement of the UN MDG goals. This also offers the organization with a consistent framework for assessing tangible progress.
With regards to ethics, Rio Tinto seeks to develop sturdy, lasting and trusting relations with its host communities, and acknowledges and respects the individual’s human rights and cultures, as these are some of the principles that are found in the company’s values, standards and policies and makes up its ethics. The company undertakes economic and social impact assessments with the objective of comprehending the various implications of its activities to enable the reduction of the negative effects. To attain this, the company works together with the local communities to develop vivid and transparent contracts that are vital to the provision of access to land that is required and for the direction of benefits individuals affected by the activities of the firm.
On the other hand, with regards to ethical practices at BHP, the company has instituted a number of measures to stem out incidences of corruption, extortion and bribery. For instance, Boiral and Henri (2017, pp. 283-317) asserts that the discussion regarding the actual extent of the responsibility and accountability has persisted on. In this regard, BHP maintains that all contracts pertaining to payments and transactions and inclusive of those that are in connection with hospitality and gifts, as well as other notable expenses have to be precisely documented in logical and comprehensible details in the records and books of the suppliers working on behalf of BHP. In its ethics policies, BHP also calls for the fair treatment of all its workers, payment of reasonable living wages, workplace safety and health, as well as freedom of association amongst the workers and managers. BHP also makes attempts geared towards the safeguarding of various protected areas and heritage sites through the use of environmentally friendly fuels including bio-fuels in its operations, compliance with the various laws, as well as the protection of the environment and the indigenous rights and freedoms.
Significant Environmental Disaster
One of the significant environmental disasters that Rio Tinto has faced [in recent times regards its Panguna Mine in Bougainville, Papua New Guinea. According to Lin, Li and Bu (2015, pp. 28-39), the residents of Bougainville for a ten year war against the company and won leading to the mine’s closure. The company was accused of having used a number of bulldozers and chemical defoliant during the construction of the copper mine, and this destroyed the rain forest which was a major source of subsistence to the local populations. Rio Tinto was also accused of dumping billions of tons of various harmful mine wastes that were generated from its mining activities into the pristine waters and on land, filling up key rivers with numerous tailings and polluting key bays and the Pacific Ocean, several miles away. The pollution from the mines was extensive leading to the exposure of the island residents to harmful chemicals and probable death and disease.
Regarding significant environment disasters caused by BHP, it can be noted that in the year 1996, BHP Billington was sued by Gordon and Slater for having cause one of the globe’s most destructive environmental disasters as a result of it discharging more than one billion metric tones of waste materials along with tailings into one of the key sources of OK Tedi River that is found in Papua, New Guinea. The pollution resulted in deforestation that covered close to 3000 square kilometers, in addition to turning the tropical rain forests into savannahs, and also causing an acute decline in the area’s fish population (95 percent decline).
Impact of the Disaster
The impact of the environmental degradation that occurred on Bougainville Island as a result of Rio Tinto’s operations include the observation that the water and air pollution resulted in serious health challenges amongst the locals, and this included asthma, upper respiratory conditions and TB amongst others. Moreover, the disaster led to loss of livelihoods by the locals given that they were no longer able to carry out farming activities, fishing and hunting. The traditional diets of the locals were replaced by processed foods and this also increased obesity incidences. Moreover, the environmental degradation disaster also led to international condemnation by various human rights groups given that it did not only affect the local residents but the oceans also got polluted. As a result, the company was forced to close the copper mine and this resulted in huge losses being suffered by Rio Tinto.
Similar to the case of Rio Tinto, the pollution of OK Tedi River that is found in Papua, New Guinea by BHP resulted in the loss of livelihoods by the locals are residents of Papua New Guinea are highly dependent on the rain forests for food and business products. The deforestation, therefore, implied that they were unable to access their traditional foods and also business commodities including medicinal plants and timber. Moreover, the reduction of the fish population and the subsequent destruction of forests implied that the local residents were nolonger able to fish and hunt animals for food. As a result, they opted for processed and imported food stuff that are considered as unhealthy and this resulted in increase in cases of diseases and conditions such as obesity. The pollution additionally resulted in the contraction of diseases by the local including Asthma, TB, various skin conditions and upper respiratory diseases. At the global level, the pollution caused by BHP activities led to global outcry especially from various environmental rights groups. As a result, the outcries led to the portrayal of a negative image of BHP owing to its actions, and given the observation that it was perceived as failing to take into account the rights of the local residents.
How Companies Can Become More Genuine In Their Operations Abroad
Having observed the various ways through which Rio Tinto Group and BHP Billiton have conducted their CSR activities and also faced challenges due to environmental disasters resulting from their mining activities, it can be concluded that there is a need for the two organizations to become genuine and enhance their CSR activities abroad. To attain such enhancements, Bice (2014 pp. 62-80) observes that one way an organization can become increasingly genuine in its foreign operations and in remote areas is by strengthening the support for CSR initiative so as to consistently attain higher degrees of CSR associated services to the organization’s operations in their foreign operations, as well as developing networks and local partnerships with various communities as well as strengthening the organization’s leadership, best practices and excellence in the company and the industry. Consequently, Ross (2017, pp. 187-201) asserts that additional training and increased support for the organization’s workers so as to ascertain that they are adequately equipped to detect various issues in time and actively contribute to their solution prior to their escalation.
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