Rio Tinto is one of the largest mining groups in the world, with their business focus being in finding, mining and processing the Earth’s mineral resources (Rio Tinto 2015). Rio Tinto has been a listed company in Australia since 1962 and they have over 200,000 shareholders. In over 30 sites Rio Tinto produces iron ore, coal, diamonds and more. Mining involves an immense, large scale process which leads to land, air and water pollution as well as the upheaval of natural landscapes and a transformation of remote regions. Therefore reducing their environmental impact is one of Rio Tinto’s main priorities in order to keep their various stakeholders, mainly the government, community groups and their shareholders happy. Rio Tinto states that ‘respect for the environment is central to our approach to sustainable development’ (Rio Tinto Australia 2015) and that they have developed management accounting systems which enable them to focus on issues specific to the Australian environment such as water management, air quality control standards and protecting the natural landscape.
Being such a large and successful organization allows Rio Tinto to invest a substantial amount of money into technology development, research and conservation projects, and risk management systems. In their annual report it is reported that management and business leaders have the responsibility of identifying and managing risks in accordance with a group-wide framework (Annual Report 2014, p14). Rio Tinto acknowledges the importance of having a framework in place in order for employees to recognize that managing risk effectively is an essential part of creating value for the business. The framework implements a ‘three lines of defense’ model; ownership of risk by the operations, control of risk by group functions and management committees and assurance of the systems by group audit and assurance team (Annual Report 2014, p14).
This emphasizes that every employee is responsible for enforcing Rio Tinto’s values.The company has implemented environmental management systems that measure their environmental performance against their operations on their various work sites. The systems also manage their environmental costs. Their prevention activity costs include the cost of these systems, as well as conducting environmental studies and auditing environmental risks. Rio Tinto also has detection activity costs such as inspecting their processes and auditing the environmental data.(Source: Rio Tinto Annual Report 2014).
The chart describes the consumption of energy of Rio Tinto’s operational sites and its capacity to reduce its energy consumption between the period 2010 and 2014One way that Rio Tinto does this is by chasing and grading incidents on sites according to their environmental influence (Annual Report 2014, p47). According to their most recent annual report, Rio Tinto reported twelve one-off or frequent onsite incidents that raised concern to their environmental policies in 2014. Four of these were water discharges and five were air discharges. Management reports these incidents not only so that their stakeholders are aware of their occurrence, but also to reinsure them that they have taken note of the incidents and that it is a priority to resolve the incident. It is also used as a performance indicator as they compare the variance in the amount of incidents year on year. In 2013 there were 15 incidents so Rio Tinto appears to be improving annually in this area.
Another of Rio Tinto’s detection activities is monitoring greenhouse gas emissions. In 2014 the largest source of emissions came from third party transport of their products and raw materials, from customers using their coal in electricity generation and steel production and using iron ore to produce electricity (Annual Report 2014, p14). Between the years of 2008 and 2014 Rio Tinto were able to reduce their overall greenhouse gas emission by 18% which again indicates that the company’s focus on reducing the energy and carbon intensity at their operational sites is long term and that their environmental strategies have been successful and therefore likely to be ongoing. The reduction in emissions was largely due to the result of disinvestment in one of their aluminum smelters and commissioning a new low intensity smelter in late 2013 (Annual Report 2014, p13). Carbon emission reporting become mandatory when the carbon tax was introduced, and even though it was scrapped in July 2014, Rio Tinto will likely continue to report their emissions as it is a way to measure themselves against their competition. Environmental reporting also aids them in ensuring that they are complying with industry standards and local and global mining trends.
(Source: Rio Tinto Annual Report 2014).The above graph describes the Rio Tinto’s performance data from the year 2010-2014 in the reduction of GHG emissions. In order to maintain good relationships with the community members that live around their sites management needs to understand not only what their concerns are, but also what it is that the community would like to gain from Rio Tinto operating in their region. By completing research through things such as meetings with community leaders and members of local government or visits to the regions, management is able to decide what community projects would be most beneficial. Management then prepares a budget based on their research and reports on their community decisions and development in the annual report.
In 2014, Rio Tinto reported 2,200 socio-economic programs worth a total of US$261 million which covered activities such as health, education, environmental protection, housing, and agriculture and business development (Annual Report 2014, p23). Unfortunately for Rio Tinto this was a decrease of 21% on the previous year’s figures. However in the report they noted that the reasons for this was prevailing market conditions, divestments and completion of key programs at developing projects (Annual Report 2014, p23).
With these explanations stakeholders are able to form an educated decision about whether they are pleased with Rio Tinto’s community spending or whether they would like to see an improvement in managements approach in the following year. It also provides insight into their budget and the reasons behind determining their yearly environmental spending. It is clear from reading their annual report, as well as specific reports on their website, that Rio Tinto is committed to doing their best when it comes to lessening their environmental footprint and that they are fully aware of the importance of having sufficient management accounting processes in place in order to monitor, develop and improve their practices.