VietJoy

SYDNEY, AUSTRALA - Rio Tinto's decision to part ways with its CEO and two senior executives reflects heightened investor concern over social issues and the loss of "social license" to operate, governance groups and investors said.

The global miner said on Friday chief executive Jean-Sébastien Jacques and two other executives would step down following an outcry over its decision to detonate part of an ancient gorge that showed 46,000 years of human habitation.

The move comes as investors are demanding increased transparency in how companies manage environmental, social and governance (ESG) risks, said Danielle Welsh-Rose, Aberdeen Standard Investments ESG Investment Director, Asia Pacific.

"The leadership changes at Rio Tinto today are significant in many ways, including showing that investors and other stakeholders will hold companies to account on their ESG performance," she said.

Rio had been slow to recognize the importance of ESG issues following recent banking scandals in Australia, said Vas Kolesnikoff, Australian head of governance adviser ISS.

"This is the social license to operate. If you don't adhere to appropriate conduct and standards, you're going to fall foul of investors," he said.

Ben Cleary, a partner at Tribeca Investment Partners said the Rio departures were a big moment for the mining industry.

"For the CEO and a couple of senior management to go over an ESG issue, it's just going to reverberate through board rooms throughout the resource sector," he said, adding that it could slow down the sector.

Rio's detonations, which allowed it to access higher-grade ore, also came amid a wider movement in Australia focused on the treatment of aboriginal groups, who fall behind the general population on markers ranging from child mortality to literacy.

Land rights barrister Greg McIntyre said it was too early to say whether Rio's move signaled a turning point in relation to dealings with aboriginal groups.

"What it does indicate is that this issue is being taken seriously, which is a positive development, but it's not a solution to the problem."