Fund chief to make ESG-linked visit to Brazil communities hit by iron ore dam slides

The chairman of the UK's Local Authority Pension Fund Forum plans next week to visit communities hit by the 2015 Mariana and 2019 Brumadinho iron ore tailings dams collapses in Brazil in a trip that could influence investors' environmental, social, and governance perspectives on how the accidents were handled.

"The objective of the visit is to get the principal owners, both BHP and Vale, to be more responsive to the delivery of the compensation and reparations, through their operational failures in both 2015 and 2019," LAPFF Chairman Doug McMurdo said in an emailed interview with S&P Global Commodity Insights. "We have made progress, but there is still a long way to go."

McMurdo, also a UK city councilor, will spend two and a half weeks visiting seven communities and other stakeholder groups still dealing with the fallout from the dam collapses, LAPFF said in an Aug. 3 statement.

"Sadly, in many respects, it sounds as though very little progress has been made, for example in the rebuilding of houses after the Mariana (Fundão) dam collapse," McMurdo stated. "I am keen to see with my own eyes the impact of these disasters on the communities and to take in fully the financial consequences for the companies involved, ultimately shareholders."

Neither Vale nor BHP had any immediate response to LAPFF's Aug. 3 statement. McMurdo said he would visit with Vale chairman, José Penido, and Renova Foundation CEO André de Freitas during the forthcoming visit.

BHP, Vale, and Brazilian authorities set up the Renova Foundation following the Mariana accident to administer compensation, reparations, and resettlement. Iron ore production at both companies' facilities in Brazil was curtailed.

The International Council on Mining and Metals set up a Global Industry Standard on Tailings Management, and Brazilian federal and state authorities tightened up legislation on tailings dam construction, monitoring, and maintenance. Vale, previously the world's largest iron ore producer, lost about 25% of its production capacity from measures taken following the Brumadinho accident.

Nineteen people died in the Mariana dam collapse and 270 as a result of the Brumadinho collapse.

The overall financial materiality of the cases, in terms of both remediation and compensation, has been estimated by the Brazilian public prosecutor at a minimum of Real 155 billion ($29.33 billion). It is understood that more than $8 billion has been paid or committed by the mining companies to date.

LAPFF, considered a leader in ESG positions, is a voluntary association of 85 public sector pension funds and six pool companies based in the UK with combined assets of more than GBP350 billion ($425 billion). It says it exists to promote the long-term investment interests of local authority pension funds and to maximize their influence as shareholders to promote corporate responsibility and high standards of corporate governance among the companies in which they invest.

'Engage rather than divest'

Around half of LAPFF members hold shares in BHP and slightly fewer in Vale, McMurdo said in the interview.

"It is LAPFF's policy to engage rather than divest as LAPFF itself does not hold shares in the companies involved, but individual LAPFF funds might reach a point where they feel that it is in their own funds' interests to divest," he said. "LAPFF will also continue to engage with the affected communities to monitor progress and grievances. It is important to continue to pose community views to the companies and Renova Foundation. The community engagement has been invaluable in enabling LAPFF to ask the most relevant questions to the companies and is a necessary check on whether the companies' conduct is appropriate."