Sustainability Investments as a Risk Mitigation StrategyWorld Mines Ministries Forum

Toronto, Canada

March 1, 2008

Kariann Aarup

Rio Tinto Alcan

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Rio Tinto Alcan Today

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Our Business Strategy

• Be an industry shaper

• Be a developer of choice

• Maximise value for all our stakeholders, and

• Double our value over the next 5 years

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Shifting Operational Context

• Shifts in our own asset base

– To meet our growth targets, B&A is expanding into new &

challenging markets where risks are high

• Changing external realities

– Increased shareholder/stakeholder activism – NGOs, SRIs,

institutional investors

– Increased connection between grassroots NGOs &

international movements

– Increased competition due to globalization

• differentiation in today’s commodity markets not based on price

but being the company of choice globally

– Increased regulatory standards & international expectations

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Shifting External Realities

0

500

1,000

1,500

2,000

2,500

3,000

1940 1950 1960 1970 1980 1990 2000 2010

The stakeholder landscape is changing rapidly…… and companies are increasingly scrutinized on sustainability matters

296

194

121127145

6467223925

4823

4641232124

Incidences of the phrases “Mining” and “Social Responsibility” in the same article

Number of NGOs in consultative status with UNESCO

Number of blogs, Millions

1990 91 92 93 94 95 96 97 98 992000 01 02 03 04 05 2006

Number of documents on company web site containing phrases such as…

Sustainable development

Social responsibility

Community development

Environment

Community relations

Human rights

Corruption

525

755

85

124

89

72

22

538

407

40

595

26

433

41

67

60

5

768

1

5

–0

5

10

15

20

25

30

35

2004 2005 20062003

Source:Google; Factiva; company Web sites

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Potential Risks

• Investment risks

– Forced abandonment of existing operations

– Difficulty to access new deposits

• Financial risks

– Potential loss of a new project

• Reputational risks

– Local actions become global news almost immediately

• Operational risks

– Costs, safety standards, production volume, etc

– Stoppage or delays

• Political risks

– Civil unrest

• Market risks

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Evidence of Risks A Few Headlines from the Mining Press

Mining operation seized & nationalized by Bolivian Gov’t.

Uzbek Government Revokes Oxus License

Kyrgyzstan President's attack sends Oxus shares crashing Uzbekistan seizes some Newmont mine assets

Expropriation of a mine by Zimbabwe Gov’t.

$1.5 billion project stopped in Trinidad – community protest

Sustainability at RTA B&A

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A Sustainability Imperative

To improve financial return as well as to mitigate the potential

strategic threats posed by these new realities we embed

sustainability in our core business globally

“As proud as we are, many solutions remain ad hoc and reactive rather than systemic and proactive. I find that approach insufficient for the future.

We must close that gap by shifting toward what I call the principle of intended consequences, where sustainability is embraced as a matter of philosophy and practicality. ”

- RTA CEO Dick Evans

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Sustainability Guiding Principles

RTA B&A will strive to:

1. Maximize value for all stakeholders by addressing local

sustainability issues that directly connect to its business

strategy and are in line with local, regional and national

development priorities.

2. Become a partner in multi-stakeholder processes instead of

being the principal actor in bi-lateral engagements.

3. Leverage partnership funding and expertise to ensure

sustainability projects are collaborative.

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Sustainability Framework Aligning business strategy with development priorities

Local DevelopmentPriorities

Country Poverty Reduction Strategy /

MDGs

Regional DevelopmentPriorities

Site Operational Agenda

Site Strategic Agenda

B&A 5-Year Business PlanUN Global Compact /

MDGs / RTA The Way We Work

Multi-Stakeholder Engagement

Contribution to Local Development Plan

Action Plan/Indicators/Communication Plan

Governing Objective: Maximizing Value

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Capacity Building of Local Officials

• Rio Tinto Alcan supported locally elected council members

to go through a World Bank capacity building training

program

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A Strategic Shift In Thinking:to multi-stakeholder partnerships

Previous Model: RTA as Patron

Sustainability as philanthropy

Proposed Model:RTA as Co-Facilitator/ Co-Initiator/ Supporter

Sustainability as strategy

RT

A

Rio Tinto Alcan

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un

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Employees

Sh

are

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First Nations

Academia

Special Interests

Unions

Suppl

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Custom

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Local

Development Priorities

Special Interests

First Nations

Go

vern

men

ts

Dev. Agencies

Unions

Custom

ers

Co

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un

ity

Supp

liers

Academia

Emplo

yees

Shareholders

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Multi-stakeholder partnership in Ghana

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Sustainable InitiativesLeveraged partnership funding & expertise

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Embedding Sustainability at an Existing Site

• Have a mandate from the top

• Raise sustainability awareness on site

– Cross functional workshop for management

• Start with the business strategic issues

• Understand the communities’ issues

• Know the local, regional and national development priorities

• Know the key stakeholders & establish relationships with

them

• Be transparent about the sustainability strategy and include

stakeholders in its development

– Develop & validate process jointly; monitor jointly

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Supporting Site-level Sustainability

Embedding sustainability into:

• The 5-year business plan

• Operational monthly and quarterly reporting

• Major project reviews & evaluation

• Procurement: Responsible Supplier Initiative

• Communications: internal & external

Sustainability in Green-field Projects

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Embedding Sustainability in Green-field Projects1. Integrate sustainability into planning templates & processes

2. Start in the earliest of pre-feasibility stages

3. Engage in potential PPP with government, World Bank, African

Development Bank, etc. in early stage of pre-feasibility

4. Include the entire initial project team

• Cultural sensitivity, sustainability and human rights training

5. Implement sustainability across all functional teams

6. Plan for community investments in early feasibility stages

• Build into project costs & think of as creating an environment conducive

for investing

7. Enhance the ESIA process

• Peace & Conflict, Human Rights and Health impact assessments

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Potential Sustainability Risks for a Green-field Project

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Actions Phase 1 Phase 2 Construction Operation Closure

1. Carry out local workforce qualification and

quantification study

2. Engage in early literacy, pre-employment

and vocational training actions.

Investment examplesPotential value creation and protection potential

Phase 1 & 2

• Annual salary of HR manager: 500,000$

• Training program costs: 1,500,000$

• Total: 2,000,000$

If no sustainability investments are made in workforce

skills development, the costs associated to the project

of hiring expatriate or foreign labour:

– Construction workers (expat or foreign):

42.96M$/year

– Operational phase employees (expat or

foreign): 21.48M$/year

Investing in workforce skills development can create a tremendous amount of value as well as reduce costs. These investments also contribute to increasing the general living standards of local populations.

Workforce Skills Development

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Actions Phase 1 Phase 2 Construction Operations Closure

1. Develop and Implement Community Engagement Strategy

2. Build a program for local, regional and national capacity development to manage revenues (royalties) in collaboration with local NGOs

Investment examplesPotential value creation and protection potential

Phase 1 & 2

• Salary & benefits for a community relations manager: 300,000$

• Partnership with a local provider/NGO: 300,000$

• Total: 600,000$

Based on 20 case studies:

•Projects cancelled before started: Probability: 3%; Max 100% of Project NPV lost

•Projects prematurely closed or sold: Probability: 6%; Min 44% and Max 57% of Project NPV lost

•Projects disrupted or delayed: Probability: 12%; Min 6 months and Max 2 years of Project NPV lost

•Projects expropriated: Probability: 6%; Max 100% of Project NPV lost

Community investment is a key component for value protection and creation. These investments also decrease the likelihood of negative impacts due to community protests, work stoppage and site closure.

Local Community Development

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Value creation & protection in sustainability investments

Overview of Costs-Benefits of green field project sustainability investments

• Average NPV of sustainability in this project is US$200 Million • Maximum possible value of

US$460 Million.• Minimum possible value of

US$122 Million.• The sustainability

investment protects value in all cases.

Tangible Benefits:

Value Created & Protected

Intangible

Benefits

• Reputation • Community Engagement • Developing local

economies• Local Industrial

Diversification • Attraction and retention of

employees• Improved productivity• Contribution to Millennium

Development Goals• Achievement of B&A

Sustainability Vision

Minimum Sustainability Investments

Phase I US$ XXXX

Phase II US$ XXXX

Construction US$ XXXX

Operations US$ XXXX

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Investment Risk Mitigation

• Decrease risk of stoppage, closure, community protest

– We have multi-stakeholder, open processes to deal with any community issues that arise

– Local communities are our strongest advocates because we support their priorities and their governance structures

• RTA seen as the developer of choice by governments & communities

– Our sustainability reputation precedes us when we explore for new mineral reserves

– Our competitive advantage is our sustainability approach

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Reputational Risk Mitigation

• Decrease the potential for bad press & NGO activism

– We are seen as a leading corporate citizen that engages

in local sustainability issues and wider societal debates

and invests in the resilience of our host communities

– We are partnered with NGOs and we are transparent in

our actions

– We engage with the NGOs likely to be in opposition to

us from the outset and establish a dialogue

– Partner NGOs are our best spokespeople

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Operational Risk Mitigation

• Increased productivity

– Reduced absenteeism

• Healthier workforce & families

– Increased skilled labour

• Reduced health & safety incidents

• Reduction of work stoppage potential

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Financial Risk Mitigation

• Reduce CAPEX

– Leverage local government funding to share in

infrastructure development

• Reduce OPEX

– Reduced costs through hiring local labor and

establishing local procurement policies

• Reduce financial risk

– PPP established from the outset

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Mitigating the Uncontrollable Risks

“If any function can mitigate against the uncontrollable risks,

sustainability can” – so say our finance team

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Sustainability is an integral part of our business strategy.

Sustainability is like an insurance policy.

Back up slides

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The B&A Sustainability Vision

ENVIRONMENTAL FOOTPRINT SOCIETAL FOOTPRINT

We embrace the sustainability challenges we face. We will harness our capacity for innovation, become the supplier & project developer of choice by decreasing our footprint on the planet and leaving environmental and social conditions that will create value for all stakeholders

We manage mining, processing, residue storage and rehabilitation such that we reduce the impact of our operations on the environment and seek to be restorative

We engage with our stakeholders in such a way that we create and support social, economic and political conditions that enhance people’s ability to meet their fundamental needs

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Redefining Success

“In today’s trust-starved climate, our

market-driven system is under

attack ...large parts of the

population feel that business has

become detached from society, that

business interests are no longer

aligned with societal interests ...The

only way to respond to this new

wave of anti-business sentiment is

for business to take the lead and to

reposition itself clearly and

convincingly as part of society.”

--Klaus Schwab, Executive Chairman, World Economic

Forum

Newsweek, February 2003