In 2015, a mine co-owned by Vale collapsed, after which the company pledged to improve safety at other dams; however, in 2019, Vale experienced another mine collapse, which caused significant harm to surrounding communities and the environment. Following the collapse, we observed a meaningful decline in the portfolio company’s stock price, and there were threats of regulatory and legal action against the portfolio company.
Dimensional engaged with Vale SA in September 2019 to discuss its response to the dam collapse. During the engagement, the portfolio company shared an update on the steps it was taking to improve its risk management and reporting processes. Dimensional stressed the importance of disclosing to shareholders the actions taken in response to the incident and the policies and procedures in place to identify and mitigate risk in the future. The portfolio company shared that disclosure is a major focus moving forward and pointed to a new ESG section on its website.
Ahead of the 2020 shareholder meeting, Dimensional engaged again with Vale. The portfolio company highlighted the appointment of two new directors with significant technical expertise related to mining to the board following the resignation of two directors in November 2019. The portfolio company also noted the recent creation of an audit committee and plans to establish a formal nominating committee. Dimensional raised concerns with the overall level of board independence, which, although in compliance with listing standards, was still relatively low. The two new directors appointed in December 2019 were classified as non-independent.
- Election of Directors in aftermath of Dam Collapse
One of the most important measures aimed at ensuring that portfolio company shareholders’ interests are represented is an independent board of directors, who can effectively oversee management and manage risk. We do not believe the addition of two new non-independent directors contributed to the level of independent oversight needed to appropriately manage risk in light of the recent environmental controversies at Vale. Therefore, we voted against the bundled election of directors at the Vale 2020 shareholder meeting. Despite Dimensional’s vote against, the directors were elected at the meeting.