The sexual harassment lawsuits filed in Australia against global mining giants BHP Group and Rio Tinto are more than just another potential public relations disaster and possible hit to the bottom line.
The allegations go to the very future of two of the world's biggest miners, who aim to place themselves at the heart of the energy transition by producing the metals needed to decarbonise the world economy.
The short-term damage of the class action lawsuits may be contained by deft public relations management, a willingness to settle genuine claims generously and a management determined to stamp out future poor behaviour.
But the longer-term damage may be far more severe for an industry already battling to attract sufficient skilled workers, and one that has apparently little appeal for the next generation of engineers and skilled employees.
The class action lawsuit, revealed on Wednesday by law firm JGA Saddler, alleges sexual harassment at mines in Australia operated by both companies.
JGA Saddler said women who spoke out about the harassment were allegedly discriminated against by the miners and that it expects "thousands of female workers" at the two companies to join the class actions.
So far the reaction by the companies and the stock market has been muted, with both companies issuing what could be described as pro forma statements.
"Sexual harassment has no place in our workplaces or indeed anywhere. We are committed to providing a safe and respectful workplace for everyone," BHP, the world's largest mining company, said in a statement.
Rio, the world's biggest iron ore miner, said in a statement it treats "all such claims with utmost seriousness".
The companies' share prices showed little reaction, with Rio dropping 1.2% in Sydney on Wednesday to end at A$123.81 (2,694.3 baht), while BHP gained 0.4% to close at A$42.00.
The sanguine market reaction likely reflects that the scale of the lawsuit and potential damages that may be ultimately paid are uncertain.
But while the market may be in a wait-and-see mode regarding the lawsuit, there is little doubt that both BHP and Rio have underperformed the broader Australian S&P/ASX 200 Index.
BHP hit a record high of A$37.73 a share on April 13, 2011, amid the commodity boom led by China in the recovery from the global financial crisis of 2008.
It then entered a downtrend until the beginning of 2016, and finally recovered to the same level it was at its 2011 peak by December 2020 and the price has since rallied about 11.3% to Wednesday's close.
Rio paints a similar story, having peaked just as the 2008 crisis was starting at A$111.79 a share on May 22, 2008, and while it did rally in 2011 it took until the very end of December 2020 for it to exceed its previous record.
Since then Rio has gained about 13.4%, while the S&P/ASX 200 Index is up around 20.6% over the same period.
If BHP and Rio are to outperform the market they will have to convince investors that their plans to be leaders in the energy transition are viable and profitable.
In theory there's no reason why the companies shouldn't be able to do this.
Both are well positioned in key transition metals such as copper and aluminium, and are also building portfolios in other key metals such as lithium.
While the process of turning iron ore into steel is carbon-intensive, both companies can argue that steel is also essential to the energy transition, and both are looking at ways to decarbonise the steel-making process.
But achieving the goal of being seen as vital to the energy transition also means having the necessary skilled workforce, and it's here that the lawsuit and the likely associated damaging revelations are a threat.
The more stories about appalling sexual behaviour on the part of some male workers at Australian mines, and the allegations that mid-level managers were more interested in covering this up rather than stamping it out, the harder it becomes to attract workers.
Already miners are challenged by falling enrolments in key university courses, with research published last year by consultants McKinsey showing mining engineering graduates dropped by 63% in Australia between 2010 and 2018, and by 39% in the United States.
If the declining graduate numbers aren't bad enough, imagine trying to recruit young employees to work on remote mine sites, especially if what they recall from the media is stories of inappropriate behaviour, uncaring management and a poor culture.
The risk for BHP, Rio and other miners is that they battle to find enough skilled staff, meaning they either have to pay considerably higher salaries, or try to convince increasingly wary governments of boosting immigration. Reuters
Clyde Russell is Asia Commodities and Energy Columnist at Reuters. Disclosure: At the time of publication Clyde Russell owned shares in BHP Group and Rio Tinto as an investor in a fund.