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OECD Conference: Responsible Supply Chains Update – May 2015

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The annual OECD Conference on Due Diligence and Responsible Sourcing was held last week in Paris, France. Here are the key takeaways from this crucial conference in the calendar year.

  • New due diligence actions from China and the EU to appear in 2015
  • OECD Due Diligence is becoming mainstream worldwide for companies and countries
  • SEC issuers are concerned with data quality which is creating pressures and increasing scrutiny upstream on gold and development issues

China is proposing a voluntary guidance

The Chinese association CCCMC, which has over 6,000 members involved in the production, processing, trade and investment in the mineral supply chain, is soon to publish the first draft of a guideline for responsible mineral sourcing. The guideline will be published for consultation and will include an audit requirement for companies adopting them. The information so far is that the guidelines are based on the OECD’s 5-Step Due Diligence Guidance and are part of a broader guidance framework on CSR. The move by the CCCMC is another indication that conflict minerals is increasingly being integrated in broader CSR and responsible sourcing considerations and that due diligence requirements will become the norm over the next few years.

 

The proposed EU legislation is very weak

So weak in fact that the gossip around the water cooler suggested that as the regulation is currently proposed it will have no impact on the market. Why? Because it is directed at the 20 or so EU based smelters who directly import minerals or metals for processing. These smelters are already members of the Conflict Free Sourcing Initiative or LBMA and as such will already meet the guidelines. Additionally, even for brands or manufacturers who wish to adopt the EU regulations – the rules will only apply to parts manufactured in the EU. In other words, a company that assembles a product from parts produced in China would be exempt. Understandably, a number of MPs as well as campaigners are not happy about this and are actively campaigning to ensure it is not passed in the EU parliament later this month.

 

The OECD Guidance is gathering momentum worldwide

Also at the conference were representatives from Dubai, Colombia, Turkey, multiple African states and many industry bodies. It’s clear the OECD is hard at work making their document the go to guide worldwide for due diligence and responsible sourcing. Investors and bankers were also presenting at the conference making it clear that conflict minerals remains part of their own due diligence. The investment sector represented at the conference however also put conflict minerals into the perspective of broader risks associated with human rights, social and environmental performance in supply chains.

 

Due Diligence is becoming mainstream

Somewhere between 2014 and 15 a change occurred. From our conversations with industry leaders, its clear that both companies and stakeholders at the forum increasingly look at supply chain due diligence from a global perspective, adopting an approach that includes high risk areas in general and beyond 3TG to other minerals. In addition, stakeholders are starting to discuss broader aspects of responsible sourcing along the supply chain, from the role of women in mining to the influence investors have in promoting responsible practices.

 

SEC issuers are concerned with data quality

Downstream companies are trying to better understand the quality of the data reported by their suppliers. Leading companies have started conducting supplier audits to gather further information on the performance of their suppliers and to validate the smelter and refinery information in the Conflict Minerals Reporting Template (CMRT). The efforts of the CCCMC in China to provide guidance to Chinese suppliers – in combination with third party audits – presents an interesting opportunity to improve data quality in the downstream supply chain. RCS Global is conducting supplier audits for a number of SEC issuers to help improve data quality of supplier CMRTs and identify gaps in suppliers’ understanding of responsible mineral sourcing practices.

 

Increased attention upstream from mine to smelter and especially to gold

As SEC issues begin to get to grips with their supply chains to the smelter, more attention is being focused on the upstream, both in 3Ts and gold. Gold is receiving increasing attention from the international community, as the consensus remains that there is significant smuggling of gold from the DRC that continues to support illicit groups. Expect increasing scrutiny of the upstream as downstream due diligence becomes increasingly sophisticated.

 

Artisanal Mining remains a key development issue in the supply chain.

RCS Global presented the world’s first draft Guidance for Governments on Managing Artisanal and Small-scale Mining (ASM) at the OECD conference. The Guidance was developed under project direction of RCS Global director, Dr. Nicholas Garrett, and it was commissioned by the Inter-governmental Forum for Mining, Minerals, Metals and Sustainable Development (IGF), a club of 47 countries. Effective engagement with and provision of support to artisanal miners to realise their development potential remains a key issue in responsible mineral supply chains. The guidance is currently in online consultation and we invite you to offer your thoughts on the consultation draft.

 

Other RCS Global activities:

We are busy from mine to market – making sure companies’ supply chains are responsible:.

  • RCS Global’s Head of Auditing, Michele Brulhart, conducted the world’s first supplier audits of SEC Issuer suppliers in China and Japan. These audits are designed to improve supplier data and better understand risk in the supply chain. Contact us for more information on the audits and our work in Asia-based supply chains.
  • RCS Global’s Asia Due Diligence Manager, Bowen Zhang, is actively working with SEC Issuer suppliers in China to improve CMRT data, strengthen due diligence processes and gather the information our clients require to file their Conflict Minerals Reports.
  • RCS Global conducted the first ever EITI validation under the new EITI standard. Our report on Azerbaijan can be found on the EITI website here.
  • Nicholas Garrett presented at the EITI board meeting RCS Global’s latest report. It sets out the business case for the billion dollar commodities trading sector to embrace transparency of payments to governments. He also moderated a session on the EITI and its relevance to National Oil Companies. Harrison Mitchell presented at the UN Trade (UNCTAD) conference in Geneva on the same. See the report here.
  • RCS Global audited two artisanal mine sites in the DRC and will soon become one of the first audit providers to conduct an ICGLR Regional Certification Mechanism audit of an exporter and mine site in the DRC.

 

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