25 October 2019
The London Metal Exchange (LME) today announces its responsible sourcing requirements following a formal market-wide consultation on proposals underpinned by the Organisation for Economic Co-operation and Development (OECD) Due Diligence Guidance.
As set out in the consultation, the LME’s requirements, which will apply to all its listed brands, rest on four core principles: the combination of transparency and standards; non-discrimination between large-scale mining (LSM) and artisanal / small-scale mining (ASM); adherence to well-established work in the sector; and a pragmatic and clear process.
Following feedback from consultation respondents, the LME intends to implement its responsible sourcing requirements as per the proposed framework with some process and procedural enhancements in order to align more fully with its core principles and respond to a broad spectrum of stakeholder feedback.
LME Chief Executive, Matthew Chamberlain, commented: “We are proud to be announcing the final rules in applying responsible sourcing requirements to our listed brands – which represents a significant step in the development of the metals industry. This is an extremely complex area, and while finding the right balance between rule-making and the pragmatism of their application has been challenging, we believe our way forward is operationally robust, respectful of public expectations on our industry, and also fair and achievable for our global producer community.”
Three routes to compliance
One of the main feedback topics centred on the potential stigmatisation of ASM implicit in the proposed red flag assessment (RFA) process. The RFA focus on source of origin and the LME’s proposed “higher” or “lower” focus allocation of brands, could have placed de facto sanctions on those areas affected by overt conflict, and adversely impacted the economic development of these regions. The LME will, therefore, follow a more holistic application of OECD compliance.
While still using the OECD five-step framework for risk-based due diligence in the mineral supply chain, the LME will now provide three “tracks” to achieve compliance, in order that all brands have a pathway that suits their individual circumstances. Producers (whether or not they exhibit red flags) who wish to follow an industry scheme may adopt an internal or external OECD-aligned standard (“track A”). Producers that raise no red flags in their initial assessment may complete a LME RFA standard-form template – which can then either be externally audited (“track B”) or reviewed and then published by the LME (“track C”).
This flexibility in tracks to compliance will ensure that those brands sourcing from conflict areas will not be pre-emptively penalised simply due to being deemed a “higher focus” brand. However, regardless of their selected track, all producers will be required to undertake a red flag assessment, address any red flags which are raised, and provide transparency reporting.
Transparency was another area that attracted significant feedback. OECD “step 5” transparency reporting was clearly highlighted by key global stakeholders as the accepted position, and most respondents agreed that the LME should respect this established position.
The LME notes this feedback, and has reflected these views in each of its three tracks. Track C brands will continue to utilise the LME RFA template – which, in the view of the LME, will represent the most convenient and cost-effective route to delivering step 5 reporting. Brands on track A and track B will be required to deliver step 5 reporting per the requirements of their nominated standard or auditor.
This framework, and all the routes outlined, maintain the transparency so vital to the compliance process, while not compromising any commercial relationships requiring confidentiality. The LME will also work with the OECD and other stakeholders to ensure the industry-wide development of best practice step 5 reporting, including for the Extractive Industries Transparency Initiative (EITI), which focuses on financial crime risks. The LME believes that the quality of step 5 reporting will continue to evolve across the industry; however, the LME has reserved the power to issue additional step 5 guidance if necessary, which would apply across its listed brands.
While there is an overall desire to introduce requirements as soon as possible, there was some concern regarding the proposed timelines, as larger producers with extensive legal and compliance capabilities would already be at an advantage, thereby potentially freezing out smaller players. In addition, the LME is cognisant of the fact that a number of OECD-aligned standards are still in the process of being created, so those opting for this route should not be disadvantaged due to circumstances outside of their control. As a result, the LME has provided more reasonable timelines for compliance, with full engagement required by 2022 and full compliance by 2023.
While the LME’s requirements focus on the OECD Due Diligence Guidance, which does not cover environmental concerns, the LME continues to engage actively with its stakeholders on sustainability issues – especially in the aluminium sector – and is committed to supporting initiatives that facilitate the global transition to a low-carbon economy. As an interim measure the LME will, as part of its responsible sourcing requirements, require all brands to work towards ISO 14001 in respect of environmental management, as well as OHSAS 18001 for occupational health and safety./
Tyler Gillard, Head of the OECD’s Responsible Business Conduct Unit, commented: “We are pleased that the LME will be using our framework to underpin its rules and integrate responsible sourcing into the base metals market. These steps, with meaningful implementation, will position the LME’s stakeholders extremely well in an industry that increasingly demands business to respect human rights, combat corruption, and more broadly address the environmental, social and governance risks of their supply chains.”
Mr. SUN Lihui from the China Chamber of Commerce of Metals Minerals and Chemicals Importers and Exporters (CCCMC) said: “We are delighted to have been part of the process in bringing responsible sourcing to the global metals industry. The LME has succeeded in taking the complexities of supply chain management in the metals industry and sensitively introducing requirements that are both achievable and rigorous. We look forward to working with them throughout the implementation phase to build inclusive, sustainable and responsible global metal supply chains.”
Notes to editors
• The “OECD Due Diligence Guidance” refers to the “Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas”.
• All related responsible sourcing documents can be accessed here.