13 August 2020
The London Metal Exchange (LME) today issued a discussion paper on plans to drive forward its sustainability agenda.
Building on the work already undertaken in embedding responsible sourcing standards into its brand listing requirements, the LME believes now is the right time to expand its focus to incorporate the broader sustainability challenges facing the metals and mining industries.
The LME has laid out its proposed way forward to make metals the cornerstone of a sustainable future, following three core principles: maintaining a broad scope; supporting voluntary disclosure of data; and providing the necessary tools for change. These principles reflect the LME’s belief that the market has not yet fully coalesced around a centralised set of demands or priorities in respect of sustainability. As a result, the LME aims to build consensus through market-led and voluntary transparency, providing a number of tools and services to facilitate solutions related to sustainability in its most expansive sense.
Matthew Chamberlain, LME Chief Executive, commented: “Metals are vital to our transition to a more sustainable future – and this paper sets out our vision to work collaboratively with industry to maximise the potential of metals to power this transition. We already provide access to contracts that are essential both to burgeoning industries such as EVs and to infrastructure supporting the circular economy. But we need to do more, both in building out these areas and in supporting the development of the sustainable production of metals. And we are in a strong position – as the global nexus of metals pricing and trading – to bring the industry together, as with our responsible sourcing initiative, in our collective journey to a greener future.”
Electric vehicles and the circular economy
The LME already provides pricing and risk management tools for a number of key components of EVs and EV batteries (copper, nickel and cobalt). The anticipated launch of LME Lithium will add to this suite and couple the need for price risk management in the battery and car manufacturing industry with the interest from market participants in gaining exposure to a fast growing and sustainable industry.
Similarly, the LME’s aluminium alloy and steel scrap contracts – as well as some listed lead brands – already service the scrap and recycling industries. The LME intends to expand its support in this area, starting with a new aluminium scrap contract to service the North American used beverage can (UBC) industry, as well as adding two new regional steel scrap contracts. By supporting these industries in managing their price risk, the LME will assist in the development of the recycled value chain, enabling it to reach ambitious goals while maintaining robust planning and fair pricing.
Environmental sustainability and low carbon aluminium
While different metal industries face different environmental challenges, particular focus has been given to aluminium, largely due to its energy intensive smelting process. Aluminium is, however, pivotal to the sustainable transition due to its use in light-weighting and its recyclability. As such the LME’s first step in supporting the transition to environmentally sustainable metal production will involve providing greater transparency around and access to low carbon aluminium. Once this transparency and access model is established, the LME intends to embark on a much broader piece of work to support all metals in addressing their own environmental challenges.
To provide greater visibility of carbon sustainability criteria, the LME intends to leverage “LMEpassport” – a digital register that will record electronic Certificates of Analysis (CoAs) and other value-add information – to store carbon-related metrics for specific batches of aluminium, on a voluntary basis. Interested producers or metal owners could choose to input such data related to their metal, representing the first step towards a LME-sponsored market-wide “green aluminium” labelling programme.
In addition, the LME plans to launch a new spot trading platform to provide price discovery and trading of sustainably sourced metal – once again starting with low carbon aluminium. This online auction style solution will deliver access (through pricing and trading functionality) on a voluntary basis to those market users who would like to either buy or sell low carbon aluminium. Both LMEpassport and the spot trading platform would be available to both LME- and non-LME-listed brands.
Georgina Hallett, LME Chief Sustainability Officer, commented: “We recognise that a lot of valuable work has already been done by individual companies, industry associations, standards bodies and NGOs, and – as with our responsible sourcing initiative – we believe it’s vital to work collaboratively to further enable that work. We also acknowledge that there are different views on exactly how to manage the transition to a low carbon economy, which is why we are committed to providing a range of tools and services to facilitate different approaches – while also maintaining optionality.”
The proposed LMEpassport and spot platform initiatives – which are subject to market feedback – are expected to launch in the first half of 2021.
The market discussion period, which closes on 24 September 2020, seeks views from interested parties on any aspect of the paper.
Notes to the editor ~