How to Manage Risk and Boost Transparency in the Raw Material Supply Chain

conflict minerals supply chain

As conflict minerals continue to find their way into supply chains of major western corporations, businesses need to place more emphasis on due diligence and explore new technologies to increase transparency.

A recent Responsible Minerals Initiative (RMI) conference in Santa Clara, California, discussed the latest developments in the field as well as possible solutions and international initiatives aimed at minimizing risks associated with using resources extracted in conflict areas.

 

RMI’s New Standards and Practical Guide

RMI, which brings together more than 360 companies from over ten industries, including the automotive and mining sectors, has recently published a new Practical Guide to align with the OECD Due Diligence Guidance for Responsible Business Conduct. Having created a new “upstream members” category for mining, smelting and refining raw materials, the initiative has also published revised audit standards for smelters and refiners. The standards came into effect in June 2018 and by December 31 will require global due diligence, beyond the Covered Countries identified in Dodd-Frank Act Section 1502 (e.g. tin from Indonesia). The revised standards also cover a broader range of risk, including AML, KYC, anti-terrorist financing and are compliant with the EU regulations to come into effect by 2021.  So far 29, smelters/refiners follow the new standard.

 

Increasing Due Diligence in the Cobalt Supply Chain

With around 50 percent of the world’s reserves held by the Democratic Republic of the Congo, cobalt, commonly used in automotive and electronic products, requires particular attention. With rampant corruption in the area, it tops the list of minerals associated with child and forced labor.

A July 2018 report, Material Change – Understanding Supply Chain Risks produced by The Dragonfly Initiative (TDI), Drive Sustainability and RMI sheds light on specific risks, such as artisanal small-scale mining, slavery conditions, corruption and environmental impacts. Currently, two cobalt smelters/refiners are considered by the RMI as active, while 16 are eligible. A pilot cobalt reporting template has been made publicly available on the RMI website.

Bryce Lee, CSR Director at Huayou Cobalt, who has been running a due diligence program since 2016, insisted that a sixth step needs to be implemented on top of the five steps of the OECD Guidance: intervention and capacity building on the ground. He believes that third-party audits alone are not sufficient to address child labor.

Umicore, a global materials technology and recycling group, introduced its Sustainable Procurement Framework for cobalt. Several stakeholders trust that cooperation, for example the Global Battery Alliance, can lead to positive change.  The London Metal Exchange just released a positon paper on responsible sourcing with special transitional provision for cobalt.

 

3TGs: Updates on Gold Sustainable Procurement

Gold is more exposed to informal sector and smuggling than the other conflict minerals. International Peace Information Service (IPIS) estimated that around 80 percent of artisanal miners work in gold mines in the DRC and  warned that 50 percent of gold is associated with armed forced interference. Solidaridad‘s Gold Programme supports over 7,500 small-scale miners. An October 2018 report, The Golden Laundromat, from Enough Project, raises concern that “dirty gold” from the DRC may reach international markets.

On a positive note, the first conflict-free artisanal gold from the DRC exported to U.S. jewellers was announced, with the support of USAID.  The artisanal gold was refined by a London Bullion Market Association (LBMA) “Good Delivery” certified refinery.  Major partnerships such as the EPRM, the Responsible Artisanal Gold Solutions Forum, and the PPA have been instrumental to successful changes in the region.

 

Blockchain and Traceability Applications

Tracking responsible minerals may be easier with blockchain: A ledger of transparent transactions enabled through a decentralized and secured system can help to check the supply chain in real time.

A newcomer to the responsible mining space, Minespider, described its blockchain protocol for responsible mineral sourcing. The main idea is to include mass balance of metals and electronics identifiers in the supply chain map. At smelter level, minerals, if undocumented, cannot be sold for example.  CISCO’s CHILL has carried out blockchain feasibility studies in Rwanda.   ISEAL ALLIANCE has explored how blockchain technology can impact the future of certification.  Everledger  described its solution to trace and document the origin of diamonds,  and  how this can help ensure sustainable practices throughout the 3TGs and cobalt trade (through promising technologies including “bar codes” such as fingerprinting, dust environment monitoring, isotopes, spectrographic analysis etc.).

The RMI has developed Blockchain Guidelines  to streamline various disseminated efforts and gear them toward convergence and interoperability. The guidelines invite members to develop case studies, use a universal language and carry out cost assessments. Several speakers warned that potential pitfalls can be associated with “garbage in, garbage out” and a there is a need to identify failure points. Other challenges are the lack of IT infrastructure and connectivity to support blockchain applications, e.g. in some regions of Africa, or the lack of buy-in or technological literacy of potential end-users.

 

Read more about conflict minerals in the automotive industry.

 

By Simon Gargonne, Research Manager and Senior CSR Analyst