Implementing corporate due diligence practices across mining and metals value chains can be challenging. We explore some key considerations after the LME-OECD Auditor Summit 2023 in Paris.
By Freya Pratt, ESG and Sustainability Consultant, Laura Dombi, Supply Chain Due Diligence Specialist and Principal Consultant, Deepthi Sugumar, Traceability Expert, Senior Consultant
There is increasing scrutiny over metals and mining companies’ raw material supply chains. Revised industry standards, such as the Aluminium Stewardship Initiative (ASI) Performance Standard V3 (adopted in May 2022) now requires certified entities to implement appropriate due diligence over their supply chains affected by Conflict-Affected and High-Risk Areas (CAHRA) in line with the OECD Guidance. The guidance is centred around Risk-Based Due Diligence – an ongoing, proactive, and reactive process through which companies can identify and assess risks, and design and implement a strategy to respond to identified risks.
Exploring these insights with our peers and customers at the latest LME-OECD Auditor Summit in Paris, there is increasing stakeholder and regulatory pressure to hold companies accountable for how and where their products are manufactured and by whom. Emerging regulatory and industry standard requirements place renewed responsibility on metals and mining companies to dig deeper into their supply chain than ever before which as independent assessors, DNV regularly brings insights to overcoming bottlenecks in supply chain transparency and helps companies create a credible due diligence strategy and governance approach.
Reflections from the Summit on the key due diligence challenges can be categorised into three main areas:
1. Lack of visibility through fragmented supplier relationships
Firstly, one of the biggest challenges the industry is facing is a lack of available data on raw material suppliers, such as scrap metal and mining suppliers. Often, visibility is hindered by traders who are not willing to disclose ESG information, for a variety of reasons, varying from a lack of resources and expertise, no contractual obligation or reputational risk. Visibility beyond an entity’s second-tier suppliers is rare and fragmented, meaning many entities are simply not able to identify or engage within their complete metal and mineral value chain. Traceability and transparency are concepts that are core to due diligence. Transparency is visibility i.e., availability of credible and verifiable data in the supply chain while traceability is the process. Tracing the entire supply chain and asking for evidence enables transparency.
2. Lack of digital capabilities
Secondly, there is no shared source or databank for responsibly sourced materials. Currently, each company repeats the due diligence process itself, through risk profiling and data gathering. This is managed within an entity’s own supply chain, but using common supplier data, i.e., the end users typically source their materials from the same original source (mine). Conducting separate due diligence audits for each entity is resource intensive and could lead to audit fatigue. Whilst policies, processes and practices are critical to minimise supply chain risk, further efficiencies could be utilized through digitalisation and the creation of an ecosystem where verified ESG information can be shared.
3. What does good look like?
And finally, we see the common challenge across entities of understanding what good due diligence is. There is extensive guidance provided by standard bodies and policymakers in defining and outlining due diligence, namely the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas. However, entities have a limited understanding of the boundaries of responsibility, and indeed what is best practice in the industry. Entities typically have robust risk identification and assessment processes in place, but evidence gets more ‘woolly’ when it comes to the risk management of identified red flags. We find auditees conduct very different remediation practices, with varying levels of depth and structure. We also find that there is confusion around appropriate due diligence for materials (bauxite, alumina, secondary aluminium) which transit through CAHRAs.
We will continue to explore our learnings from our work in the metals industry and from the LME-OECD summit in our Supply Chain Insight Series. For more information, please get in touch with our experts at email@example.com.