Tuesday, February 19, 2019
In the last blog, we identified that the international regulation of the mineral supply chain is evolving. What started as a government request to industry to identify the source of so-called “conflict” minerals, has now grown to a responsibility to identify the potential for causing harm such as human rights abuses or institutional instability.
The potential for human activity to cause harm to others reminds me of a phrase that I learned as a young medical student. When treating a patient, “First, do no harm.”
“First do no harm” is a phrase that was added to the Hippocratic Oath for physicians in the 17th Century. It reminds the physician to reflect on the potential impact that their choice of actions could have, before implementing treatment for a patient.
In the case of the participants all along the mining supply chain, “First, do no harm” demands that participants in the supply chain be fully aware of all of the activities that they and their suppliers perform as they undertake mineral supply.
Over the past few years, governments and organizations have taken measures to ensure potential harm in the mining industry is reduced.
Let’s take a look at these pivotal initiatives and regulations below.
The Dodd-Frank Act was the US Congress’ response to the increasing violence seen in the mining regions of the Western Great Lakes countries in Africa.
Gold prices had more than quadrupled from around $450 USD/oz. in late 2005 to over $1700 USD/oz. in 2011. This huge price increase suddenly made both legal and illegal mining particularly attractive.
Unfortunately for impoverished agrarian societies, the presence of valuable minerals in the very ground they lived on brought a modern-day gold rush. Families turned to hand mining the very ground that they had farmed, however instead of the new potential income, the gold rush also brought conflict as tribal groups exploited the riches using sexual abuse, child labor, forced labor and lethal force to extract gold to fund illegal activities.
The Dodd-Frank Act specified that companies that submit annual reports to the US Securities Exchange Commission (SEC) and who manufacture products containing tin, tungsten, tantalum or gold (3TG minerals), provide information on the source of those metals.
If that source was the Democratic Republic of Congo, or one of its nine neighboring countries, then the annual report was to describe the due diligence measures that had been taken to determine the source of the minerals.
The Act requires reporting on mineral sourcing and due diligence practice. The Act did not require companies to source from conflict-free mines. The current US federal administration has been reviewing the Dodd-Frank Act, and many of its other provisions have been repealed.
On April 7th, 2017, the Securities and Exchange Commission (SEC) ruled that U.S. corporations will no longer be required to conduct a due diligence review or an audit regarding sourcing of conflict minerals. A bill to repeal the Act (HR 4282) was reported by the US House Committee on Financial Services on February 20, 2018. It is currently awaiting consideration by the House and Senate.
The GSRM was developed in 2014 by the China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters (CCCMC), with the support of the bilateral Sino-German Corporate Social Responsibility Project.
Its purpose is to guide Chinese companies engaged in overseas mining investment to strengthen their capacity of social responsibility governance and sustainable development. The Guidelines lay out a series of principles of corporate social responsibility considering human rights, labour rights, environment, stakeholders’ implication, responsible value chains, and transparency.
Under the Guidelines, companies should report on their material impacts and disclose their ethical, social, and environmental performance to their stakeholders. They should also develop annual Global Reporting Initiative (GRI) reports, and follow guidelines on organizational governance, fair operational practices, and value chain management.
The OECD is an intergovernmental organization of 37 countries formed in 1961, that fosters economic development and world trade and identifies good practices for its members.
The OECD Due Diligence Guidance for Responsible Supply Chains of Minerals is one of a series of sector-specific resources providing due diligence recommendations for enterprises. These recommendations help enterprises address adverse impacts related to workers, human rights, the environment, bribery, consumers and corporate governance that may be associated with their operations, supply chains and other business relationships.
The 2016 third edition OECD Due Diligence Guidance expresses a duty to report on supply chain due diligence. This guidance became a reference document for the EU Conflict Minerals Regulation.
Issued by CCCMC in late 2015, the objective of this document is to provide guidance to:
“all Chinese companies which are extracting and/or are using mineral resources and their related products and are engaged at any point in the supply chain of minerals to identify, prevent and mitigate their risks of contributing to conflict, serious human rights abuses and risks of serious misconduct, as well as to observe the UN Guiding Principles on Business and Human Rights during the entire life-cycle of the mining project.”
The Chinese Due Diligence Guidelines borrow heavily from the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals.
EU Parliament and Council adopted the “EU Conflict Minerals Regulation” EU2017/821 on 17 May 2017. This regulation imposes supply chain reporting obligations on EU importers of tantalum, tin, tungsten and gold originating from high-risk areas.
The regulation will be binding on 1 January 2021. There are no direct sanctions currently applied by the regulation, however Member states are free to impose sanctions if they see fit. The Commission should decide if member states must impose sanctions for non-compliance in January 2023.
The overall objective of the EU Conflict Minerals Regulation is to prompt importers to establish secure, transparent, and verifiable supply chains of minerals and to ensure responsible import practices, while not contributing to armed conflict and associated human rights abuse.
“Companies have a responsibility for their impact on society and the natural environment.”
- Michael Blowfield & Jedrzej George Frynas, Critical Perspectives on Corporate Social Responsibility in the Developing World.
It is important to note how rapidly enterprise obligations in the mineral supply chain have evolved in the past six years.
The EU Conflict Minerals Regulation does envisage future consequences for non-compliance. The bar has been raised for reporting in the mineral supply chain.
We are beginning to see examples of legal action taken against enterprises for “harm” arising from businesses in their supply chain.
Over 1000 garment workers were killed in the collapse of the Rana Plaza building in Bangladesh in 2013. The Canadian retailer that was the primary customer for the manufactured goods was named in a class action lawsuit in 2017. The suit cited that the company should have known of and acted on the risk that the building posed, in line with its statement of Corporate Social Responsibility. Last year, the Superior Court justice found there was no direct cause of action that linked the retailer to the collapse, and denied the action. The decision is under appeal.
And recently, the French multinational cement company Lafarge was indicted for complicity in crimes against humanity, financing a terrorist enterprise, deliberate endangerment of people’s lives and working conditions incompatible with human dignity with respect to its operations in Syria with the terrorist group IS. The case is yet to arrive in court.
The times they are a-changing. Corporate social liability may soon extend beyond ‘conflict’ and ‘minerals’. We will explore other risks of harm in the mineral supply chain in the next blog. See you there!
Lee is a contributing researcher to Minespider. A Canadian living in France, he is an occupational physician experienced in injury prevention, chemical risk management, and international chemical regulation. Lee's career has extended from private medical practice to associate medical director for Michelin, and from President of the Occupational and Environmental Medicine Association of Nova Scotia, to chair of the Cobalt REACH Consortium technical committee. He is passionate about product stewardship.