International nongovernmental organisation (NGO) Global Witness (GW) has welcomed the London Metal Exchange’s (LME’s) new responsible sourcing rules, which were published for public consultation on Tuesday.
The exchange’s responsible sourcing roadmap is intended for LME-listed brands and builds on a joint open letter from 13 global NGOs that were sent to the LME in December.
The LME stated that the proposed rules for the application of responsible sourcing standards are consistent with the Organisation for Economic Cooperation and Development (OECD) Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.
Public consultations will close on June 30.
“GW particularly welcomes requirements for brands to publically report on financial crime and corruption risks, in line with [the] Extractive Industries Transparency Initiative and OECD standards, and on named individuals directly responsible for supply chain due diligence within their supplier networks,” said GW supply chain investigator Sophia Pickles.
She added that only when brands provide this kind of detail, alongside information on human rights, conflict financing and other risks, will they demonstrate to shareholders that they take the full range of their potential of actual business impacts seriously.
“However, supply chain risks that span conflict financing, financial crime and corruption are global in their reach – high-risk corruption risks do not recognise borders. GW noted that the LME’s final responsible sourcing rules should not turn around lists of conflict-affected and high-risk areas, but rather ensure that LME-listed brands and their producers have processes in place that can spot and respond to risks wherever it arises.
“Brands assessing information spanning producers, suppliers and their shareholder interests, as the LME recommends in its draft, is a positive step and can not be limited by geography,” stated Pickles.
GW suggested that the LME rules go further when it comes to tackling the impacts of its brands on the planet.
“The LME must require companies to report on environmental and climate risk too. Climate-related financial and nonfinancial risk disclosures are increasingly sought by investors and have recently become a legal requirement in the European Union. The metals sector, which relies on investment, would do well to get ahead of the curve.”
Finally, GW cautioned the LME against over-reliance on industry schemes as a means of demonstrating responsible business.
“Our research, and that of a 2018 OECD study, consistently showed that membership of, or coverage by an industry scheme, does not guarantee that an entity is undertaking responsible sourcing in practice.
“The market needs to move away from the idea that scheme membership or certification demonstrates ‘compliance’ and that this is adequate,” noted Pickles.
She added that, instead, the LME should focus on the individual, independent annual reporting published by brands and producers, and use this as the means of scrutinising and testing corporate efforts to identify and respond to supply chain risks.
“Tick-box compliance will not change business behaviour in practice; the market must instead look to detailed due diligence reporting as a record of efforts and a company’s means of demonstrating best practice.”