Koch, J.-W. 2016. Debunking five myths on due diligence in mineral trade. GREAT Insights Magazine, Volume 5, Issue 2. March/April 2016.
A question often raised is about how to involve the private sector to contribute to the 2030 Agenda. The example of the due diligence for companies in the mineral sector shows that managing and dealing with risks can be a business opportunity. As part of it, collaborating with CSOs provides often necessary knowledge and networks.
In the last couple of weeks, many companies have approached me concerning the upcoming EU conflict minerals legislation. They want to know what it will look like, whether it will be voluntary or mandatory, whether it covers upstream, or downstream industries? I am always polite and try to answer in detail, but I should say: it doesn’t matter that much for what you as a company need to do now.
In my view, companies need to start building their own system of managing due diligence. Many are already engaged, either because they are stocklisted in the US or because they think it is the right thing to do so as not to be involuntarily involved in dirty business. Or both. But there are still some misconceptions. So, let’s debunk five common myths.
Whether or not there is an EU legislation, companies must conduct their due diligence checks anyway. In fact, all OECD governments have adopted the due diligence guidelines for multinational enterprises for mineral sourcing from high-risk and conflict-affected areas. Although considered as a ‘soft law’, the guidelines can nevertheless have tough consequences. The EU legislation will be based on the OECD guidelines. The first step is very clear: companies will have to develop their own due diligence policy. And I would suggest the following to companies.
Don’t focus too much on how this regulation might look; instead, enhance your own due diligence. What matters is where your minerals come from, right?
If you happen not to be interested to know, the press and NGOs will be interested and attempt to find out. Even if the legislation is voluntary, be sure that reports will classify you based on your due diligence reports.
Governments see NGOs as their allies and are funding them to report. These NGOs can be your allies too: their knowledge and networks can help you to strengthen your due diligence.
I would say: no! Labelling an entire group of minerals as conflict minerals is stigmatising and not correct! Often, these minerals have nothing to do with conflict. It all depends on where they come from in those high-risk countries. There are also a lot of other minerals that come from high-risk areas: think about the jade from Myanmar, or the diamonds from Zimbabwe. OECD made it very explicit: their due diligence guidance applies to ALL minerals. So, if a report is issued on, for instance, cobalt, companies can’t decide not to comply just because it is not in 3T+G. Companies therefore have to THINK and not check boxes. This brings me to the third myth.
The OECD guidelines do not allow companies to stick only to industry or government certification schemes. Take the example of the Dutch bank, ABN AMRO, an important player in diamond trade. They had a due diligence framework for diamonds where all traders had to declare publicly that they only purchased and sold Kimberley diamonds. In the beginning, the Kimberley certification scheme ensured effectively that there were indeed no conflict diamonds entering the trading system. This worked well for a couple of years until the Kimberley certification system started to falter: diamonds from violent parts of Zimbabwe entered into the system. However, since ABN Amro was THINKING about their due diligence they said, ok: we will first aim to convince the Zimbabwean parties to improve their sourcing. However, as a last resort and if the violence continues, we will demand from our traders that they use the Kimberley certificate AND that they refrain from sourcing from Zimbabwe.
Of course adhering to an industry scheme is a good first step, but it doesn’t absolve the responsibility to critically assess the scheme. Due diligence is about continuous improvement and not just about 100% compliance straightaway. If areas of noncompliance are found (excluding extreme violations, such as genocide) the OECD recommends measurable risk mitigation strategies. These strategies should aim to promote progressive performance improvement within reasonable timescales.
The OECD due diligence guidance for responsible mineral sourcing from conflict affected and high risk areas explains in detail why one should do due diligence: first, to prevent a company from contributing to conflict and secondly, to prevent a company from contributing to human rights abuses, such as child labour or forced labour. So don’t be surprised that NGOs will investigate companies if they can’t exclude that they source from a region with a lot of child labour in the mining sector even if it doesn’t contribute to conflict. If they wish to connect it to the abovementioned OECD guidance they can do so. But in addition, there are the OECD guidelines for multinational enterprises (which exist since 1976). These also forbid issues such as child labour. So, due diligence is about much more than just conflict.
Due diligence doesn’t mean avoiding tough areas. It means engaging with change makers at a local level. The Dutch government is focusing on trade in tin in the Eastern DR Congo. Multinationals like Tata and Philips developed, together with the Ministry of Foreign Affairs and local suppliers, a traceability system for tin, the Conflict Free Tin Initiative, to trade tin from the mines to the mobile phones. Philips, as a so-called ‘launching customer’, promised to buy the first 20 tonnes of tin that would leave the DRC based on this system. By now, hundreds of tonnes of tin have been sourced from hundreds of conflict-free mines in the DRC. It is now more lucrative for traders to deal in conflict-free tin than in non-certified tin. This example shows that much can be done without legislation.
While regulation might be important and can be useful to raise the minimum bar, it doesn’t help the frontrunners. Therefore the Netherlands will be launching, together with its partners, a public-private partnership to stimulate responsible mineral trade to accompany the EU legislation. Through this forum we will finance pilot projects, such as the Conflict Free Tin Initiative, and hold each other to account. We all have a role to play, including the government, to ensure that our own supply chain is also fully transparent.
About the author
Dirk-Jan Koch is the Special Envoy Natural Resources for The Netherlands governement.
Photo: Gold from eastern Congo. Credit: ENOUGH Project/flickr.com
This article was published in GREAT Insights Volume 5, Issue 2 (March/April 2016).