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Copper to the worldINTERNATIONAL MARKETS - SEEKING RESPONSIBLE PRODUCERS | MAY 24, 2019
From cobalt to copper 2016 2017
Follow-up AI cobalt report published
Further media coverage incl. BBC, Wall Street Journal and Financial Times
Key cobalt markets, specifically ICT sector, begin to react
Electronic Industry Citizen Coalition* launch Responsible Raw Materials Initiative (RRMI) to expand responsible sourcing beyond 3TG
Launch of Responsible Cobalt Initiative (RCI), including Sony, HP, Samsung, large Chinese companies
*(now called the Responsible Business Alliance, RBA)
2018
Electric vehicles hit the mainstream
EV Sustainability contrasted with responsible sourcing risks in vehicle inputs
Interest in responsible sourcing expands to other “tech metals” incl. nickel, lithium, manganese, mica
Bodies incl. LME, the Aluminium Stewardship Initiative and the ICA announce new standards/initiatives
OECD announces plans to expand due diligence guidance to 22 raw materials (incl. copper)
2019
ICA Copper Mark launched
LME responsible sourcing rules consultation
Emerging standards coalescing around OECD Due Diligence Guidance for Responsible Supply Chains
Blockchain as responsible sourcing solution in metals emerges
Increasing focus of NGOs on copper sourcing risks
Increasing attention on copper’s potential as alternative to strategically sensitive and/or high-risk tech metals incl. REE.
Pre 2016, responsible sourcing focus on “conflict minerals” (tin, tantalum, tungsten, and gold)
First Amnesty International Report in to responsible sourcing risks in cobalt
Washington Post cobalt investigation published
Emergence of debate over re-classification of cobalt as conflict mineral
assessing and comparing the risks Cobalt Lithium Copper
Level of reporting Upstream Midstream Upstream Midstream Upstream Midstream
Human rights abuses Unknown
Child labour Unknown
Indigenous Rights Unknown
Provenance from
conflict-affected/high-
risk countries
Environmental impact Unknown
Community impact Unknown
Occupational Health and
Safety (OHS)Unknown
Corruption Unknown
Modern slavery Unknown Unknown
Not affected
Affected with medium impact
Affected with important impact
OHS risk worldwide
Environmental, corruption, and community impact risks largely contained to Latin America and Central Africa
Indigenous rights largely in Latin America
Source: RCS Global Group: rcsglobal.com/advisory-training
Downstream market action and expectations
Entry Stage Active Participation Stage Industry Leader Stage
StrategyInternal adherence to minimum compliance + reactive approach
Adopt proactive approach including monitoring and addressing risks
Engaging with industry/regulatory groups
Adopt disruptive approach
Investment in industry change
Linking purchasing and due diligence actions
Utilising tech to unlock value in supply chains
Actions
• Minimum required box- tickingand ad-hoc responses to customer requests
• Mapping: Know who/where you source from = improved supply chain transparency
• Supplier Engagement• Strong company due diligence management
systems and external reporting• Investment in traceability
• Set industry best practice to be adopted by peers (important in a competitive market)
• Act as a convener and thought-leader for industry and beyond- important for ‘clean’ branding
• Chain of custody in SC• Understanding systemic issues and linking purchasing and
sourcing requirements
Companies want to prove to the market that they have a handle on the key inputs going in to their products. They want to publicly demonstrate:
Alignment with OECD Due Diligence Guidelines + key commodity-specific standards/regulation where present
Proof of best practice
Traceability and provenance
ICT and Auto sectors are leading and defining good practice in responsible sourcing and influencing downstream action in other sectors and – critically – within their 1st tier suppliers
Midstream actors, including in China, also now adopting more activist approach to responsible sourcing
KEY INFLUENCERS
Media
Most global financial/business titles regularly cover the responsible “tech metals” story
Child labour dominates as key lightning-rod issue but wider coverage on ESG issues in supply chains regularly appears
Crucially, the story has transcended b2b media, also appearing in consumer press –significant push factor for ICT/auto action
NGOS
Amnesty International is the key NGO and the pivotal influencer in modern responsible sourcing
Core group of global NGOs also driving industry action including:
Global Witness Resource Matters RAID Enough Project CopperAcción
NGO action has had direct impact on key standards/regulations, including the OECD. NGO group still in consultation with LME.
Industry/Trade orgs
Several industry groupings also now having a key influencing role over responsible sourcing action. These include:
Drive Sustainability (auto sector) Global Battery Alliance (cross industry) Responsible Business Alliance (ICT sector) Responsible Battery Coalition (multi-
stakeholders)
KEY INFLUENCERS Legislators & Litigators
Governance
Strengthening/more assertive government oversight/restrictions Water is good example In Chile the Superintendencia del Medio Ambiente (SMA) & the Dirección General de Aguas (DGA) focussing on prosecutions for over-usage and implementing restrictions respectively
Litigation & liability
Increasing debate over liability of global miners for ESG-related offences outside of home territory or through subsidiaries April 2018 UK case of Vedanta Resources Plc and another v. Lungowe and others sets potential precedent
Outliers Rio Tinto
Nespresso and Rio Tinto collaborating to develop first responsibly-sourced aluminium supply chain In 2018, Rio Tinto was first company to receive ASI Performance Standard Certification and world’s first Chain of Custody Certification covering 11 risk types across ESG The Performance Standard is the industry’s highest standard for responsible production, sourcing and stewardship of aluminium
Huayou Cobalt, LG Chem, Ford, volkswagen
Launched world’s first Responsible Sourcing Blockchain Network Using IBM’s Hyperledger Fabric and on-the-ground expertise from RCS Global Group, the RSBN gives member companies increased transparency and insights into their supply chain Conditions of production can be assured with ‘ethical’ material traced through the supply chain to OEM
Downstream industry expectations
Multitude of industry standards.
No single unified standard/certification.
Determination of risks and compliance obligations still not unified but virtually all initiatives now encourage an OECD DD approach to due diligence.
Global Standards
Exchanges
Commodity specific standards
Best practice drivers
Key markers for copper - who to watch
In the copper sector, three key standards setting bodies have emerged, covering the whole supply chain ….
The OECD (best practice driver for DD)
The LME (listing certification)
The ICA Copper Mark
…. and two upstream standards are applicable to extractive operations
IRMA
TSM from the Mining Association of Canada (MAC)
OECD Guidance and practical actions
ICA COPPER MARKLME listing Certification
KEY OBSERVATIONS FOR THE COPPER SECTOR
In 2018 the LME published a position paper on responsible sourcing, including copper
The rules require brands listed on the LME to undertake red flag assessment in line with the OECD Guidance by end of 2020
If red flags are raised, company will be considered high-focus and must perform audits aligned with OECD Guidance by end of 2022
Red flag assessment will be published by 2024
The ICA launched the Copper Mark in May 2019.
Aligned with OECD DD and 31 requirements of Risk Readiness Assessment (RRA) of Responsible Minerals Initiative (RMI)
Self-assessment followed by third-party certification at site level while recognising compliance to existing schemes
A new entity separate from ICA will be created with a light structure and will start accepting applications by the end of 2020 at the earliest
No reporting requirements yet but will potentially be aligned with the B to B RRA platform
38 raw materials considered critical for responsible sourcing, incl copper
Key driver for best practice in due diligence
Covers 10 risk areas related to sourcing in CAHRAs
OECD Practical Actions helps companies identify and assess child labor risks
The OECD approach is quite limited because only focused on Human Rights and Modern Slavery
It is probable that ICA Copper Mark status will be accepted as proof of conformance with LME responsible sourcing expectations
Emerging tech solutions
Brands want instant, secure access to end-to-end asset provenance information
They also want an IMS where due diligence and risk data can be fed in, assessed, and actioned upon –similarities with financial due diligence solutions
Platforms that enable easier engagement with supply chain partners also much in demand
For large industrial miners with material controls in place and production practices aligned to global standards, there is an opportunity to utilise technology to underpin/prove responsible production to potential customers
Automation is playing an increasing role in OHS risk management, including automated electric drills (e.g. Boliden, Sweden), automated haul trucks (e.g. Komatsu’s FrontRunner AHS system)
Blockchain as supply chain solution
1. Enables real and fast provenance identification and consensus
2. Immutable, un-corruptible records - ‘certified material’
3. Decentralised data control with verified roles in the system
4. Sharable but encrypted supply chain information
5. Scalability: provides platform for other activities such as financing, digitalisation
6. Cost reduction
Efforts to pilot blockchain applications are now ready (e.g. RSBN in the cobalt
sphere)
Expectation growing that upstream resource companies will engage and
become ‘blockchain ready”
Opportunity within LSM for actor to emerge as first-mover and gain
reputational and operational advantage in market
Copper blockchain Blockchain-backed cobalt supply chain from LSM site to end user already in development with the Responsible Sourcing Blockchain Network (RSBN) implemented by RCS Global Group, IBM,
Ford Motor Company, Volkswagen, LG Chem and Huayou Cobalt
Copper represents a natural/obvious use-case for blockchain-backed provenance
RCS Global Group are actively looking for an LSM partner to start a copper blockchain trial
Source: RCS Global Group: rcsglobal.com/blockchain-traceability
Opportunities for Australian producersINTERNATIONAL MARKETS - SEEKING RESPONSIBLE PRODUCERS | MAY 24, 2019
Responsible production as market differentiator
For LSM copper there is a clear opportunity to differentiate as “responsible producers”
There is also a need for the market to be educated on copper production relative to more “high risk” commodities
Most copper production is from areas with low human rights risks and stable regulatory, legal, political environments but high environmental impacts still remain. Copper sourced from CAHRAs is limited to DRC and some specific African and Asia-Pacific operations.
Advanced, industrialised, safe production facilities
Sustainability issues in production are clear but copper itself is highly sustainable: Infinitely recyclable Circa 1/3 of annual global consumption met by recycled copper Doesn’t degrade Vital conductor – key to modern renewable energy technology
Copper has the ideal attributes to be the symbol of a modern, sustainable commodity sector:
Sustainable & Responsible Production + Highly sustainable product perfectly placed for utilization in Circular Economy
Responsible production as market differentiator
Opportunities for Australian producers Media, NGOs/campaigners, even some industry players, have
demonstrated a lack of understanding of copper production or the
responsible sourcing risks involved –
Australian producers should be ‘champions’ of responsible
and innovative copper
Opportunity for industry leaders to define and
demonstrating best practice in “responsible copper” while
making case for its potential utilization across emerging
renewable technology
Opportunity for industry leaders to adopt and leverage new
IMS and traceability tech (inlc blockchain) to prove good
practice to the market & strengthen engagement with
downstream esp. ICT and auto..
Next steps Take stock of and understand key global standards/initiatives:
The Copper Mark
LME Certification (yet to be finalized)
Undertake an alignment assessment, preferably by a third-party
Future proof your operations; go beyond audits and explore tech
options including blockchain
Publicly report on and demonstrate good practice
Engage with emerging key downstream markets, ICT and auto:
Directly
Via stakeholder forums
Via media
…be open, discuss responsible sourcing collaboration and
solutions, and engage with leading service providers in this field
