ResponsibleSteel Requirements, Options and Consultation ... · Consultation question on threshold for making 'certified' claims 9 Consultation question on our approach to scrap 11

ResponsibleSteelRequirements,OptionsandConsultationQuestionsonResponsibleSourcingofInputMaterials

DraftVersion1.0

03August2020

ResponsibleSteeldraftrequirements,optionsandconsultationquestionsfortheresponsiblesourcingofinputmaterials 2

TableofContents

Background 3

Aboutthisdocument 4

Responsiblesourcingofinputmaterials 5Criterion1.Responsiblesourcingcommitment 6Criterion2.Supplychainmapping 8Criterion3.Responsiblesourcingclaims 9Consultationquestiononthresholdformaking'certified'claims 9Consultationquestiononourapproachtoscrap 11Consultationquestiononriskmanagement 12Consultationquestiononinputmaterialstocover 14Criterion4.SupplychainESGriskandimpactassessmentandprioritisation 15Criterion5.SupplychainESGriskandimpactpreventionandmitigation 16Criterion6.Supplychainreporting 17

Annex1(forconsultation):InputmaterialstobecoveredbyESGriskmanagementrequirements 18ConsultationquestiononinputmaterialstobecoveredbyESGriskmanagementrequirements 18

Annex2(forconsultation):ProposalsfordraftrequirementsthatwerediscussedwithResponsibleSteelmembersbutnotprogressed 20

Consultationquestiononotheroptions 20

Annex3(forinformation):Illustrationofmassbalanceandconversionfactors 22

Annex4(forinformation):ResponsiblesourcingrequirementsinapprovedStandard 24Criterion1:CorporateValuesandCommitments 24Criterion2.2:ResponsibleSourcing 24


Background

InNovember2019,version1-0oftheResponsibleSteelStandardwasapprovedandratifiedbyourmembershipandboard.Steelsitescanchoosetobeindependentlyauditedagainstthe12PrinciplesoftheStandardtodemonstratethattheymeethighlevelsofperformancewhenitcomestoenvironmental,socialandgovernance(ESG)issues.SteelsitesthatbecomecertifiedagainsttheapprovedStandardareabletoclaimthattheirsiteisoperatedinaresponsiblemanner.

TheapprovedStandardcontainsrequirementsforinputmaterials(thencalledrawmaterials)inits"ResponsibleSourcing"Criterion2.2andforgreenhousegas(GHG)emissionsinits"ClimateChangeandGHGEmissions"Principle8.Theinputmaterialsrequirementsaskforahigh-levelcommitmenttoresponsiblesourcingandforevidencethatthiscommitmentisbeingimplemented.However,itdoesnotprovideincentivestosteelcompaniesandtheirsupplierstoworktowardshighlevelsofESGperformanceinsupplychains.TheGHGPrincipleisambitiousinthatitrequirescompanyandsitelevelstrategies,plansandtargetsalignedwiththeachievementofthegoalsoftheParisAgreementandinthatitrequiresthatsteelcompaniesandsitestoreportontheirperformance.However,itdoesnotsetthresholdrequirementsforsites’currentGHGemissionsperformance.

TheResponsibleSteelmembershipandBoarddeterminedthatfurtherrequirementsfortheresponsiblesourcingofinputmaterialsandinrelationtogreenhousegas(GHG)emissionswouldbedevelopedin2020.MeetingtheserequirementsinadditiontothealreadyapprovedStandardwouldallowsteelsitestonotonlymakeclaimsaboutthewaytheirsiteisoperated,butalsoabouttheirsourcingofinputmaterials.SteelsitesparticipatinginResponsibleSteelwouldbeabletochoosewhethertheywanttobeauditedagainsttheadditionalrequirements,buttheywouldnotbeobligedtodoso.Incentivestomeettheadditionalrequirementswouldcomefromthemarketintheformofcustomer,publicpolicyandgreenfinancespecifications,fromcivilsocietyandpeerpressure,orfromthewishtodistinguishfromcompetition.

TheResponsibleSteelcertificationprogrammeisbeingdevelopedtocovertheentiresteelsupplychainfromminesiteorcommercialscrapcollectordowntothesteelenduser(e.g.thecar,constructionorwhitegoodsmanufacturingcompany).ThecurrentResponsibleSteelStandardcanbeapplieddirectlyatsiteswhereinputmaterialsareprocessed,andatsteelmakingandsteelprocessingsites.

Upstreamsupplychainactivities,suchasmining,beneficiationorthecommercialcollectionandprocessingofscrap,willbecoveredthroughotherprogrammesthatareeitheralreadyexistentorthatarestilltobedeveloped.Ratherthancreatingamultitudeofstandardstocoverallstepsofthesupplychain,ResponsibleSteelwillidentifyandrecognisecredibleprogrammesthatsetasimilarlyambitiousstandardandrunanequallyrobustassuranceprogramme.Thefirststepsinthisdirectionstartedmorethantwoyearsago,whenResponsibleSteel,theInitiativeforResponsibleMiningAssurance(IRMA)andtheTowardsSustainableMining(TSM)programmeworkedtogethertocomparetheirrespectivestandardsandstartedthinkingaboutamechanismforrecognisingothersystemsupanddownthesupplychain.TheseeffortsarestillongoingandResponsibleSteelwillsoonpresentadraftrecognitionmethodologytoitsmembersandstakeholdersforfeedback.OurcollaborationwithIRMAandTSMisnotexclusiveandwewillalsoanalysetheprogrammesofBettercoalandtheInternationalTinAssociation(ITA).OtherprogrammesareinvitedtoletusknowiftheywanttobeanalysedandassessedforrecognitionbyResponsibleSteel.Forscrap,wewillapplythesameapproachaswetaketominingandotherstagesofthesupplythatarenotcoveredbytheResponsibleSteelStandard.Wewillanalyseexistingstandardsandthird-partyverificationprogrammessuchasISOIWA19(Guidanceprinciplesforthesustainablemanagementofsecondarymetals)andtheRecyclingIndustryOperatingStandard(RIOS)todeterminewhethertheycanberecognisedbytheResponsibleSteelprogramme.


In2021,ResponsibleSteelwilllookintooptionsofincludingdownstreamsupplychainsintheResponsibleSteelcertificationprogramme.Weareenvisagingapplyingasimilarapproachastoupstreamsupplychains.Discussionsonthiswithourboardandwithmemberswillbekickedofflaterin2020.

Aboutthisdocument

Thisdocumentpresentsdraftversionsoftheadditionalrequirementsfortheresponsiblesourcingofinputmaterials.Onceapproved,theserequirementswillhavetobemetinadditiontothealreadyapprovedStandardversion1-0ifasteelsitewishestoclaimthatitssteelproductsareResponsibleSteelcertified.Wehaveprovidedguidanceonmostoftheproposedcriteriaandrequirementstoexplainkeytermsandconcepts.Thedocumentalsooutlinessomeoptionsforalternativerequirementsandconsultationquestionsthatweaskstakeholderstoconsider.Weareawarethatsomeofthedraftrequirementsandoptionspresentedinthisdraftmaybeunworkableormaybeunauditable,orthatthecostsandpracticalitiesmayoutweighthebenefitstheywillachieve.Wherestakeholdersfeelthatthisisthecase,wewelcomeclearfeedback,sothatwecanrevisetherequirementstomakesurethatfuturedraftversionsarepractical,auditableandeffective.

TheAnnexestothisdocumentcontainthealreadyapprovedrequirementsonresponsiblesourcingsothatreadersunderstandwhatisalreadycoveredbyourexistingStandard.Theyalsocontaintheinputmaterialsthatareproposedtobecoveredbytheresponsiblesourcingrequirementsanddescribesomeproposalsinrelationtothesourcingofinputmaterialsthatwerediscussedwithmembersbutnottakenforwardforthisversionofthedraftrequirements.ItisimportantforustoreceiveyourfeedbackontheAnnexesaswell.

ThisdocumenthasbeendraftedbytheResponsibleSteelSecretariatbasedondiscussionswithourBoard,Membersandstakeholdersoverthelastthreeyearsandisputoutforpublicconsultationwithstakeholders.TheproposalsinthisdocumenthavenotbeenendorsedbytheResponsibleSteelBoard,itsStandardsandAssuranceCommittee,orbytheResponsibleSteelmembership.

Wearekeentohearfromstakeholderswhethertheysupportourdraftrequirements,whethertheypreferanyoftheprovidedoptionsandwhattheiropinionsareontheconsultationquestionsweareposingtothem.Ifstakeholdersfeelthatthereareotherapproachesnotoutlinedherethatwouldbebetterplacedtoachieveourlong-termobjectiveofresponsiblesupplychainswithstrongESGperformance,weverymuchappreciatehearingthem.Stakeholdersareaskedtosubmittheirfeedbackonthedraftrequirements,options,consultationquestionsandAnnexestoResponsibleSteelby02October2020viatheGoogleformonhttps://forms.gle/RbS1rT2F7i3sA11K7.

StakeholdersshouldnotethatconsultationontheadditionalrequirementsforGHGislikelytostartinmid-August.

Followingthepublicconsultation,wewillcollateandreviewthereceivedfeedback.WeareplanningtoholdworkinggroupmeetingsandasecondroundofpublicstakeholderconsultationontheinputmaterialsandGHGrequirementstowardstheendof2020,andbeforethedraftrequirementsareputtoourMembersandourBoardforapprovalandratification.WeaimtohavecompletedbothworkstreamsoninputmaterialsandonGHG,ifconsensuscanbereachedacrossourMembership,inSpring2021.

Ifyouhaveanyquestionsontheinputmaterialrequirements,pleasecontact:

MarnieBammertTechnicalandAssuranceDirectormbammert@responsiblesteel.org


DRAFTRequirements

Responsiblesourcingofinputmaterials

Objective:

ResponsibleSteelcertifiedsitesincreasinglydemandandsourceinputmaterialsfromsupplychainswithcrediblethird-partyverificationofstrongESGperformanceandproactivelyaddressenvironmental,socialandgovernancerisksandimpactsintheirsupplychains.

Background:

Stakeholders,customersandsocietyatlargeexpectcompaniestotakeresponsibilityforwhatisgoingonintheirsupplychains.Thisexpectationreachesbeyondthedirectsuppliersofcompaniesandencompassesallstagesofthevaluechain.TheResponsibleSteelStandardtakescompaniesuponthischallengeandtakesthemonajourneytoachievefullyresponsiblesupplychains.

Thefirstaskoftheresponsiblesourcingrequirementsisthatcompaniescommittoincreasinglysourceinputmaterialsfromsupplysitesthatareverifiablyoperatinginaresponsiblemannerandtoaddressenvironmental,socialandgovernance(ESG)risksandimpactsintheirsupplychains.

Thedifferenttypesandgradesofsteelaremadefrommanydifferentminedmaterialsthatmightberaworprocessed,passthroughmanydifferentsuppliersandaremixedandmeltedatvariousstagesofproduction.Steelisalsomadefromrecycledmaterial,whichsavesalotofenergy,butthescrapoftencomesfromhighlyfragmentedandopaquesupplychains.TheResponsibleSteelStandardrequirestransparencyalongthesecomplexsupplychainsandexpectsthatsteelsitesunderstandwhereexactlytheirinputmaterialscomefrom.OnlywhentheoriginofmaterialandthedifferentsuppliersitpassesthroughareknowncansteelsitesstartworkingwiththeirsupplychainstoimproveESGperformance.

ResponsibleSteelrecognisesthatthird-partyauditsagainstcredibleandrobuststandardsarethebestevidenceofstrongESGperformanceatsupplysitesandsoourStandardallowscertifiedsitestosellsteeltheyproduceas'ResponsibleSteelcertified'totheextentthattheysourceinputmaterialsfromsupplychainswhereeachlinkinthechaincanprovidethiskindofperformanceevidence.Apartfromminedmaterial,scrapisakeyingredientinsteelproduction.Siteswithelectricarcfurnace(EAF)relyheavilyonscrap.ForEAFsites,suchafullyverifiedsupplychainisonewheresupplysiteshaveeithersuccessfullyundergoneathird-partyauditagainstarecognisedscrapstandardorhavebeensubjecttoeffectiveESGriskandimpactassessmentandmitigation.Thisistoacknowledgethatscrapcontributestosustainableproductionsinceitisrecycledmaterial,butalsothatscrapsupplychainsaremorediversified,withmanymoreplayersofdifferentsizes,levelsofformalisationandmaturity.

Wheresupplysitescannotprovidethird-partyevidenceofstrongESGperformance,identifiedESGrisksandimpactsmustbeassessedandaddressedovertime.SteelsitesarelikelytofacemanyESGchallengesandwillnotbeinapositiontoaddressthemallatonce.TheResponsibleSteelStandardacknowledgesthatandaskssitestoaddressthemostsevereandimminentonesfirstbeforeturningtoother,lesspressingissues.

Finally,ResponsibleSteelcertifiedsitesmustreportpubliclyontheirprogressinsourcinginputmaterialsinaresponsiblemanner.

Thefollowinggraphsummarisesthe6proposedresponsiblesourcingCriteria:


Sourcingfromverifiedsupplysites(i.e.certifiedorstrongESGperformanceverifiedby3rdpartyaccordingtoRS-recognisedprogramme.

ProactivelyaddressingESGrisksandimpactsinsupplychains

95%ofinputmaterialfromknownsupplysiteswithin3years

Supplysites=uptominesiteorcommercialscrapsupplier

Canclaimonlyasmuchsteelproducttobecertifiedassitereceivesinputmaterialfromcertifiedor3rdpartyverifiedsupplysites(notfromsupplysitesthathavebeensubjecttorisk-basedapproach)

Classifyashigh,Addressmostmediumorlowimminentonesandprioritisethemfirst,accordingtosetplansandstrategy

CentralreportingviatheResponsibleSteelwebsiteonkeyperformanceindicators

SteelsitesthatarecertifiedtotheseresponsiblesourcingrequirementsinadditiontothealreadyapprovedResponsibleSteelStandardlaunchedinNovember2019,mightmakethefollowingkindofclaim:“Thesite(nameofsteelsite)of(nameofcorporateowner)isResponsibleSteelcertified.Thesitehasshowninathird-partyauditthatitismanagedresponsiblyandincreasinglysourcesinputmaterialsfromresponsiblesupplychains”.Theexactwordingofanyallowedclaimsistobediscussedoverthenextfewmonthsaswedeveloptherequirementsfortheresponsiblesourcingofinputmaterials.

Sourcingisoftendoneatthecorporatelevelratherthanatindividualsteelsites.Duetothis,engagementofthecorporateownerofasteelsiteinResponsibleSteelauditsisexpectedandnecessarytodemonstratethattherequirementsoftheResponsibleSteelStandardaremet.Therequirementsforresponsiblesourcinghavethereforebeenphrasedinawaythatallowsforthiscorporate-levelengagement.

Criterion1.Responsiblesourcingcommitment

Thesite'scorporateowneriscommittedtosourcinginputmaterialsforsteelmakingandprocessinginaresponsiblemanner.

1.1.Thesite'scorporateownerhasapubliclyavailableresponsiblesourcingcommitmentto:

a) sourceinputmaterialfromsupplychainsthathaveachievedcrediblethird-partyverificationofstrongESGperformance,asrecognisedbyResponsibleSteel

b) wherecrediblethird-partyverificationisnotavailable,toeffectivelyaddressESGrisksandimpactsinsupplychains.

1.2.EvidencetoshowthattheresponsiblesourcingcommitmentisimplementedforthesiteisprovidedduringResponsibleSteelaudits.

Committoresponsiblesourcing

Mapinputmaterial

supplychains

Claim‘certified

steel’basedonverifiedinput

AssessESGrisksandimpactsin

supplychains

AddressESGrisksand

impactsovertime

Reportoncommitmentimplemen-tation

Stakeholderviewsaredividedhereandwearelookingforyour

constructivefeedback


Guidance:

Inputmaterial:Annex1liststheinputmaterialsthatarecoveredbyourresponsiblesourcingrequirements.WeprovidedifferentOptionshereandwouldappreciatehearingfromstakeholderswhichoftheOptionstheypreferandwhy.

Corporateowner:ThelegalentityorentitiesthathaveultimatecontrolovertheactivitiesofasitethatappliesforcertificationofconformitywiththeResponsibleSteelStandard.

Note:Thecorporateownerwilltypicallybetheparentcompanyunderwhosenameasiteoperates.Inthecaseofjointventures,therequirementsofthecorporateownermayapplytomorethanonelegalentity.Theidentificationofthecorporateownershallbedeterminedaspartoftheapplicationprocessforsitecertification.

Crediblethird-partyverificationofstrongESGperformance,asrecognisedbyResponsibleSteel:Thismeanseither:

• certificationofasupplysiteagainstthestandardofaprogrammethatisrecognisedbyResponsibleSteelasbeingcredibleandrobust,or

• achievementofapre-definedhighlevelofESGperformancedemonstratedinathird-partyauditthatwasconductedaccordingtotherulesofaprogrammethatisrecognisedbyResponsibleSteelasbeingcredibleandrobust.

Overthenextfewmonths,wewilldevelopcriteriaandamethodologyforassessingESGverificationprogrammesthatapplytosupplychainstagesthattheResponsibleSteelStandardapprovedinNovember2019doesnotcover.Thisisthecase,forexample,attheminesitelevel.SincearigorousstandardisnotsufficientforensuringstrongESGperformance,ourrecognitionassessmentswillconsider:

• thestandardoftheprogramme• theassuranceandauditingprocess• thegovernanceoftheprogramme• engagementofexternalstakeholdersinauditsandinprogrammegovernance• assuranceofauditorcompetence• oversightmechanismsfortheprogramme• claimsthatcanbemadebysupplysitesthathavebeenaudited.

Weacceptnotonlycertificationbutalsoothercrediblethird-partyverificationsincemanyESGprogrammesdonotresultinabinarycertified/notcertifieddecision,buthavedefineddifferentachievementlevelsorratingscalestoclassifysupplierperformance.ResponsibleSteelwilldeterminefromwhichachievedlevelsofperformanceminesandothersupplychainactivitiescanberecognisedascontributingtomakingresponsiblesourcingareality.Wewillconsultwithmembersandstakeholdersonthecriteria,methodologyandrequiredperformancelevelsfortheserecognitionassessments.

Oncethisisinplace,wewillassesstheminesiteverificationprogrammesoftheInitiativeforResponsibleMiningAssurance(IRMA),TowardsSustainableMining(TSM),BettercoalandtheInternationalTinAssociation(ITA)todeterminewhethertheyareambitious,rigorousandindependentenoughtoberecognisedascontributingtoachievingourvisionof"maximisingsteel’scontributiontoasustainablesociety".OtherprogrammesarewelcometoapproachResponsibleSteelandasktobeassessedforrecognitionaswell.TheapproachwetaketominingwillalsobeappliedtootherstagesofthesteelsupplychainthatarenotcoveredbytheexistingResponsibleSteelStandard,forexamplethecommercialprocessingofscrap.ExamplesofstandardstolookathereareISOIWA19(Guidanceprinciplesforthesustainablemanagementofsecondarymetals)andtheRecyclingIndustryOperatingStandard(RIOS).


Wherecrediblethird-partyverificationisnotavailable:ThismightbethecaseforsupplychainstageswherethereisnoverificationprogrammethatResponsibleSteelrecognises,orwhereinputmaterialfromthird-partyverifiedsupplysitesdoesnotmeetthespecificationneededforaparticularproduct,orwherethereisnotsufficientsupplyfromthird-partyverifiedsupplysitestomeetmarketdemand.

Evidencetoshowthattheresponsiblesourcingcommitmentisprogressivelyimplemented:NotealsoCriterion6,whichasksforpublicreportingonprogress.

Supplysite:Anindividualsitethatproducesorprocessesinputmaterialsusedinsteelmakingandsteelprocessing.

Supplychain:Allsupplysitesofthesteelsite,backtotheminesitelevel,whereminedmaterialisconcerned,orbacktothecommercialsupplysiteofexternalscrap,wherescrapisconcerned.

Commercialsupplysiteofexternalscrap:Thiscouldbeamanufacturingsitewherethescrapistheresultofmanufacturingprocessesoffinalproducts,suchasautomobilesandbuildings(manufacturingscrap).Or,whereitisend-of-lifescrap,itcouldbeascrapdealeroraship-breakingsite,upstreamofwhichthescraphadapreviouslife.

Criterion2.Supplychainmapping

Thesupplychainsoftheinputmaterialsusedatthesitearemappedandtransparencyofsupplychainsismaximisedovertime.

2.1.Thereisamappingofthesupplychainsforallinputmaterialsusedatthesite.Themappingidentifiesallknownsupplysitesandallsupplychainstageswithunknownsupplysites:

a) backtotheminesitelevelforminedmaterialb) backtothecommercialsupplysiteofexternalscrap.

2.2.Themappingcontainsatleastthefollowinginformationforallknownsupplysitesofthesite:

a) nameb) countryandmunicipalitywherethesupplysiteoperatesc) providedinputmaterial(s)d) whetherthesupplysitehasachievedcrediblethird-partyverificationofstrongESGperformance,as

recognisedbyResponsibleSteeland,ifso,forwhichinputmaterial(s)andwithwhichresult.

2.3.Foreachinputmaterial,thefollowinginformationiscollectedonaregularbasis:

a) receivedquantityfromsupplysitesthathaveachievedcrediblethird-partyverificationofstrongESGperformance,asrecognisedbyResponsibleSteel

b) receivedquantityfromsupplysitesthathavenotachievedthatverification,identifyingwhetherthesupplysitesareknownorunknown

2.4.Forscrap,thefollowinginformationiscollectedonaregularbasis:

a) receivedquantityfromsupplysitesthathaveachievedcrediblethird-partyverificationofstrongESGperformance,asrecognisedbyResponsibleSteel,dividedintomanufacturingscrapandend-of-lifescrap

b) receivedquantityfromsupplysitesthathavenotachievedthatverification,dividedintomanufacturingscrapandend-of-lifescrapandidentifyingwhetherthesupplysitesareknownorunknown

c) producedquantityofinternalscrap.


2.5.Within3yearsofbecomingcertifiedtotheserequirements,themappingforthesiteshowsthatatleast95%ofthequantityofreceivedinputmaterialsisfromsupplychainswherealllinksinthechainareknown,backtotheminesitelevelortothecommercialsupplysiteofexternalscrap.

2.6.Inthecaseofnewsuppliers,ResponsibleSteelcertifiedsitesknowalllinksintheirsupplychainforthedeliveredinputmaterial,backtotheminesitelevelortothecommercialsupplysiteofexternalscrap.

Guidance:

Mapping:Thiscouldbeatable,matrixorsimilarshowingwhatisknownandwhatisnotknownaboutthedifferentinputmaterialsupplychains.

Quantity:Formofmeasurementfortherespectiveinputmaterial,forexamplemassintons.

95%:Thismeans95%ofthetotalinputmaterial,not95%ofeachindividualinputmaterial.

Receivedquantityofscrap:Whereitisnotpossibletodistinguishbetweenmanufacturingandend-of-lifescrap,anestimateofmanufacturingandofend-of-lifescrapisacceptable.

Internalscrap:Scrapfromacrudesteelproductionunitthatisthenrecycledwithinthesameunit(adaptedfromISO20915:2018(E)Lifecycleinventorycalculationmethodologyforsteelproducts).

Criterion3.Responsiblesourcingclaims

Thequantityofsteelproductsoldas'ResponsibleSteelcertified'iscalculatedandcontrolledaccordingtoadocumentedsystem,ensuringthatthecertifiedquantitydoesnotexceedthecalculatedallowanceforthesite.

3.1.ForBF-BOFsites:Thereisadocumentedsysteminplaceforthesiteto:

a) recordthequantityofinputmaterialthatisfromfullyverifiedsupplychains,meaningsupplychainswhereeverylinkinthechain,uptotheminesitelevelortothelevelofthecommercialsupplysiteofexternalscrap,hasachievedcrediblethird-partyverificationofstrongESGperformance,asrecognisedbyResponsibleSteel

b) calculatethepercentageofthatinputmaterialinrelationtotheoverallquantityofreceivedinputmaterial,usingtheResponsibleSteelChainofCustodyStandard

c) sellsteelproductas'ResponsibleSteelcertified'onlyifthequantityofinputmaterialfromfullyverifiedsupplychainshasreachedatleast10%oftheoverallquantityofreceivedinputmaterial

d) ensurethatthepercentageofsteelproductsoldas'ResponsibleSteelcertified'doesnotexceedthepercentagecalculatedunderb).

Consultationquestionsonthresholdformaking'certified'claims

Thedraftrequirementsabovemeanthatonlyasmuchsteelproductcanbesoldas'ResponsibleSteelcertified'asthesitereceivesinputmaterialfromfullyverifiedsupplychains.Forexample,ifthepercentageofinputmaterialfromfullyverifiedsupplychainscomparedtothetotalofallinputmaterialis10%,only10%ofoutgoingsteelproductcanbesoldascertified.ThispercentagerecognisesthattherearenotmanysupplysitesouttherewithstrongESGperformanceasevidencedthroughacrediblethird-partyprogramme.10%seemshighenoughtobecredible,yetachievableenoughforsteelcompaniestostrivefor.

Wearekeentohearfromstakeholderswhether10%isindeedacrediblethresholdtostartmakingclaimsorwhethertheythinkthatalowerorhigherpercentagewouldbemoreappropriateand,ifso,whichpercentage.IfstakeholdersfavourtheOption"Focussingoncrediblethird-partyverificationratherthan


addressingESGrisksandimpactsinsupplychains"presentedinthetablebelow,is10%appropriateorshouldsteelcompaniesbeexpectedtohaveachieved,forexample,50%ofverifiedinputmaterialbeforetheywouldbeallowedtosell50%oftheirsteelproductas'ResponsibleSteelcertified'?

Guidance:

NotethatinternalscrapisconsideredcertifiedsinceitisproducedbyasitethatiscertifiedtotheResponsibleSteelStandardversion1-0,launchedinNovember2019.

Fullyverifiedsupplychain:Asupplychainwhereeverylinkinthechain,uptotheminesitelevelortothelevelofthecommercialsupplysiteofexternalscrap,hasachievedcrediblethird-partyverificationofstrongESGperformance,asrecognisedbyResponsibleSteel.

Chainofcustody:Processbywhichinputsandoutputsandassociatedinformationaretransferred,monitoredandcontrolledastheymovethrougheachstepinthesupplychain.Thechainofcustodymodelweintendtouseis'MassBalance'.Thismodelallowsthatinputmaterialsfromverifiedsupplychainsismixedwithinputmaterialsfromnon-verifiedsupplychains.However,steelproductcanonlybesoldas'ResponsibleSteelcertified'totheextentthatinputmaterialisfromfullyverifiedsupplychains.Forexample,ifthepercentageofinputmaterialfromfullyverifiedsupplychainscomparedtothetotalofallinputmaterialis10%,only10%ofoutgoingsteelproductcanbesoldascertified.

Forsteelsitesandsupplysites,MassBalancemeansthaton-siteseparationofverifiedandnon-verifiedinputmaterialisnotnecessary.However,downstreamcustomerswillnotknowwhetherthespecificproducttheyreceiveindeedcontainsinputmaterialfromfullyverifiedsupplychains.MassbalanceenablesaChainofCustody,i.e.itassuresthatthepercentageofsteelproductsoldascertifieddoesnotexceedthepercentageofreceivedinputmaterialfromfullyverifiedsupplychains.However,MassBalancedoesnotallowfulltraceabilityupthesupplychaintotheminesitelevelorthecommercialsupplysiteofexternalscrap,meaningonecannotfollowthemovementofverifiedinputmaterialthroughthechain.WeproposetouseMassBalancesincetraceabilityisdifficulttoachieveforcomplexsupplychainswithmixingandmeltingofinputmaterial.WealsobelievethattheimpactthatprogrammeslikeResponsibleSteelcanhaveintermsofESGimprovementsalongthesupplychaindoesnothingeonthetypeofChainofCustodymodelused.

IfwedecidetogowithMassBalance,afullChainofCustodyStandardwillhavetobedeveloped,includingrequirementsformanagingaChainofCustodysystem,fordocumentedinformationandcontrolofthatdocumentation,forconversionfactorstocalculateinputmaterialfromfullyverifiedsupplychainsandoutputs(meaningpercentageofsteelproduct)thatcanbesoldasResponsibleSteelcertified,aswellasforinventorybalancing.Inaddition,wewoulddevelopconversionfactorsthatreflectdifferinglevelsofESGperformanceofsupplysitesasawayofrecognisinghigherperformanceandtoprovideincentivesforsteelcompaniestoworkwiththeirsuppliersonimprovingESGperformanceovertime.SeeAnnex3whereMassBalanceandtheuseofconversionfactorsareillustrated.

ThekindsofclaimsthatcertifiedsteelsitescouldmakeifweadoptedaMassBalancemodelwouldbealongthelinesof“Thesite(nameofsteelsite)of(nameofcorporateowner)isResponsibleSteelcertified.Thesitehasshowninathird-partyauditthatitismanagedresponsiblyandhassystemsinplacetoincreasinglysourceinputmaterialsfromresponsiblesupplychains”.Theexactwordingofanyallowedclaimsistobediscussedoverthenextfewmonthsaswedeveloptherequirementsfortheresponsiblesourcingofinputmaterials.


3.2.ForEAFsites:Thereisadocumentedsysteminplaceforthesiteto:

a) recordthequantityofexternalscrapthatisfromfullyverifiedscrapsupplychains,meaningsupplychainswhereeverylinkinthechainuptothecommercialsupplysiteofexternalscraphasachievedcrediblethird-partyverificationofstrongESGperformance,asrecognisedbyResponsibleSteel

b) separately,recordthequantityofexternalscrapthatisfromsupplychainswhereeverylinkinthechain:i. isknown,uptolevelofthecommercialsupplysiteofexternalscrap(asdefinedinCriterion2)ii. hasbeensubjecttoriskandimpactassessment,andiii. isun-associatedwithhighormediumESGrisksandimpacts(seeCriteria4and5)

c) recordthequantityofnon-scrapinputmaterialthatisfromfullyverifiedsupplychainsd) calculatethepercentageoftheinputmaterialina)toc)inrelationtotheoverallquantityof

receivedinputmaterial,usingtheResponsibleSteelChainofCustodyStandarde) sellsteelproductas'ResponsibleSteelcertified'onlyifthequantityofinputmaterialcalculated

underd)hasreachedatleast10%oftheoverallquantityofreceivedinputmaterialf) ensurethatthepercentageofsteelproductthatissoldas'ResponsibleSteelcertified'doesnot

exceedthepercentagecalculatedunderd).

Consultationquestiononourapproachtoscrap

Asstated,scrapsupplychainsaremorecomplexanddiversifiedthanthesupplychainsofotherinputmaterials.Throughourrequirements,weaimtoincreasetransparencyandunderstandingofESGissuesassociatedwithexternalscrapandincentivisesteelcompaniestoaddresstheseissuesovertime.Wehaveframedourrequirementstoachievethat,butwerecognisethattheremightbeotherwaystogettothesameoutcome.Ifstakeholdershavealternativesuggestionsforscrapsupplychains,wewouldlovetohearthem.

Guidance:

NotethatinternalscrapisconsideredcertifiedsinceitisproducedbyasitethatiscertifiedtotheResponsibleSteelStandardversion1-0,launchedinNovember2019.

Fullyverifiedscrapsupplychains:Onewhereallsupplysitesinasupplychain,uptothecommercialsupplysiteofexternalscrap,haveeithersuccessfullyundergoneathird-partyauditagainstarecognisedscrapstandard,orhavebeensubjecttoeffectiveESGriskandimpactassessment,preventionandmitigation(seeconsultationquestionbelow).Thisistoacknowledgethatscrapcontributestosustainableproductionsinceitisrecycledmaterialandthatscrapsupplychainsaremorecomplexanddiversified.

Recognisedscrapstandard:Overthenextfewmonths,ResponsibleSteelwillanalyserelevantstandardstodetermineiftheyarecomprehensiveandrobustenoughtomeetstakeholderexpectationsontheresponsiblesourcingofscrap.ExamplesofstandardstolookatareISOIWA19(Guidanceprinciplesforthesustainablemanagementofsecondarymetals)andtheRecyclingIndustryOperatingStandard(RIOS).ForRIOS,itisalreadyclearthatadditionalrequirementswouldhavetobedefinedandmettosatisfyResponsibleSteelstakeholderexpectationssinceRIOSfocusesontherecyclingfacilityseekingcertificationanddoesnottakeintoaccountupstreamsupplysites.


Consultationquestiononriskmanagement

DiscussionswithResponsibleSteelmembersandstakeholdersoverthelastyearsconfirmedthatcrediblethird-partyverificationofstrongESGperformanceiswhatwewanttoachieveinthelong-term.OurproposedCriterion3(Responsiblesourcingclaims)addressesthis.

Thequestionishowcanwemosteffectivelydrivedemandforcrediblethird-partyverificationand,recognisingthatthisisnotyetwidelyavailable,shouldwerequiresteelcompaniestoinvesttimeandmoneyinESGriskandimpactmanagementinsupplychainsinthemeantime,acceptingthatthiswilldriveawayresourcesfromourultimategoal?

Whenthinkingaboutthisquestion,stakeholdersshouldkeepinmindthefollowingconsiderations:

• theinfluenceofsteelcompaniesonsuppliersthatarenottheirdirectsuppliersisverylimitedsincethereisnocontractualrelationshipbetweensteelcompaniesandsuppliersfurtherupstream

• thismeansthatthereisnocontrolofsteelcompaniesoveractivitiesinthesesupplychainstages.Asaconsequence,steelcompanieshavetorelyontheassertionsofsupplysitesthatESGrisksandimpactshavebeenreliablyaddressed,butthereisnosuretyforsteelcompaniesandResponsibleSteelstakeholdersthatthisisindeedthecase

• wheretheavoidanceormitigationofESGrisksandimpactsinsupplychainsseemstobetooonerousorunachievable,steelcompaniesmightsimplychangesupplierstofocusonthosewithlow-riskprofilesratherthanhelpingimprovethewaythatcurrentsuppliersoperate.Wherethishappens,thatthereisnopositiveimpactontheground.

• theeffortrequiredtoidentify,assessandaddressESGrisksinsupplychainsisimmensewithlittlereturn,asillustratedabove

• inaddition,theappropriatenessofESGriskandimpactassessmentandmanagementischallengingtoauditsinceResponsibleSteelauditorswillhaveacontractallowingthemtovisitthesteelsite,buttheywillnotbeauthorisedtovisitupstreamsupplysites.Thismeansthattheywillnotbeinapositiontoverifyevidencefirst-handandconfirmthatrisksandimpactshaveindeedbeeneffectivelyaddressed.

Asstatedabove,ResponsibleSteel'sultimategoalistoachievestrongESGperformanceinsupplychains.Thiswillhavetobedemonstratedthroughcrediblethird-partyverificationofsupplysiteperformance.ResponsibleSteelwillanalyseexistingverificationprogrammestoidentifywhichonesarerobustandcomprehensiveenoughtoberecognisedashelpingtoachieveourvision.Wefavourthird-partyverificationofsupplysiteperformanceagainstcrediblestandardsbecause:

• itrequirescommitmentfromsupplysitestoachievetherespectivestandardratherthanimposingactionsonsupplysites,whichiswhatriskmanagementdoes

• supplysitesareassessedaccordingtocriteriathathavebeenagreedbystakeholdersfromdifferentbackgrounds,whereasriskmanagementisapproachedverydifferentlyfromcompanytocompany

• supplysiteperformanceisnotonlyassessedthroughadocumentreviewbutalsothroughon-sitevisits

• supplysitesarejudgedbyqualifiedauditors,ofteninvolvingtheviewsofdifferentexternalstakeholders,ratherthanbythesupplysiteitselforacompanythathasaninterestinthesupplysite.

Ifweweretoallowsteelcompaniestofocusonpushingforcrediblethird-partyverificationofsupplysitesandnotspendtimeandresourcesonESGriskmanagement,thiswouldverylikelyacceleratetheavailabilityofinputmaterialfromsupplychainswithstrongESGperformance.


AlloftheseconsiderationsshouldbekeptinmindbystakeholderswhenreviewingtheOptionsmatrixbelowtodeterminewhichonetheydeemtobebestplacedtohelpachieveourvisionof"maximisingsteel'scontributiontoasustainablesociety".

Focussingoncrediblethird-partyverificationratherthan...

Usingready-madetoolsfor... Usingsteelcompany'sownmethodologyfor...

...addressingESGrisksandimpactsinsupplychains*

Pros Wouldleadtogreaterandquickerdemandforcrediblethird-partyverificationofstrongESGperformancesincesteelcompaniescanfocusonthat.

Hasgreatestpotentialforpositivechangeatsupplysites.

Wouldavoidspendingtimeandresourcesonsomethingthatdoesnotcontributetoourultimategoal.

AllsupplysitesandallcountrieswouldbeassessedusingthesamecriteriaforESGriskandimpact.

Resultscouldbesharedwithallsteelcompanies,soallwouldbeworkingfromthesamebasis.

Effortforsteelcompanieswouldberelativelylow.

Wouldanswertostakeholdersthatexpectcompaniestoconductsupplychainduediligence.

WouldmakesurethatsteelcompaniesareawareoftheirsupplychainESGrisksandimpacts.

Wouldanswertostakeholdersthatexpectcompaniestoconductsupplychainduediligence.

Cons ESGrisksandimpactsinsupplychainsmightgounnoticed.

CredibilityriskforResponsibleSteelanditsparticipantsandsupporterswhilecrediblethird-partyverificationofstrongESGperformanceisnotwidelyavailable.

Impliesthatriskmanagementleadstopositiveandlastingsolutionswhilesupplychainscannotbefreeofriskandimpact.

Willdivertconsiderableresourcesawayfromgettingsupplysitesintocrediblethird-partyverificationprogrammes.

Impliesthatriskmanagementleadstopositiveandlastingsolutionswhilesupplychainscannotbefreeofriskandimpact.

Riskandimpactassessmentsdonebydifferentsteelcompaniesononeandthesamesupplysitemightshowverydifferentresultssincecompanieswouldusedifferentapproaches.

*Usingsteelcompany'sownmethodology:SteelcompanieswouldbeaskedtoanalyseandassesstheirESGrisksandimpactsininputmaterialsupplychainsinlinewithadocumentedmethodology.Theywouldhavetoprioritisepreventionandmitigationofrisksandimpactsandimplementactionplansdependingontheirprioritisation.ThisOptionisdescribedindetailinCriteria4and5below.


Usingready-madetools:ResponsibleSteelwouldidentifyanumberofexistingtoolsthatsteelcompaniescouldusetoidentifyandassessESGrisksandimpactsassociatedwithsupplychains.Examplesofsuchtoolsare:

ForESGrisksassociatedwithspecificinputmaterialsandcountries:Thereport'ResponsibleSourcingandDueDiligencefortheWorldsteelMembership'compiledbyTheDragonflyInitiative(TDI)forworldsteel.ThereportdescribesandcategorisesESGrisksspecifictoimportantsourcedinputmaterialsandtocountrieswheresupplysitesmightoperate.Itisavailabletoworldsteelmembersonly.

ForESGrisksspecifictoindividualsupplysites:TheRiskReadinessAssessment(RRA)bytheResponsibleMineralsInitiative(RMI)isaself-assessmenttoolformineralsandmetalsproducersandprocessorstoassessandcommunicatetheirriskmanagementpracticesandperformanceusingbenchmarkednormsestablishedthroughastandardscomparisonprocess.TheRRAcomeswithanonlineplatformtoadministerandshareassessmentresults.Todate,theRRAcoversthefollowingmetalsandminerals:Aluminum,Alumina,Bauxite,Cobalt,Copper,Gold,Graphite,IronOre,Lead,Lithium,Mica,Molybdenum,Nickel,Palladium,Platinum,RareEarthElements,Silver,Steel,Tantalum,Tin,Tungsten,andZinc.

Consultationquestiononinputmaterialstocover

WhenconsideringwhichoftheOptionspresentedaboveismostlikelytohelpensurethatsupplychainsareresponsible,stakeholdersshouldalsothinkaboutwhichinputmaterialsourrequirementsshouldapplyto.ThemorematerialsweasksteelcompaniestocoverinESGriskmanagement,themorecomplexouraskwillbecome.WeighinguptheeffortthathastobeputinandthepotentialpositiveimpactwemightderivefromESGriskmanagementisimportanthere.WeareproposingtwoOptionsbelowandwouldliketohearfromstakeholderswhichonedoesthatbalancingactbest:

Description Inputmaterialscovered

Top3inputmaterialcategories

The3mostimportantinputmaterialcategoriesforsteelmakingandsteelprocessing,byquantity.

ThisOptionislikelytocoverbetween70and90%ofinputmaterialsusedinsteelmakingandprocessingatanygivensteelsite.

• Ferrousrawmaterial• Processcoal,cokeand/orcharcoal• Externalscrap

SeeAnnex1fordetails

Toppurchasingpower ThisOptionwouldincludeallthoseinputmaterialswherethesteelsectorbuys50%ormoreoftheglobalannualproduction.

Thiswouldleveragethepurchasingpowerofthesteelsectorandthusthepowertopositivelyinfluencesupplychainactivities.

• Ferrousrawmaterial• Processcoal,cokeand/orcharcoal• Externalscrap

Non-ferrousrawmaterial:Zinc

Ferroalloys:

• Chromium• Manganese• Molybdicoxide• Nickel• Niobium• Vanadium


Note:

Criteria4and5illustratehowwemightimplementtheOption"Usingsteelcompany'sownmethodology"fromthetableabove.ItshowswhatacomprehensiveapproachtoESGriskandimpactmanagementmightlooklike.

Criterion4.SupplychainESGriskandimpactassessmentandprioritisation

ESGrisksandimpactsassociatedwiththeinputmaterialsupplychainsofthesitearefullyunderstoodandprioritiesfortheirpreventionandmitigationaresetdependingonseverityandlikelihood.

Note:

Criterion4wouldnothavetobeappliedtosupplysitesthathaveachievedcrediblethird-partyverificationofstrongESGperformance,asrecognisedbyResponsibleSteel.

TheOption"Focussingoncrediblethird-partyverificationratherthanaddressingESGrisksandimpactsinsupplychains"wouldmeanthatCriterion4wouldnotexist.

4.1.Thereisadocumentedproceduretoidentify,analyseandassesstheESGrisksandimpactsassociatedwithinputmaterialsupplysitesuptotheminesitelevelortothecommercialsupplysiteofexternalscrap,andtoprioritiserisksandimpactsthatmustbeaddressedintheshort-term.

4.2Theprocedurehasbeenappliedtoallinputmaterialsupplychainsto:

a) analyseandassesstheESGrisksandimpactsassociatedwithallknownsupplysitesaccordingtotheirlikelihoodandseverityandclassifythemashigh,mediumorlow

b) classifyallsupplychainstageswithunknownsupplysitesasbeingassociatedwithhighESGrisksandimpacts

c) identifysupplysitesandsupplychainstageswithhighESGrisksandimpactsthatmustbeaddressedasaprioritythroughtheimplementationofshort-termandlonger-termpreventionandmitigationplans.

4.3.Theresultsof4.2are:

a) documentedandjustifiedb) reviewedandupdatedregularlyandwhenneeded,followingthedefinedESGrisksandimpacts

procedure.

Guidance:

ESGrisksandimpactstoaddressasapriority:Risksandimpactsthatcanresultinsignificantharmtohumanrights,healthorcriticalecosystemswillhavetobepreventedormitigatedasapriority.Thiswillapply,forexample,inthecaseofchildandforcedlabour,contaminationofrivers,streamsorlakes,andminesitetailingsdamsusingout-of-datetechnology.ResponsibleSteelwillprovidemandatoryguidanceinthisrespect.Indoingso,wewilltakeintoaccountthatsomerisksandimpactswilltakelongertoaddressthanothers,sosomerisksandimpactswillbesubjecttoshort-termpreventionandmitigationplanswhileotherswillbesubjecttolonger-termpreventionandmitigationplans.

Procedure:Aformal,approvedmethodforimplementingaprocessorpartofaprocesseffectivelyandconsistently.Stateshowtheprocessneedstobedone.Defineswho,what,where,when,andwhy.Aprocedure(orelementsoftheprocedure)maybeformalisedasdocuments,videos,on-lineresources,etc.,butmustbeauditablebothintermsofitsexistenceandintermsofitsimplementation.

Short-term:Dependingonthetypeofrisk,areasonabletimeframeseemstobebetween1monthand1year.


Longer-term:Dependingonthetypeofrisk,areasonabletimeframeseemstobebetween1yearand5years.

Regularly:Scheduledatplanned,appropriateintervals.Thedeterminationofappropriateintervalsdependsonthematterathand.Theintervalsmustbefrequentenoughtodetectchangeandmusttakeaccountofrisk.Annualmightbeasuitablefrequencyforsomematters.Wherechangescanhappenquicklyorwhereriskishigh,theintervalsmustbeshorter.

Whenneeded:Forexample,duetochangesinsupplysiteactivities,duetocontractingnewsuppliersorbecauseariskmitigationplanhasbeenfullyimplemented.

Criterion5.SupplychainESGriskandimpactpreventionandmitigation

ESGrisksandimpactsassociatedwiththeinputmaterialsupplychainsofthesiteareaddressedaccordingtoclearprioritiesanddefinedplans.

Note:

Criterion5wouldnothavetobeappliedtosupplysitesthathaveachievedcrediblethird-partyverificationofstrongESGperformance,asrecognisedbyResponsibleSteel.

TheOption"Focussingoncrediblethird-partyverificationratherthanaddressingESGrisksandimpactsinsupplychains"wouldmeanthatCriterion5wouldnotexist.

5.1.Short-termpreventionandmitigationplanshavebeenimplementedinlinewiththesetprioritiesforaddressinghighESGrisksandimpactsininputmaterialsupplychains.AnupdatedrisksandimpactsassessmentandevidenceprovidedtotheResponsibleSteelauditorsshowthattherisksandimpactshavebeenreducedatleasttomediumpriortothesitebecomingcertifiedtotheresponsiblesourcingrequirementsoutlinedinthisdocument.

5.2.Longer-termpreventionandmitigationplansforhighESGrisksandimpactsininputmaterialsupplychainsarebeingimplementedforthesiteinlinewiththesetpriorities.Theplans:

a) aretime-boundb) arecostedc) specifymitigationactivitiesandmilestonesd) outlineresponsibilitiesforactivitiese) describehowprogressofplanimplementationistrackedandverifiedf) arebackedupbyevidenceofprogressiveplanimplementation.

5.3.AstrategytopreventandmitigatemediumandlowESGrisksandimpactsassociatedwiththeinputmaterialssupplychainsofthesiteisbeingimplemented.

5.4.WherenewhighESGrisksandimpactsbecomeknownafterthesitehasbecomecertifiedtotheresponsiblesourcingrequirementsoutlinedinthisdocument,thesearereducedatleasttomediumwithin12months.

Guidance:

SeeunderCriterion4.


Criterion6.Supplychainreporting

Keyfiguresanddevelopmentsregardingtheresponsiblesourcingofinputmaterialsforthesitearereportedpubliclyandregularly

6.1.ThefollowingisregularlyreportedforthesitetoResponsibleSteelforpublicationontheResponsibleSteelwebsite:

a) percentageofinputmaterialthatisfromfullyverifiedsupplychainsb) increaseofinputmaterialfromfullyverifiedsupplychainssincethelastreportingperiod,in

percentc) percentageofinputmaterialthatisfromknownsupplysitesd) percentageofinputmaterialthatisclassifiedashigh,mediumandlowESGriskorimpacte) descriptionofESGriskandimpactpreventionandmitigationplansthathavebeenimplemented.

Guidance:

n/a


Annex1(forconsultation):InputmaterialstobecoveredbyESGriskmanagementrequirements

Below,welistimportantinputmaterialsusedforsteelmakingandsteelprocessingandpresenttwoOptionstohelpdeterminewhichoftheseinputmaterialsshouldbecoveredbyESGriskmanagement:

• Top3inputmaterialcategories:ThisOptionislikelytocoverbetween70and90%ofinputmaterialsusedinsteelmakingandprocessingatanygivensteelsite.

• Toppurchasingpower:Inputmaterialswherethesteelsectorbuys50%ormoreoftheglobalproduction.TheseinputmaterialshavebeenidentifiedthroughaprojectconductedbyTheDragonflyInitiativeforworldsteel.

OtherinputmaterialforsteelmakingandprocessingnotincludedintheseOptionswouldbeoutofscopeoftheESGriskmanagementrequirements,forexamplechemicals,electrodes,energyinputs,industrialgases,lubricants,oils,refractoriesandrolls.

ConsultationquestiononinputmaterialstobecoveredbyESGriskmanagementrequirements(relatedtoCriterion3)

WhichofthetwopresentedOptionsdoyouthinkarebestplacedtohelpensurethatsupplychainsareresponsible?IfyoudonotfavouranyofthepresentedOptions,whichotherOptiondoyouproposeandwhy?NotethattheseconsultationquestionshavebeenposedunderCriterion3already.

Top3inputmaterialcategories

Toppurchasingpower

Rawmaterial Rawmaterialsub-categoryFerrousrawmaterial Concentrate

Directreducediron(DRI)FinesHotbriquettediron(HBI)LumporePelletsPigironSinter

Processcoal,cokeandcharcoal

AnthraciteCharcoalCokeCokingcoalsPulverisedcoalforinjection

Externalscrap ManufacturingscrapEnd-of-lifescrap

Ferroalloy ChromiumManganeseMolybdicoxideNickelNiobiumVanadium

Non-ferrousrawmaterial Zinc


• Ferrousrawmaterial:Rawmaterialfromtheearththatbecomesoneofthemainconstituentsofsteelproducts,andwhichmayhaveundergoneintermediateprocessingtoprepareitforironmaking

• Processcoal,cokeandcharcoal:Coal,cokeandcharcoalusedinironandsteelmakingprocesses

• Externalscrap:Manufacturingscrap(scrapfromthemanufacturingprocessesoffinalproducts,suchasautomobilesandbuildingsandend-of-lifescrap(scrapfromaftertheendoflifeoffinalproducts)

• Ferroalloy:Alloyofironwithnon-ironalloymetals,suchasmanganese,siliconorchromiumusedinthesteelmakingprocess

• Non-ferrousrawmaterial:Non-ferrousingredientmaterialforsteelproductsotherthanferrousrawmaterial,processcoalorferroalloys

(Definitionsadaptedfrom'ISO20915:2018(en)Lifecycleinventorycalculationmethodologyforsteelproducts')

TheOptionspresentedabovewouldexcludethefollowinginputmaterials:Ferroalloy Aluminium

BoronCobaltMagnesiumPhosphorousSiliconTitaniumTungsten

Non-ferrousrawmaterial AluminiumMagnesiumTin

Otherinputmaterial(Materialinputandconsumablesforsteelmakingandprocessingotherthanferrousrawmaterials,processcoal,ferroalloysandnon-ferrousrawmaterials)

Material Materialsub-categoryLime,Dolomiticlime,Dolomite,LimestoneBF&Slagadditives OtherfluxesforslagandBFDesulfurizingProducts

CaC2(calciumcarbide)CaF2(calciumfluoride)Lime-MgMg(magnesia)


Annex2(forconsultation):ProposalsfordraftrequirementsthatwerediscussedwithResponsibleSteelmembersbutnotprogressedResponsiblesourcingcommitmentItwassuggestedthatweaskforapercentage-basedyear-on-yearincreaseofsupplysitesorofsupplyvolumethathasachievedcrediblethird-partyverificationofstrongESGperformance,asrecognisedbyResponsibleSteel.Sincethiskindofverificationisnotyetwidelyavailableforminesitesandforothersupplychainstages,wedismissedthatoption.SupplychainmappingWeareaskingfor95%butnotfor100%ofthequantityofinputmaterialtobefromknownsupplysitessincesuppliersmightchangefrommonthtomonthtoensuresupply,achievethespecificationthatisneededforaparticularproduct,etc.Somesuppliersarealsonotcooperativeandsteelcompaniesmightnotbeinapositiontosimplychangesuppliersincetheremightbeonlyaverysmallnumberofsuppliers,thecompanymightnothaveleveragetopushthroughdemandsduetotheirsize,etc.Also,weareaskingfor95%ofthequantityoftotalinputmaterialtobefromknownsupplysites,notfor95%ofeachindividualinputmaterialsincetheoriginofsomeinputmaterialisveryhardtotrack.ResponsiblesourcingclaimsItwassuggestedthatsteelproductcanbesoldas'ResponsibleSteelcertified'ifaduediligence-typeapproachhasbeenapplied,i.e.ifESGrisksandimpactsassociatedwithsupplysiteshavebeenaddressed.Webelievethatrisk-basedapproachesareafirststepincreatingresponsiblesupplychains,buttheydonotdeliverthelevelofassurancethatisneededtomarkresultingsteelproductas'certified'.Onlythird-partyauditsagainstclearlydefinedandcomprehensivestandards,followinganagreedauditprotocolbytrainedandcompetentauditorscanachievethat.

However,wearesuggestingtomakeallowancesforEAFsites,whichrelyheavilyonscrapasaninputmaterial,tonotputthematadisadvantagebutrathertoprovideincentivestoseekResponsibleSteelcertification.Scrapsupplychainsaremorediversified,withmanymoreplayersofdifferentsizes,levelsofformalisationandmaturityanditwillbeverychallengingandmighttakemanyyearstoseeaconsiderablenumberofscrapsuppliersachievearecognisedlevelofESGperformanceinathird-partyaudit.Atthesametime,scrapcontributestosustainableproductionsinceitisrecycledmaterial.Ratherthanexcludingscrap,weareproposingtoallow'certified'claimsonscrapsourcedfromsupplychainsthathavebeensubjecttoeffectiveESGriskandimpactpreventionandmitigationmeasures.Weconsideredclaimsaboutsteelproductbeing'ResponsibleSteelcertified'tobeaccompaniedbythepercentageofinputmaterialthatisfromfullyverifiedsupplychains,forexample"Oursteelcoilsaremadefrom25%inputmaterialthatisfromsupplychainsoperatingtohighESGstandards".Claimsofthisnaturearecomplexanddifficulttoexplainandbeartheriskofconfusingstakeholders.Inaddition,thereareonlyafewminesitesandafewsupplysitesinotherstagesofthesupplychainthatmightbeabletoprovideproofofstrongESGperformancethroughathird-partyprogrammerecognisedbyResponsibleSteel.Ifthepercentageweretogowiththeclaim,thiswouldallowthosefamiliarwiththesteelsectortoidentifythesuppliersofasteelcompany,whichcouldcausecompetitionissues.

Consultationquestiononotheroptions

Arestakeholdersinfavourofexploringanyoftheoptionsoutlinedherethatwedidnotprogressforthedraftrequirements?Ifso,whichonesandwhy?


Arethereanyoptionsnotpresentedinthispaperatallthatstakeholdersfeelwouldbebetterplacedtoachieveourlong-termgoalofresponsiblesupplychainswithstrongESGperformance?Ifso,pleasedescribethembrieflyinyourfeedback.


Annex3(forinformation):Illustrationofmassbalanceandconversionfactors


Annex4(forinformation):ResponsiblesourcingrequirementsinapprovedStandard

AlreadyincludedintheResponsibleSteelStandardv1-0,approvedNovember2019:

Criterion1:CorporateValuesandCommitments

Thesite’scorporateownershavedefinedanddocumentedthevaluesandpoliciesforresponsiblebusinessconducttowhichtheyarecommitted.

1.1.Thesite’scorporateownershavedefinedanddocumentedthevalues,policiesandcommitmentsthattheyrequiresitesundertheircontroltoimplement,includingatleastthefollowing:

...a)tod)

e)AresponsiblesourcingpolicythatincludesacommitmenttosourcerawmaterialsfromsupplierswhosepoliciesandpracticessupporttheimplementationoftheResponsibleSteelprinciplesandcriteriaasapplicabletothesourcingofrawmaterials.

1.2.Thevalues,policiesandcommitmentstowhichthecorporateownersarecommittedareeffectivelycommunicatedtothesite'sworkers,andarereadilyaccessibletothepublic.

Guidance:

Overarchingpolicies,procedures,codesofconduct,etc.maybesetatthecorporateowneror‘group’level,ratherthanseparatelybytheindividualsitesseekingcertification.Insuchcases,auditorswillevaluatewhetherthepolicy,procedure,codeofconduct,etc.isaccessible,known,understoodandeffectivelyimplementedatthesitelevel.Sitesmustbeabletodemonstratetotheirauditorthatthisisthecase,butarenotrequiredtodeveloptheirownpoliciesatthesitelevel.

Publicationofcommitmentsinacompany’sannualreportorina‘corporatesocialresponsibility’reportwouldbeevidenceofimplementationof1.1.1.

ISO20400:(2017)Sustainableprocurement–Guidancemighthelpwiththeimplementationofsustainableprocurementpractices.

Criterion2.2:ResponsibleSourcing

Thereareeffectiveproceduresinplacetoensurethattheresponsiblesourcingcommitmentsofthesite’scorporateownerareimplementedforthesite’sownprocurement.

2.1.Thereareeffectiveproceduresinplacetoimplementthecorporateowner’spolicycommitmenttoresponsiblesourcing(seerequirement1.1.1.e)atthesite.Proceduresincludeatleastthefollowingelements:

a) Thecorporateowner’scommitmenttoresponsiblesourcingiscommunicatedtothesite’stier1suppliersofkeyrawmaterials;

b) Therearedocumentedprocurementspecificationsthatimplementthecorporateowner’scommitmenttoresponsiblesourcingasapplicabletothesite;

c) Tier1suppliersofkeyrawmaterialstothesitearerequiredtodocumenttheirownresponsible


sourcingcommitments(ifany)andtomaketheseavailabletothepersonnelresponsibleforthesite’sprocurement.

2.2.Thesitehasaccesstoalistingofitstier1suppliersandtocopiesoftheircommitmentstoresponsibleconductorresponsiblesourcing.Ifthesupplierdoesnothavesuchacommitmentthisisrecorded.

2.3.Keyperformanceindicatorsforthepersonnelresponsibleforthesite’sprocurementofrawmaterialshavebeenspecifiedandarealignedwiththecorporateowner’scommitmenttoresponsiblesourcing.

Guidance:

Therequirementsrecognisethattheresponsiblesourcingpolicyandproceduresmaybeimplementedatcorporateorgrouplevelorbyanotherdepartmentthatmayoperatefromanoff-sitelocation.Thefundamentalrequirementisthattheproceduresmustapplytothesite’sprocurement,mustbeeffective,andcanbeauditedassuch.

Thesite’scorporatesourcingpolicymust,asaminimum,coverthesourcingofthekeyrawmaterialslistedinAnnex2wherethesematerialsareusedbythesite.Thesite’scorporatesourcingpolicymayapplybeyondthetier1suppliersofkeyrawmaterials.Wherethisisthecase,thesite’sproceduresshouldreflectthis.

Wheretier1suppliersdonothavetheirownpolicyonresponsibleconductorresponsiblesourcing,thiswouldberecorded.Thiswouldnotofitselfbeanon-complianceforthesite.However,theabsenceofaresponsiblesourcingpolicybyatier1supplierdoesnotsupporttheimplementationofthecorporatecommitmentrequiredunder1.1.1.e,sotheauditorwouldexpecttoseeactionbeingtakenovertimetodiscontinuesourcingfromsuchsuppliers.

Notethatadditionalrequirementsinrelationtothesite’sresponsiblesourcingarebeingdevelopedbyResponsibleSteel,inconsultationwithitsmembersandotherstakeholders,andwillbefinalisedin2020.Achievingtheseadditionalrequirementswillallowsitestomakestrongerclaimsabouttheirperformanceand,inparticular,aboutthesteelproducedatthesite.ResponsibleSteelanticipatesthatdownstreamcustomers,civilsociety,financialinstitutionsandotherstakeholderswillincreasinglydemandthatsteelcompaniesachievethishigherlevelofperformance.

Documents

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