The London Metal Exchange (LME) has published a position paper detailing new proposed requirements for listed brands regarding the responsible sourcing of metals, which align with the principles set out by the Organisation for Economic Co-operation and Development’s (OECD) “Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas” (Guidance).
- LME position paper sets out detailed responsible sourcing requirements for listed brands
- All brands required to undertake OECD red flag assessment to determine “higher” or “lower” focus classification – except for “automatic higher-focus metals” which include cobalt and tin
- Special transitional provision for cobalt to enable LME to take action against brands where the market already demonstrates responsible sourcing concerns
Background and approach
Following several years of engagement with the OECD and industry associations, and based on the findings of the 2017 responsible sourcing survey sent to all its listed brands, the LME will, over an agreed timeframe, require all relevant producers to assess their risk factors in respect of responsible sourcing – and, where appropriate, to provide evidence of their adherence to the OECD Guidance (or equivalent).
Matthew Chamberlain, LME CEO, commented:
Downstream consumers increasingly and understandably expect that metal sourced on the LME will embed robust standards of responsible sourcing. Our initiative has therefore been largely welcomed by the metals industry, many members of which have already undertaken significant work in this respect. We are committed to working together with our listed brands to further embed these important principles and standards into global supply chains, in a pragmatic and risk-proportionate manner. We look forward to receiving further feedback from all of our stakeholders to ensure that our proposals represent the best possible framework for implementing these changes for all involved.
Proposed action: assessment and next steps
The LME will work together with producers to assist them in assessing and identifying the “red flags” (as prescribed in the OECD Guidance) associated with the production of individual brands, which will then be classified as either “higher-focus” or “lower-focus”. Higher-focus brands – which will automatically include all cobalt and tin brands due to their higher risk of being affected by responsible sourcing concerns – will be required to adopt a standard that is aligned with the OECD Guidance and must demonstrate via an external “alignment assessment” and audit process the respective compliance of the standard to the guidance and of the brand to the standard.
For the other eight physically settled base metals listed on the LME (aluminium, both aluminium alloys, copper, lead, molybdenum, nickel and zinc), brands will be classified subject to the results of the red flag self-assessment. The LME will require evidence of the red flag assessment process to confirm lower-focus status and a re-assessment will be required on an annual basis. If any red flags are triggered in the self-assessment process, brands will be classified as higher-focus and will be expected to comply with the corresponding obligations. Lower-focus brands will not be required to undertake formal standards or brands compliance by the LME.
In addition to this assessment process, the LME is proposing that listed brands will also be required to comply with two further standards related to environmental management and occupational health respectively: ISO 14001 and OHSAS 18001. The incorporation of these additional standards alongside those pertaining to the OECD Guidance will act as a first step in a fully comprehensive responsible sourcing requirement, which will likely evolve over the coming years.
Timeline for compliance
For cobalt and tin, chosen standards must be identified by the fourth quarter of 2019 and full compliance with standards will be required by the end of 2020. For all other higher-focus brands, standards must be identified by the fourth quarter of 2020 with compliance by the end of 2021. Non-compliant brands will be eligible for delisting once the relevant deadlines have been passed.
Cobalt provisions
The LME notes specifically the market concerns in respect of cobalt, and is proposing a transitional provision which would come into effect by the third quarter of 2019, whereby cobalt brands which are exerting a demonstrable negative impact on LME pricing (which may be due to market concerns as to the responsible sourcing credentials of that brand) may be subject to action at an earlier date.
The LME welcomes feedback from all stakeholders in its market and the broader metals industry on this and all other aspects of the responsible sourcing proposals up to and including 30 November 2018.