Opinion | Time biz showed mettle in caring for human rights3 min read . Updated: 02 May 2019, 12:55 AM IST
The London Metal Exchange wants firms to red-flag use of child labour in supply chains
A significant development has taken place in the world of metals and human rights. The two have an unlovely, often-ugly history—indeed, an unlovely and often-ugly ongoing relationship. That’s why the announcement in late-April by the London Metal Exchange (LME) of a formal “market-wide" consultation for rules of “responsible sourcing" to all LME-listed brands is such a big deal.
Feedback is open until 30 June for proposals that aim to red-flag “financial crimes", “corruption" and use of child labour in supply chains, and extend its ambit to areas in the world that aren’t affected by “overt conflict".
As LME puts it, the proposed rules will “require all of its listed brands to undertake a Red Flag Assessment, based on the Organisation for Economic Co-operation and Development (OECD) guidance, by the end of 2020.
If this assessment demonstrates potential responsible sourcing red flags, then that brand will be classified as a Higher-Focus Brand and will also need to be audited as compliant with an OECD-aligned standard by the end of 2022…". LME also states that its phased approach “will ensure that all LME-listed brands publish fully attributed Red Flag Assessments to the market by the end of 2024".
Simply put, when rules kick in, not conforming to them can lead to being barred from the exchange.
This is potentially a lever, as LME is the world’s largest options and futures exchange platform for non-ferrous metals trading, among these—copper, aluminium, zinc, cobalt and even some steel derivatives. The exchange, owned since 2012 by Hong Kong Exchanges and Clearing, the equities, commodities, fixed income and currency major, hosts some of the world’s biggest names.
Olyda of BHP Billiton, Noranda of Glencore Canada, numerous Chinese and American “brands", several Japanese “brands" of non-ferrous metals, including those of Pan Pacific Copper Co., Sumitomo Metal Mining Co. and Mitsubishi Materials Corp., and that of Rio Tinto, trade at LME. So do Birla Copper, a unit of Hindalco Industries Ltd and Sterlite Industries, a unit of Vedanta Resources, along with the Vedanta subsidiary, Konkola Copper Mines in Zambia.
While lauding this initiative, this column would like to raise a red flag of its own.
How would LME ever get around to compliance from several brands and holding companies it hosts that are habitual human rights offenders in letter and spirit?
Perhaps the red flag is premature but, as this column has noted, major flaws in application have tripped up other well-meaning (if public relations-heavy) initiatives such as the Corporate Human Rights Benchmark (CHRB) and a financial industry red flag initiative by the so-called Thun Group of Banks.
Sophia Pickles, supply chain investigator for NGO Global Witness, has already sounded the alarm in her commentary. “… we caution the LME against over-reliance on industry schemes as a means of demonstrating responsible business," Pickles wrote, voicing a concern with which this column concurs. “Our research, and that of a 2018 OECD study, consistently shows that membership of or coverage by an industry scheme does not guarantee that an entity is undertaking responsible sourcing in practice."
Indeed, she suggests LME should focus on the 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…".
Pickles pushes it a bit when she suggests that LME must also pressure its members to report on environmental and climate risk. That might be some time coming in a business that is hard-nosed, if mildly delusional. The chief executive of a major Goa-based extractives company once told me how mining was environmentally friendly.
But it’s a beginning, perhaps among the greatest “shake-ups" in the business, as Neil Hume of the Financial Times noted. After all, as he pointed out, responsible sourcing received focus “after it emerged in 2017 that some of the cobalt—a key material in the batteries of smartphones and electric vehicles—traded on the LME could have been mined by children" in conflict-ridden Democratic Republic of Congo.
This column will track LME’s initiative.
This column focuses on conflict situations and the convergence of businesses and human rights and runs on Thursdays.