A responsible management of supply chains of metals and of mineral extraction from Conflict-Affected and High-Risk Areas - An OECD Due Diligence Guidance

Introduction

The conditions of mineral extraction and the relationships of suppliers operating in conflict-affected or high- risk area is a serious challenge. Adverse impacts may include harm to people (i.e. external impacts), or reputational damage as well as legal liabilities for the companies involved (i.e.internal impacts), or both.

To ensure the respect human rights and do not contribute to conflict, the companies should take conduct proactive and reasonable steps and make good faith efforts to identify and prevent or mitigate any risks of adverse impacts through « due diligence » processes which are collaborative government-backed multi-stakeholder initiatives on responsible supply chain management.

1. What is more precisely a due diligence process and its purpose?

Due diligence is an on-going, proactive and reactive process through which companies can identify, prevent, mitigate and account for how they address their actual and potential adverse impacts as an integral part of business decision-making and risk management systems.

The purpose of due diligence processes is to help companies respect human rights and avoid contributing to conflict through their practices. These processes can also help companies ensure they observe international law and comply with domestic laws, including in the present case those governing the illicit trade in minerals and avoid United Nations sanctions.

2. What is defined as a Conflict-affected and high-risk area?

Conflict-affected and high-risk areas are identified by the presence of armed conflict, widespread violence or other risks of harm to people. Armed conflict may take a variety of forms, such as a conflict of international or non-international character, which may involve two or more states, or may consist of wars of liberation, or insurgencies, civil wars, etc. High-risk areas may include areas of political instability or repression, institutional weakness, insecurity, collapse of civil infrastructure and widespread violence. Such areas are often characterised by widespread human rights abuses and violations of national or international law.

In conflict-affected and high-risk areas, companies involved in mining and trade in minerals may be at risk of contributing to or being associated with significant adverse impacts, including serious human rights abuses and conflict while generating income, growth and prosperity, sustain livelihoods and foster local development.

3. What is the purpose of this specific OECD Guidance document?

The OECD¹ Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (“the Guidance”), with its Supplements on Tin, Tantalum, Tungsten and Gold is a collaborative government-backed multi-stakeholder initiative which has the view to enabling countries to benefit from their mineral resources and preventing the extraction and trade of minerals from becoming a source of conflict, human rights abuses, and insecurity.

One of the main areas of focus is to ensure that international standards do not further marginalize workers of the informal sector to ensure that legitimate artisanal mining communities can benefit from ongoing trade in conflict-affected and high-risk areas with a view to enabling countries to benefit from their resources and preventing the activity from becoming a source of conflict, human rights abuses, and insecurity.

4. In practice, how is a due diligence process structured and accomplished?

The nature and extent of due diligence actions that are appropriate will depend on individual circumstances and be affected by factors such as the size of the enterprise, the location of the activities, the situation in a particular country, the sector and nature of the products or services involved.

Due diligence is thus structured around the steps that companies should take to:

• identify the factual circumstances involved in all the production cycle;
• identify and assess any actual or potential risks by evaluating the factual circumstances against standards set out in the company’s supply chain;
• prevent or mitigate the identified risks by adopting and implementing a risk management plan.

Among others, this plan should itegrate the model supply chain policy and specific due diligence recommendations outlined in this Guidance.

The five-step framework for risk-based due diligence are:

1. Establish strong company management systems;
2. Identify and assess risks in the supply chain;
3. Design and implement a strategy to respond to identified risks;
4. Carry out independent third-party audit of supply chain due diligence at identified points in the supply chain;
5. Report on supply chain due diligence.

5. What is required from the companies active in these high-risks areas?

Globally, companies have to commit to refraining from any action which contributes to the financing of conflict by any direct or indirect support to non-state armed groups or public or private security forces who illegally control mine sites, from actions which upport illegal taxes or extortions. Risk mitigation measures that may be considered for implementation include :

• supply chain policy – security and related issues;
• security and exposure of artisanal miners to adverse impacts risk;
• bribery and fraudulent misrepresentation of minerals origin mitigation;
• money laundering;
• transparency on taxes, fees and royalties paid to governments risk mitigation.

6. What are more particularly the commitments to be taken by the companies?

Companies will neither tolerate nor by any means profit from, contribute to, assist with or facilitate the commission by any party of any forms of torture, cruel, inhuman and degrading treatment, any forms of forced or compulsory labour and in paricular child labour, the worst forms of child labour, and other gross human rights violations and abuses such as sexual violence, war crimes against humanity, genocide or other serious violations of international humanitarian law.

Also, companies commit to not offer, promise, give or demand any bribes, and will resist the olicitation of bribes to conceal ordisguise the origin of minerals, to misrepresent taxes, fees and royalties paid to governments for the purposes of mineral extraction, trade, handling, transport and export.

Regarding risk management of bribery and other fraudulent practices, companies commit to engage with all stakeholders involved to improve and track performance with a view to preventing or mitigating risks of adverse impacts through measureable steps taken in reasonable timescales.

7. What contains the Guiding Note aiming at enabling conditions for an effective risk assessment?

When planning and structuring the supply chain risk assessment, upstream companies in the supply chain should take into account the following recommended actions:

1. Use an evidence-based approach;
2. Preserve the reliability and quality of company fact and risk assessment of a supply chain ;
3. Ensure the appropriate level of competence, by employing experts with knowledge and skill in the many areas required.

8. What about the supplements on Gold, and on Tin, Tantalum and Tungsten?

These supplements more specifically recommend, among other things, that the involved companies establish a system of internal control over the minerals in their possession (chain of custody or traceability) and establish on-the-ground assessment teams. These may be set up jointly through cooperation among upstream companies while retaining individual responsibility, for generating and sharing verifiable, reliable, up-to-date information on the qualitative circumstances of mineral extraction, trade, handling and export from conflict-affected and high-risk areas. These steps are very detailed in the respective supplements.

Companies are also encouraged to establish a company and/or mine level grievance mechanism which should develop an early warning risk awareness mechanism allowing any interested party (affected persons orwhistle-blowers). This in order to voice concerns regarding the circumstances of gold extraction, trade, handling and export in a conflict-affected or high-risk area. This will allow a company to be alerted of risks in its supply chain in addition to the company’s own fact and risk assessments.

References
OECD (2016), OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas: Third Edition, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264252479-en   https://www.oecd.org/daf/inv/mne/OECD-Due-Diligence-Guidance-Minerals-Edition3.pdf OECD – A global standard towards responsible mineral supply chains http://mneguidelines.oecd.org/mining.htm   https://mneguidelines.oecd.org/Brochure_OECD-Responsible-Mineral-Supply-Chains.pdf http://dx.doi.org/10.1787/9789264252479-en  http://mneguidelines.oecd.org/duediligence/ http://www.oecd.org/corporate/mne/mining.htm
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