The OECD Due Diligence Guidance

for Responsible Supply Chains of

Minerals

-

EU Implementation of Conflict Minerals Legislation:

How to Incorporate Lessons from the Dodd-Frank Act?

Louis Maréchal Policy adviser on extractives OECD Investment Division

General introduction to the Guidance

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Conflict financing

Non-state armed groups or public security forces, associated with serious abuses:

• Illegally control mine sites, transportation routes, or dealers in minerals

• Illegally “tax” or extort money or minerals from artisanal miners, mineral traders and exporters

• Illegally “tax” or extort money or minerals at mine sites, transportation routes, or points where minerals are traded

Gold from the Democratic Republic of the Congo

• Alluvial, artisanal gold & informally, illegally mined

• Estimated conflict area annual ASGM output: ~10 tonnes

• Market value: $380 million

Source: WGC & IPIS (2014)

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Demand for responsibly produced minerals

Political Consumer Legal

• G8 (2007, 2008, 2009, 2011, 2013)

• UN Security Council Resolutions on DRC (2009, 2010) and Ivory Coast (2013)

• ICGLR Heads of States endorsement (2010)

• OECD Council Recommendation (2011)

• Consumer campaigns in US and Europe

• From brand-name

users via industry groups (EICC, GeSI)

• Section 1502 of US Dodd-Frank Act conflict minerals reporting

• Draft EU legislation on responsible mineral supply chains

• Legal requirement in DRC, Rwanda and Burundi

• Draft conflict minerals act in Canada

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OECD Due Diligence Guidance for Responsible Mineral Supply Chains

Objective

To provide clear, practical guidance for companies to ensure they do not contribute to conflict or abuses of human rights through their mineral and metal procurement practices

Method and scope

5-step risk-based due diligence process, applies to all companies throughout the entire mineral supply chain that potentially use minerals conflict or high-risk areas

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Key features of the OECD Due Diligence Guidance - summary

One set of expectations

A common framework for due diligence expectations throughout the entire mineral supply chain from mines until end users

Progressive approach

The promotion of constructive engagement with suppliers in order to gradually affect change

Reasonable and good faith efforts

Not 100 % compliance overnight

Government and industry programmes can help accomplish due diligence tasks

Companies should use and build upon existing systems!

Risk-based

Intensity of due diligence proportional to risk

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Structure of the Guidance

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Supplement on 3Ts

Supplement on gold

Appendix on artisanal and small scale mining for gold

Annex I: description of 5-step approach Annex II: model supply chain policy Annex III: principles for risk mitigation

Structure of the OECD Guidance Focus on annex II and III

• A model supply chain policy (Annex II):

NO! Sourcing from parties linked to serious abuses

NO! Direct or indirect support to non-state armed groups

MITIGATE! Direct or indirect support to public or private security forces

MITIGATE! Bribery in the supply chain, fraud or misrepresentation of chain of custody or traceability information

MITIGATE! Money-laundering through the mineral supply chain

MITIGATE! Non-payment by suppliers of taxes, fees and royalties related to mineral extraction, transport and export, or non-disclosure of payments by suppliers in accordance with EITI

• Measures for Risk Mitigation and Indicators for Measuring Improvement (Annex III)

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5-step risk-based framework

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Step 5: report

on all

steps

Step 1: company management systems

Step 2: risk assessment

Step 3: risk mitigation & monitoring

Info

rma

tio

n

Step 4: audits of refiners’ due diligence practices

OECD Implementation Programme

Over 500 organisations involved

– Started in 2012

– Governments (OECD and non-OECD), international organisations, business, civil society and other experts

Information-sharing and promotion of due diligence

– Tools, workshops, webinars and training

– Outreach: Africa’s Great Lakes region, China, Colombia, India, Middle East and Turkey

– Peer learning

Collaboration and problem-solving

– Coordinated solutions

– Harmonisation and mutual recognition of industry programmes

– Promotion of responsible mineral sourcing from conflict-affected and high-risk areas

Forum on Responsible Mineral Supply Chains – see infra

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Mandarin edition of the Due Diligence Guidance available since May 2014

MOFCOM designated the China Chamber of Commerce Metals, Minerals and Chemicals (CCCMC) as key partner to work with the OECD on responsible business conduct in minerals

OECD and CCCMC signed a Memorandum of Understanding (MOU) on responsible mineral sourcing, to cover due diligence outreach in China and a tool to help Chinese companies operationalise the Guidance

Implementation of the MoU has already started, with the drafting of a plan of work for 2015 and the appointment of a technical advisor

The objective is to develop Guidelines for Chinese companies, bases on the OECD Guidance, as well as an audit system for smelters and refiners in China by the end of 2015

Implementation and outreach in 2014 - Focus on China

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• Forum: from May 4 to 6, at the OECD Conference Center, Paris

• Focus of the Forum:

– Presentation of the first draft of the CCCMC Guidance on responsible supply chains of minerals from conflict-affected and high-risk areas. Discussions on the setting up of an audit mechanism.

– Identifying bottlenecks to enhanced participation of the tungsten industry

– Discussions on advancing harmonization of audit protocols

– Assessing & enhancing the contribution of SMEs to supply chain due diligence and responsible supply chain of minerals

9th ICGLR-OECD-UN GoE Forum on Responsible Supply Chains of minerals

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Preparing for Implementation:

Alignment and Capacity Building

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Industry initiatives can help companies implement the OECD Guidance but don’t take away individual companies’ own responsibility

G

lob

al

Min

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Su

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ly C

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in

Miners (artisanal and industrial)

Refiners & Smelters

Bullion Banks

Downstream manufacturers (electronics, jewellers & others)

3T Programmes Gold Programmes

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Update on developing CCCMC programme

• The objective is to develop: – guidelines for Chinese mining and mineral trading companies and

smelters / refiners on conducting responsible supply chain due diligence

– a smelter / refiner audit system to establish the conformity of smelters / refiners due diligence practices with the Chinese supply chain due diligence Guidelines

• The guidelines and the audit system will be aligned with the OECD Guidance

• The audit system will be designed so as to be aligned with existing industry programs – mutual recognition is expected

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EU Draft regulation is a timely opportunity for alignment

• Timely opportunity for all relevant stakeholders to take a step back and possibly bring adjustments to existing industry associations programs to better align with international expectations, the OECD Guidance and EU incoming regulations.

• OECD is ready to work with to commission and monitor an independent

assessments of industry programs with recommendations on alignment with the Guidance and the strengthening of systems.

– The OECD Secretariat will likely receive mandate from Council in 2015 to undertake independent assessments of industry programmes.

• Ongoing discussions within the European Union about how industry

programmes could fit into the draft European regulations (issue of recognition of existing and future audit schemes)

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How can SMEs implement the Guidance?

• The Guidance recognizes that flexibility is needed depending on individual circumstances and 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

• However, it expects all companies to adopt a responsible business conduct that will have them – ask the right questions to their customers or suppliers

– respond to inquiries on responsible mineral supply chains

– collect all relevant documentation

– and, in general, be aware of the potential negative impacts of their activities

• Expectations on small and mediums enterprises in the downstream segment of the global industry are less demanding than expectations set on companies on the ground, in producing countries; or on large companies with proportionate financial means and human resources

• A study is currently underway to understand the practical challenges of due diligence implementation for SMEs: Take the survey!

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Capacity building is crucial

• Capacity building and training are core activities of our implementation programme (DRC, Turkey, Colombia, etc.)

• Needs to target all kind of stakeholders (private sector but also governments and civil society), all along the supply chain, and of all sizes (including SMEs)

• Consider training for auditors/practitioners and other types of private sector actors as well

• Train the trainer approach is efficient

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Upstream Actors and Due Diligence

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What should companies know about sourcing from conflict-affected areas?

• Step 1 & 2 should become usual business practices to identify potential links between minerals and conflict finance / serious abuses of HR

• The duty of a company to act responsibly is tied to the potential impacts of its operations

• Guidance for companies– sources a company can use are numerous:

– United Nations Security Council resolutions / Group of Experts reports

– Multiple thinks tanks and research institute (IPIS, International Crisis Group, etc.)

– Academic research (Heidelberg Institute, SIPRI, etc.)

– Press articles, Int’l / local NGO reports, etc.

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Mineral supply chain due diligence in 5 years?

• Supply chain due diligence reporting is embedded in common business practices

• New supplements and / or activities as part of the implementation programme are developed? Other natural resources covered (e.g. oil & gas) ?

• Private sector engagement in CAHRA has increased significantly (i.e. support to responsible ASM)

• Expanding geographic scope of due diligence implementation

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Thank you

For further information on the OECD’s work on Responsible Business Conduct

http://mneguidelines.oecd.org/

http://www.oecd.org/corporate/mne/mining.htm

Tyler.gillard@oecd.org; louis.marechal@oecd.org;

Hannah.KOEP-ANDRIEU@oecd.org

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