LME launches consultation on introduction of responsible sourcing standards across listed brands
Commodity Online | April 23 2019
UPDATED 13:47:42 IST

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The London Metal Exchange (LME) has launched a formal market-wide consultation on proposed rules for the application of responsible sourcing principles to all LME-listed brands. These rules build on the strong engagement with market stakeholders to the LME’s October 2018 position paper, and reflect the broad range of feedback which the LME has received.

“Our comprehensive market engagement exercise has revealed strong support for the LME taking action on this important topic,” LME CEO Matthew Chamberlain said in a statement.

“The LME’s role is now to appropriately balance the differing views of market stakeholders when implementing our requirements - and we are pleased to have been able to do so in today’s proposals. For example, based on the constructive feedback of civil society organisations, we have enhanced our transparency requirements, and at the same time, we have respected the views of producers who have called for more achievable timelines and a clearly-defined reporting process,” Chamberlain said.

The LME’s 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.

The LME’s phased transparency approach will ensure that all LME-listed brands publish fully attributed Red Flag Assessments to the market by the end of 2024, while respecting requirements of commercial confidentiality.

In this way, the LME will deploy the twin tools of transparency (allowing interested stakeholders to engage with a brand on its responsible sourcing strategy) and standards (providing certainty to buyers of metal on the LME, and hence global consumers, that all brands meet a minimum level of responsible sourcing compliance). The LME is committed to a consensual approach, but if proved to be ineffective, the LME’s core power is to suspend or delist brands which do not engage on either transparency or standards alignment.

The LME’s requirements are consistent with the OECD Guidance, and have been designed specifically to respect and build on work already undertaken by industry bodies and companies in designing Red Flag Assessment templates and standards. However, based on stakeholder feedback, the LME’s proposals adopt a broad interpretation of the core OECD requirements in certain key respects. In addition to transparency standards, these requirements include a more comprehensive set of potential risks which may trigger red flags, as well as requiring ISO, OHSAS or equivalent standards for environmental management and occupational health and safety.

The LME has also taken on board market feedback around the balance between large-scale mining (LSM) and artisanal and small-scale mining (ASM) - and believes that, with the right governance, it can provide meaningful protection against the risks involved in both. The LME is therefore committed to adopting a fair and non-discriminatory approach to ASM and LSM in its responsible sourcing initiatives and implementing an appropriate risk assessment tailored to both models.

In particular, the Red Flag Assessment will require producers to confirm whether they facilitate the disclosure of potential financial crime and corruption risks under the Extractive Industries Transparency Initiative (“EITI”), thus addressing one of the key concerns in respect of LSM.

Finally, the LME recognises that the metals trading community wishes to make a tangible contribution to progress and improvement in the physical market which it serves. Accordingly, the LME has allocated an initial contribution of US$2 million, from the proceeds of fines levied on the LME market, to charitable initiatives in the responsible sourcing sector.

“Global consumers rightly demand action on responsible sourcing - and our industry must listen. The LME is taking action because it is the right thing to do, but also because the value of our market is based on providing metal which is acceptable to those consumers, and because the metals sector looks to us to provide leadership on these important topics. Our role will necessarily be to forge a consensus between the potentially divergent views of various stakeholders - and this role is never popular. Nevertheless, we are committed to playing our part in this movement,” Chamberlain added.

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