Ethics in mining: Challenging, but necessary

Keeping ethics in focus is challenging – but necessary…

The ethics of any business-related operation have never been more in focus and prone to scrutiny – and the natural resources industry is no exception, indeed it should, in principle, be one of the most attentive, given its transformative qualities where landscape and labour are concerned.

Scratching the surface…

This has recently been brought to stark attention by news from Human Rights Watch (HRW), whose February 2018 report, The Hidden Cost of Jewellery: Human Rights in Supply Chains and the Responsibility of Jewellery Companies revealed that the practices of 13 leading jewellers, which collectively add up to about 10% of global jewellery sales, showed stark differences -  while some companies have taken steps to address human rights risks in the gold and diamond supply chain, others had just relied on the assurances of suppliers.

For the mining consultancies and supply chain partners that work with these jewellers, an archaic or laissez faire attitude where ethics is concerned simply won't cut it anymore, as the collaborative nature of the mining industry dictates that if you have a relationship with an entity, it is as much yours as well as their responsibility to ensure that ethical approaches align – or be held responsible if this is not properly adhered to.

One key approach that was designed to provide a safeguard against this is the Kimberley Process, which requires those that extract diamonds to certify their shipments of rough diamonds as 'conflict-free' in order to halt the support of what can be an exploitative industry, if suitable checks are not in place. However, simply relying on this is not enough – in 2011, a prominent NGO called Global Witness decided to leave the scheme, stating that instead of supporting the eradication of illegal practices, it has ‘become an accomplice to diamond laundering – whereby dirty diamonds are mixed in with clean gems.’

Although membership of the scheme is still highly advisable, pro-active efforts to ensure – and demonstrate – that precious metals have not been illegally sourced, should be put in place.

Other macro environment effects on the pro-active prevention of illegal mining practices include the US Administration's draft executive order, composed last week and obtained by the Guardian, which, according to The Guardian, 'proposes a two-year suspension of a portion of the Dodd-Frank financial reforms that requires US firms to carry out due diligence to ensure that the products they sell include no minerals mined in the Democratic Republic of the Congo or neighbouring countries’. The thinking seems to be that by there being less obligations on US firms to show due diligence throughout their arrangements, instability amongst parties in within the region will lessen. However, according to the same news source, many international aid groups say that this move is more likely to 'embolden armed groups and the unscrupulous businesses in cahoots with them'.

Retailers need to go further – and collaborate with wholesalers and consultancies to drive up ethics. 

For major jewellers such as Chopard, therefore, which is apparently developing small-scale mining co-operatives in Latin America to improve working conditions, it is important to operate their supply chain in a way that allows for regular checks that partners are behaving in line with the ethics of the main buyer. Although not mining related, the Rana Plaza factory fire in Bangladesh (utilised by a number of well-known Western retailers) which killed 1,135 people in the country’s worst industrial disaster, is a clear demonstration of what can happen if buyers do not look deeply down their supply chain to check where the people they buy from obtain their goods and services (so a second or third their supplier where there is decreased visibility but the same level of responsibility where buyer behaviour and checks are concerned).

Indeed, the press coverage of such occurrences act as a warning signal of the significant reputational risk of not paying proper attention to these issues and that pro-actively "doing it right" and being able to show clear supply chain transparency is a chance to differentiate a business from competitors in any sector – and mining is no exception.

Working with the right suppliers – that think in the same way – makes most sense

Demanding evidence of an approach from a supplier is just as important as a supplier's willingness to share this information and even be pro-active enough to volunteer it without having to be prompted. One such consultancy that is already getting this right is the multi-asset gold company, Hummingbird, a West African gold producer, developer and explorer – it's early and innovative 'start-up' status quickly led to successes and a subsequent AIM listing, securing the firm a rightful place on the back of its efforts up until that point.

At the heart of Hummingbird's activities is an ethically sound approach to multiple areas – employee relations, pay, health and safety, source certainty and environmental sustainability, to name a few. The firm does not just pay lip service to these areas though, as it demands constant justification from itself as to demonstrating real change and improvement. This means maintaining a two-way dialogue with employees and stakeholders so that complacency doesn’t set in, as the culture of continuous improvement thrives at the firm and everyone feels that they are genuinely listened to – something that many corporate entities claim to adhere to but many do not. However, here it seems that there is a real desire to go beyond mere box ticking.

One way in which this has been done is through the firm’s ‘Single Mine Origin’ (SMO™) concept, which seeks to understand the provenance of all the gold sold in terms of both coins or for other uses in order to provide a clear line of accountability as to where it came from and the conditions in which it was extracted.

Tapping into consumer awareness about ethics

We have already highlighted the need for the retail sector to think more collaboratively where supplier assurance around ethics is concerned and be more pro-active in their checks. The same could be said where wholesalers of precious metals are concerned and the need for them to appreciate changing consumer attitudes – as this has a knock on effect on the activities of their retail client/ customers.

On the back of consumer recognition of the issue, and in addition to Fairtrade gold, many jewellers now sell rings made from recycled metal,  Indeed, a number of refineries now only select to source only old materials which can be melted down and re-used, helping to reduce the impact from gold and silver mining.

Unfortunately, profits are sometimes put before ethical considerations so it seems that savvier consumers are now helping to take the power back by demanding official proof – any reputable jeweller should be able to produce certification that proves where the diamond was sourced. Suppliers need to – and in many cases, already are – recognising this and making additional efforts to pro-actively demonstrate their own efforts and foresight.

Charles Bond, a partner within the natural resources practice of law firm, Gowling WLG