Opening the box on sustainable jewellery
The versatility of gold and other precious metals, combined with their rise in value, has attracted a wide range of investors. However, this surge in interest brings with it an augmented level of scrutiny.
Stakeholders are asking more questions and continue to raise issues around corporate responsibility in the precious metals supply chain, says SGS's sustainability manager Effie Marinos.
Whether it is the potential for minerals from conflict areas to find their way into products or the impact of mining on local communities, companies are increasingly expected to minimise the undesirable environmental and social consequences of production at every stage, beginning with raw material sourcing.
Reports of environmental and health & safety infractions have surfaced around the globe, from the US, with concerns about the gold supplied for medals at the Olympic Games, to Ghana, where an increase in illegal mining has recently been observed with the potential to worsen conditions for both migrant prospectors and indigenous artisanal miners.
Industry has become more aware of both the responsibilities to society and the environment but also of the interests of customers. Customers now look to industry leaders and individual companies to implement systems both to guarantee the responsibility of their own operations and to ensure the traceability and responsible behaviour of their suppliers.
Different sectors have implemented schemes aimed at responsibility and transparency in raw materials sourcing and promotion of best practice standards.
One end of the supply chain in, the jewellery sector, for instance, has established the Responsible Jewellery Council (RJC) Code of Practice for jewellery including diamonds, gold, silver and platinum. The code encompasses a wide range of environmental, social, human rights and business ethics standards affecting the diamonds and precious metals supply chain.
RJC members are required to commit to upholding this code and to becoming certified within two years of joining by undergoing an independent, third-party audit carried out by auditors formally accredited by RJC.
The RJC code takes into account many aspects of legislation and best practices in areas relating to anti-corruption, anti-money laundering and other illegal practices.
As a result, the RJC has also introduced voluntary Chain of Custody Certification intended to provide assurance on the origins of gold, and members' due diligence systems. This is directed at all stages in the supply chain, so that, in addition to sourcing from certified refiners, members can also have their own systems certified, providing traceability from finished product back to raw materials.
In parallel to the RJC, the London Bullion Market Association (LBMA) has launched its LBMA Responsible Gold Guidance aimed at the refining process. The guidance requires all participating refiners to arrange for an independent, third-party audit of their supply chain due diligence, based on both anti-money laundering principles and the five step framework for risk-based due diligence outlined in the Organisation for Economic Co-operation and Development (OECD) guidance. It has now progressed to the stage where requirements for third-party auditors to verify processes have been published.
In addition to these organisations, the World Gold Council has also published a Conflict-Free Gold Standard, which is an industry-led approach to combat the potential misuse of mined gold to fund armed conflict. This open standard has been developed with member companies (gold producers) and in consultation with governments, civil society and supply chain participants.
However, the step-change has perhaps been most significant at the other end of the supply chain, where these precious metals are in fact sourced. The mining industry has taken steps toward solidifying responsible practices and, in turn, the consumers of precious metals, ranging from the electronics industry to manufacturers and buyers of the host of products that incorporate electronic circuitry, are basing their own due diligence systems on these initiatives.
The Certified Smelter programme, for example, was developed by the Electronics Industry Citizenship Coalition to approve smelters/refineries, which are the key control point of due diligence in the supply chains for precious metals. It enables companies to report reliably on the sourcing of affected raw materials by providing a certified starting point. It does not, however, eliminate negative impacts which can further impair economic development in countries already suffering from violence and corruption.
For this, there are schemes such as the Fairtrade and Fairmined Gold Standard which seeks to promote ethically-sourced gold from artisanal and small-scale miners. Currently this represents only a small percentage of the overall market and, due to its nature, is being used in the production of jewellery where the premium can be more easily absorbed. If the growth of other fair-trade commodities is any sign, however, this standard could become a major factor in the future.
Legislation is a clear driver and governments across the globe are jumping on board, with many providing industry support to push sustainable and responsible precious metal supply chains, particularly the US Government. The Dodd-Frank Wall Street Reform and Consumer Protection Act has placed a requirement on US public companies that use 'Conflict Minerals' (tin, tungsten, tantalum and gold - also known as 3TG) which ensures the materials do not originate from known conflict areas, particularly the Democratic Republic of Congo (DRC) and its near neighbours.
The companies initially targeted by this reform were those in the telecoms sector where tantalum, in particular, is an important element. The scope of the law is, however, much broader, affecting the automotive, jewellery and retail sectors, and products as diverse as belt buckles and toys.
A catch-all solution does have its drawbacks however. Due to the extensive supply chains of many of these companies, it has not been easy to comply with this requirement, with the raw materials required for production harvested at a considerable remove from the manufacturer.
One unintended consequence of the policy is the exclusion of responsible miners located in conflict zones from potential supply chains, as smelters disengage with all suppliers from these countries to meet compliance requirements of this Act.
Further guidance from the OECD has also been published, the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict - Affected and High Risk Areas, to provide information regarding appropriate levels of due diligence and effective management systems. The OECD's guidance has been recognised by the US Securities and Exchange Commission (SEC) as an international framework for due diligence measures for companies required to file a conflict minerals report under the Dodd-Frank legislation. Pilots have been run on the implementation of these guidelines, and there is broad support from industry, where they are considered both practical and free from many of the side-effects experienced with the SEC approach.
Also responding to sourcing issues is the European Union, which is looking to implement its own regulations and has launched a public consultation paper open until later this month (26 June 2013). The European regulations would be in addition to those affecting companies doing business in the US, and there is concern that if it differs substantially the burden on companies operating across these territories could increase significantly.
Precisely what the EU ultimately implements remains to be seen, but in the interim, the precious metals industry has risen to the occasion and is adopting voluntary initiatives to meet the challenges it faces.
What all of these initiatives have in common is their basis in international best practices and standardisation. In this way the processes of auditing and quality assurance can be streamlined, reducing the burden on companies, governments and agencies alike.
This is only the beginning of an important trend which will hopefully continue to develop with an emphasis on mutual recognition and compatibility.
Effie Marinos is SGS's sustainability manager