Responsible Sourcing

The MKS PAMP Group provides support to Partnership Africa Canada (PAC) in its gold supply chain project in the Democratic Republic of Congo (DRC). The aim of the PAC project, through incentives to the different actors involved, is to progressively divert gold supply chains from the illegal channels towards the legal channels and then to the international markets. The PAC works towards building a transparent supply chain from the miner (the goal is to assist about 10,000 miners in the medium term) through to the export of gold from the DRC. MKS PAMP has invested significant time and effort to advise PAC on the diligence requirements to be met along the supply chain, while taking into consideration the facts on the ground. MKS PAMP has also performed an in-depth on-the-ground evaluation of the project in the DRC to fine-tune the diligence needs and thus provide the best possible support to the PAC project. Why?

The Times They Are A-Changin’

It is no secret that there has been a dramatic shift in the importance consumers place on responsible and sustainable sourcing. However, over the past few years, this approach has spread to governments, supranational bodies and investor communities. It has become clear that the sourcing policies, practices and supply chains of state entities now also face ever increasing scrutiny.

A number of industries have suffered reputational damage as a direct result of issues within their supply chains. The electronics industry has been criticised in the press regarding the standard of working conditions for subcontractors (be they first-tier or further down the chain).1 The tragic building collapse in Bangladesh (see photograph below) highlighted the impoverished conditions of subcontractors in the garment industry,2 and prior to that, conflict diamonds3 were symbolic of supply chain malpractices. Each incident has not only had a strong negative media impact on all the immediate entities within the relevant supply chain but has also tarnished broader industry participants who have subsequently found themselves to be perceived as guilty by association.

The gold industry has not been spared either. Recent news stories have reported cases not only of severely substandard conditions4 and dramatic environmental damage,5 but also cases of alleged or demonstrated due diligence failures in gold sourcing. Artisanal and small- scale gold mining (ASM) is responsible for the emission of an estimated 727 tonnes of mercury per year (or 37% of the world mercury emissions).6 While being the nexus of many of the gold industry sustainability concerns, ASM provides about 15 million jobs within local communities around the globe and supports the livelihood of an estimated 80-100 million people. Much of the media has been vehement in its coverage of these stories.

As a result of these factors, the gold industry has, and is undergoing, a thorough change of regulatory practices. This comes in the wake of Article 1502 of the US Dodd Frank Act, which specifically addresses the conflict metals of the DRC and surrounding countries.

In 2011, the OECD also tackled the issue – without limiting the geographic scope – by publishing its Due Diligence Guidance for Responsible Supply Chain of Minerals, which is applicable to tin, tantalum, tungsten and gold.7 In a parallel effort, several gold industrybodies8 have established their own conflict-free guidance. The LBMA established its guidance covering not only conflict-free gold, but also measures to tackle Anti-Money Laundering (AML) and Anti-Terrorist Financing (ATF). Currently, the European Union is also preparing legislation in relation to conflict-free metals.

Savar, Bangladesh. Rescue workers taking part in the rescue operation following the collapse of the garment factory in April 2013.

Changes towards responsible sourcing and other issues falling under Corporate Social Responsibility (CSR) are progressively being pushed forward by a number of supranational bodies:

• The OECD Guidelines for Multinational Enterprises call for a “comprehensive approach to due diligence and responsible supply chain management”9
• The European Union (EU) addressed Corporate Social Responsibility at a strategic level. The EU commission states that “to fully meet their corporate social responsibility, enterprises should have in place a process to integrate social, environmental, ethical, human rights and consumer concerns into their business operations and core strategy”.10

Altogether, the trend towards making companies responsible for their CSR policies and processes along their whole supply chain is strong and widespread.

Reputation, Reputation, Reputation

Poor practices at the extraction level, or in the acceptance of sources, not only greatly damage the reputation of the participants within the local supply chain, but also substantially damage the reputation of the industry as a whole.

Trust and precious metals, especially gold, should be synonymous. The MKS PAMP Group considers that the key attribute of our brands is the trust they inspire, or in other words, our reputation. In our view, the most obvious levers to maintain and further enhance this reputation are, and have always been, in setting the highest standards of responsible and sustainable sourcing, along with attention to quality, innovation and transparency.

Stringent, well-enforced standards in an industry help to maintain and grow public trust. They also help the companies that satisfy these benchmarks to distinguish themselves positively from other market participants. In addition, in the unlikely event of an incident, they are better positioned to communicate credibly as to the incident, its impact and its resolution.

By defining and adopting the LBMA Responsible Gold Guidance, which is mandatory for Good Delivery refiners worldwide, LBMA members and refiners have taken a very significant step forward. However, more steps are required in order to further enhance responsible and sustainable sourcing by the industry. Such measures include:

• Extending responsible guidance to other precious metals, and
• Expanding from conflict gold, AML and ATF initiatives to fully fledged Corporate Social Responsibility policies.

These measures should be made mandatory.

The Greater Good

We are of the opinion that responsible sourcing policies across the industry will not only positively impact the sustainability of the precious metals supply chain but also substantially improve the attractiveness of any precious metal product.

Whether out of good corporate citizenship or enlightened self-interest, each industry participant needs to decide their own path to promoting responsible sourcing. And this will of course vary according to a number of factors.

To highlight one such example, these are some of the initiatives in which the MKS PAMP Group is now involved:

At the industry level, the Group was from the start – and is still – intensively involved in the establishment and evolution of the OECD Guidance for Gold and the LBMA Responsible Gold Guidance. MKS PAMP also actively contributed to the development of the Responsible Jewellery Council Guidance and the World Gold Council Responsible Sourcing Guidance.

On the ground, we actively support several initiatives that aim to provide ASM mines with access to international markets – provided they meet our standards in terms of responsible sourcing:

• PAMP is a founding and active member of the Swiss Better Gold Association (SBGA). This initiative, a public/private partnership between the Swiss State Secretariat for Economic Affairs (SECO) and Swiss companies, aims to provide certified ASM in Peru11 with access to international gold markets and a per gram development premium over the gold price, paid for by Swiss jewellery and watch-making brands. Interestingly, one of the critical issues faced by the SBGA is managing a gold demand that is substantially higher than the metal available from certified mines.
• The Group supports the initiative run by Partnership Africa Canada referred to above. The issues faced on the ground are numerous. A significant one is the difficulty to convince local operators to favour legitimate channels over the illegal ones.
• PAMP is an active member of the Private- Public Alliance for Responsible Minerals Trade, which supports initiatives for sourcing conflict-free gold out of the DRC.

The Importance Of Being Earnest – Together

At the MKS PAMP Group, we consider being earnest about responsible sourcing and CSR to be vital for our continued success. However, our success in this particular realm will not come from our own isolated efforts. As each precious metals industry stakeholder plays its own part earnestly and collaboratively, the successes will be enjoyed by all. The goal is clear, but there is still work to be done and thus we will continue to lead by example, while encouraging all other stakeholders to join us.

1. In early 2010, a series of high-profile worker suicides at Hon Hai Precision Industry Co., better known as Foxconn, drew an enormous amount of media scrutiny to poor working conditions at the firm’s vast manufacturing facilities in mainland China.
2. For example, the Savar building collapse in Bangladesh that caused 1,129 deaths and injured 2,515.
3. First sanctioned by a United Nations ban in 1998.
4. Forced labour cases were reported in a number of African countries.
5. For example, deforestation in Madre de Dios, Peru.
6. United Nations Environment Program, Global Mercury Assessment 2012.
7. http://www.oecd.org/daf/inv/mne/GuidanceEdition2.pdf.
8. Namely, World Gold Council, Responsible Jewellery Council and Conflict Free Sourcing Initiative.
9. Declaration on International Investment and Multinational Enterprises, 25 May, 2011.
10. Communication on Corporate Social Responsibility on 10 October, 2011.