Responsible Sourcing Newsletter: November 2022

Defining “Green Gold”: How to protect from greenwashing and meet consumer expectations

It’s no secret that consumer demand for ethical products is no longer a niche sideline for companies, but a core business requirement.

And those who think otherwise, do so at their peril.

These statements are not opinions or aspirational talk. They are based on numerous market surveys that all conclude an overwhelming portion of consumers not only want and expect environmentally sustainable and socially responsible business practices from the companies they support, but they are prepared to pay a premium for them, irrespective of the product.

The pandemic, as the latter article contends, appears to have only accelerated the demand, perhaps driven by consumers' increased awareness and considerations of supply chains.

However, with the increased demand, comes increased consumer scrutiny of ESG claims made by companies.

This issue was highlighted in a recent article in the Financial Times, entitled Gold funds face challenges over responsible sourcing claims. One commentator pointed out that several “green gold” funds seeking to shake up the €100bn fund sector had positioned themselves as “sustainable” to gain market advantage over competitors, even though they buy the same sort of gold bars as most other gold funds.

In most cases, the gold in question came from LBMA Good Delivery List refiners that adhere to the Responsible Gold Guidance, although some relied on added provenance or ESG claims supported through legitimate boutique initiatives like Fairmined.

Relying on recycled gold is another way some jewellery and tech companies (and investment firms) burnish their ESG credentials, even though the sector is often singled out for its questionable provenance claims.

While the shift to greater sustainability in gold supply chains is to be encouraged, the takeaway from the FT article is that the financial industry (with support from gold industry actors like LBMA) urgently needs to define the parameters, or criteria, by which investors can objectively measure the sustainability or green claims behind the gold they are purchasing.

The danger for the gold industry, of course, is that with the increased market demand for sustainable products, some companies may make unsupportable claims that could undermine consumer confidence and ultimately the reputation of the gold sector.

This issue is firmly on the radar of the European Parliament, which recently adopted new rules that would require EU companies to disclose more details about how their products and services match the ESG claims they make. The genesis of this law—which is not to be confused with the EU Conflict Minerals Regulation—seeks to force more detailed disclosures from companies, based against criteria set out in the EU’s climate goals.

While these new sustainability reporting rules may not completely address the issues raised in the FT article, EU parliamentarians believe it is one mechanism by which to better hold companies accountable for the ESG claims they make, and stop greenwashing.

The new EU rules shouldn’t prevent investment houses from proactively doing the same for their green gold portfolios.

Launch of new Disclosure Guidance

In early December LBMA will launch an updated version of the Third Party Audit Guidance and Disclosure Guidance, following extensive consultations between LBMA and GDL refiners.

The amended documents support refiners and LBMA approved auditors in the implementation of new reporting and disclosure requirements required in version 9 of the Responsible Gold Guidance (RGG).

The amended Guidance also provides greater alignment with the OECD Due Diligence Guidance Step 5 reporting requirements and, in instances, goes beyond this to encourage more transparent and meaningful public communication by refiners.

While the Guidance removes the requirement for refiners to issue a mandatory Public Interest Report, a focus instead has been placed on improving the quality of the information and transparency of compliance report refiners submit as part of their annual third-party assurance.

Going forward refiners will be expected to disclose greater details regarding such things as:

• The number of zero-tolerance and high-risk suppliers identified.
• The nature of the zero tolerance and high risks encountered.
• The steps taken to mitigate these risks, including any communication with regulators or LBMA, and the Enhanced Due Diligence procedures followed.
• The number of on-site visits to high-risk counterparties or areas for risk assessment purposes and the percentage that were conducted by external assessors, while keeping due regard to business confidentiality and other competitive concerns.
• The number of intermediate refineries with high-risk supply chains that supplied independent assurance reports and the plan for obtaining the remainder.
• A description of any medium or high-risk non-conformances identified during the audit process and the steps taken to address them.

Both documents will be available for download on LBMA’s website.

Housekeeping: See you in 2023

Please note the Newsletter will take a hiatus during December but shall return in January. In the meantime, the Responsible Sourcing Team would like to wish readers a wonderfully restive and festive holiday season.

Recommended reading: The Global Initiative Against Transnational Organized Crime has published another must read report: Beyond Blood: Gold, conflict and criminality in West Africa