Responsible Sourcing Newsletter: October 2023

Reflections on Barcelona

It’s fair to say that the LBMA/LPPM Global Precious Metals Conference held in Barcelona earlier this month was a runaway success.

Not only was it a sold-out event with a record attendance, the panel discussions - from the benefits and pitfalls of artificial intelligence to the future of sustainability and responsible sourcing - were thought-provoking and left attendees with much food for thought.

In addition to the official programme, there were several behind-the-scenes committee and bilateral meetings that helped to advance signature LBMA initiatives.

During an in-person meeting of the ASM Taskforce, members discussed which of the seven producer countries selected for desk-based assessments in 2023 should be prioritised for a second round of on-the-ground due diligence visits next year by LBMA and Phuzumoya, the ASM consultancy led by Gregory Mthembu-Salter.

It was agreed that work should begin in Ghana, Peru, Philippines and Tanzania in 2024, with Colombia, Cote d’Ivoire and Senegal following at a later date as resources allow. The SWOT analysis undertaken this year found that each of the seven countries offered potential but that the prioritised countries presented the lowest hanging fruit for positive engagement with GDL refiners. This included an assessment of such factors as a favourable regulatory environment for ASM suppliers, dependable and sizeable supplies of feedstock, and the presence of intermediate refiners and aggregators from whom to source.

One of the key aims of the ASM Initiative is to increase the volumes of material directly entering into GDL refiners. Days prior to the Conference some good news arrived on this front with the publication of the 2023 Sustainability and Responsible Sourcing Report. A standout narrative from the 2021 data is the remarkable surge in ASM material, which rose from 16 to 66 tonnes — a 312% increase. This means ASM material now accounts for almost 2% of GDL production (previously this was less than 1%).

While approximately 32 tonnes of this increase can be attributed to a heightened emphasis on accurately reporting ASM material driven by new reporting requirements introduced in RGG v9, there is no doubt that the Initiative is sparking a good dialogue and reflection by GDL Refiners on how best to engage with the long maligned ASM sector. While the increase may be modest, it represents an important reversal of the slide in ASM throughput witnessed in recent years.

Improving Auditor Training and Performance

Another discussion point raised during a panel session in Barcelona was how best to strengthen the performance and awareness of sourcing vulnerabilities by assurance providers.

Speakers highlighted some areas of improvement for both refiners and assurance providers, including more attention to ensuring due diligence covers not just the provenance of the feedstock but also the counterparties from whom it is sourced. Despite improved reporting requirements outlined in RGG v9 and the Third Party Audit Guidance, speakers also noted that Refiners’ public facing compliance reports contain insufficient reporting on mitigation factors or ESG outcomes.

Assurance providers play a critical role in maintaining the integrity of OECD-aligned responsible sourcing schemes. Supporting the impartiality and robust scrutiny of a Refiner’s policies and practices by assurance providers has been another area of focus by LBMA over the past year.

Some of the measures that are currently in progress include:

• Creating in-house training modules for compliance officers working for LBMA members and GDL Refiners, with a view to harmonising understanding of sourcing requirements and vulnerabilities across the value chain. This training will be voluntary and on top of the training GDL Refiners are expected to provide their staff.
• Developing an improved training system for assurance providers that not only deepens understanding and nuance of core documents like the RGG and the Third Party Audit Guidance, but also shares case studies of sourcing challenges faced by Refiners during the previous year. The training also highlights best practices, or areas of improvement, found during the assessment of the annual assurance reports by the LBMA team. The emphasis here is on growing the disclosure of detail with respect to instances of remediation or enhanced due diligence applied to high-risk suppliers, in line with new reporting requirements introduced with RGG v9 and last year’s amended TPAG.
• Introducing an Assurance Providers’ Toolkit. While LBMA understands the limitations of a “checkbox” approach, the Toolkit seeks to provide a basic outline to Assurance Providers of what universal questions to ask during an engagement, which documents to review, and when to seek additional comfort when presented with potential deviations from the RGG. Following the Toolkit is also expected to help streamline the review process as assurance reports codify and standardise the disclosure of information. LBMA plans to issue this document next month for use during 2024.
• Strengthening the pre-audit check-ins LBMA has with auditors and high-risk refiners in advance of the assurance season. While this practice has been in place for several years, going forward the process will adopt a risk-based approach that incorporates lessons learned or responds to Refiner specific vulnerabilities experienced during the previous year. It also seeks to clarify LBMA expectations of what issues should be scrutinised and disclosed in the public facing Compliance report.
• Closer cooperation with aligned audit programmes such as RMI and CopperMark. While LBMA already regularly shares information with our sister organisations, the intention is to develop interactive training sessions for assurance providers (many of whom work across the different schemes) that promote information sharing and lessons learned by the individual schemes. Further details of this training will be shared in 2024 and will supplement the annual training each scheme provides to their assurance providers.

All these measures underscore LBMA’s recognition that much of the credibility of the responsible sourcing programme lies with the universal knowledge base of assurance providers. It’s a mutually reinforcing process: supporting the latter, promotes the integrity of the former.