Annual Report 2021
Responsible Sourcing
Our second Annual Responsible Sourcing Report was published in November 2021.
The aim of this annual report is to increase the transparency of our Responsible Sourcing Programme (the Programme).
It reviews the refiners’ and auditors’ performance during the previous 12 months and provides detail on the Country of Origin (CoO), where Good Delivery List (GDL) refiners mine and refine gold around the world.
The continuing aim is to provide information on the preceding 12 months and on how the Programme performed.
Gold and Silver Refiners' Performance
In 2021, the review process for all 2020 audits was further strengthened. This was supported through the addition of more resources to provide for an enhanced first-level review by both the Responsible Sourcing Manager and the Responsible Sourcing Officer.
During the assessment process, the Responsible Sourcing (RS) team routinely requests additional information from refiners and auditors in order for LBMA to achieve maximum comfort from the audit reports.
However, during this year’s review, and out of an abundance of caution and in line with changes made to RGG Version 9, refiners were asked to voluntarily disclose additional information on recycled material listed in their CoO data. This included disaggregating recycled material according to source (i.e. grandfathered stock, industrial by-products or jewellery) and listing the number of suppliers. While out of scope of RGG Version 8, most refiners willingly provided this information.
In 2020, no GDL refiner was moved to the Former List for failure to comply with the Programme. Despite the higher than normal reliance on virtual audits, LBMA did not encounter any deleterious impacts to the integrity of the audit framework. Whilst there were several escalations related to sourcing concerns during 2020, each one was addressed appropriately, with full co-operation from the GDL refiner in question.
Gold Non-Conformances
2019 saw an overall increase in medium-risk and high-risk non-conformances for responsible gold audits.
The two high-risk non-conformances for gold related to one GDL refinery based in the Europe and Africa CoO category. All medium-risk non-conformances for gold related to two different GDL refineries based in the Americas and were escalated to the Compliance Panel. LBMA engaged with the auditors and with both GDL refiners throughout the development of Corrective Action Plans to ensure appropriate timescales were agreed before issuing 2018 RGG certificates.
No zero-tolerances were reported in 2019.
Silver Non-Conformances
As 2018 was the implementation year for silver GDL refiners, the 2019 reports highlighted a high number of non-conformances for silver.
This was expected, as several silver-only GDL refiners were implementing new controls and going through the audit for the first time. We expect to see these numbers trend down as silver GDL refiners fully embed systems in their operations and work towards continuous improvement. However, no zero-tolerance non-conformances were identified, which confirms the commitment that each GDL refiner has in trying to achieve full compliance with the international standards.
As is expected for gold, all silver high-risk non-conformances were addressed within 90 days. Please refer to the 2021 Responsible Sourcing Annual Report for a breakdown of the most common types of non-conformances raised against the five steps of the RGG and RSG.
Auditor Training
LBMA collaborates closely with the Responsible Minerals Initiative (RMI) and Responsible Jewellery Counsel (RJC) to identify opportunities for the joint training of auditors.
The training focused on enhancing auditors’ understanding of LBMA RGG requirements and other relevant reference standards (e.g. OECD Due Diligence Guidance) as well as the ISAE 3000 risk-based assurance approach and its application for LBMA RGG audits.
Participants also explored the contextual risks related to mineral supply chains, and gold supply chains in particular, and how to identify and address these in the audit process.
The training sought to equip LBMA auditors not only to check whether traceability and due diligence systems are in place, operational and compliant with LBMA requirements, but also whether risks are being effectively identified, assessed, managed and reported. The training provided a platform for auditors to share common challenges and approaches to effectively address these.
The training also touched upon LBMA’s disclosure guidance and the expectations auditors should have of the quality and completeness of the Refiners’ Compliance Reports as well as the consistency in audit deliverables.
In November 2020, the mandatory auditor training programme, a key pillar of our Responsible Sourcing Strategy, was rolled out. LBMA teamed up with Synergy Global Consulting and Nirali Shah, an independent consultant to LBMA, to facilitate an eight-hour online training of more than 120 auditors worldwide.
The key objectives of the audit training were to:
- Establish a common understanding of the contextual risks in precious metals supply chains.
- Help to effectively transition from ISO to ISAE 3000 assurance.
- Provide a platform for continuous professional development.
The training was very well received by our auditors, with overwhelmingly positive feedback provided. More than 30 auditors attended the training, which included passing a test as a requirement for completing the course. The training was mandatory for all auditors on the Approved Service Provider List. Further online training opportunities are planned in the near future. In 2022, we anticipate a return to in-person training built around informing auditors of material changes made in RGG Version 9.
Responsible Gold Guidance Version 9, launched in November 2021
Responsible Gold Guidance Version 9
One of the main focuses in 2021 was the development of Version 9 of the Responsible Gold Guidance (RGG).
It was published on 29 November, 2021 after undergoing two thorough public stakeholder consultations. It is applicable to all Good Delivery List (GDL) refiners from 1 January 2022.
The main changes to RGG Version 9 cover the following key areas:
- Recycled Gold
Provides further clarity on the due diligence expectations for recycled material, including what forms of paperwork are required to give assurance of origin and legality. It will be expected that the refiner’s assessment of the supplier should cover all precious metals activities carried out by the supplier rather than the refiner’s direct supply chains only. To address calls to extend due diligence beyond Tier 1 suppliers, RGG Version 9 stipulates the requirement for secondary refiners supplying recycled melted gold to GDL refiners, to undergo independent assurance on conformance with an OECD-approved responsible sourcing scheme.
- Elimination of Cash Transactions
This is a first step towards prohibiting cash transactions, except in jurisdictions with rigorous checks and balances or when dealing with Artisanal and Small-Scale Miners between mine site and national level aggregator only. For transactions over $10,000 in value, refiners must make and receive payments for gold through official banking channels and should not undertake any cashbased transactions. Refiners may only make cash transactions with suppliers who have successfully passed an identity check and are issued with an official tax receipt. Such suppliers are limited to a maximum of two such transactions in a calendar year.
- Provision of Support for Responsible Artisanal and Small-scale Mining (ASM)
The guidance will continue to stipulate LBMA’s support for measures to create economic and development opportunities for ASMs and assist legitimate ASM producers to build secure, transparent and verifiable gold supply chains from mine to market.
- Environmental, Social and Governance (ESG)
Builds on the ESG requirements that were first introduced in Version 8. It requires refiners to consider and report on adverse ESG factors in their gold supply chain. While LBMA acknowledges the inclusion of ESG to be a significant step change for refiners, LBMA’s vision is to deploy a graduated programme of implementation for this important aspect of precious metals due diligence.
- Risk Mitigation Requirements
Clarifies the risk mitigation strategies to be taken by GDL refiners to complete their alignment with the OECD Due Diligence Guidance.
- Auditor Independence and Audit Quality
Refiners will be required to rotate auditors every ten years in line with the EU mandatory audit firm rotation requirements to enhance independence. The Third-Party Audit Guidance will also be updated to align with RGG Version 9.
- Disclosure Guidance
Reaffirms our commitment to ongoing improvements to the public disclosure of information. This is particularly relevant as LBMA meets the challenge of complying with OECD reporting requirements relating to high-risk supply chains and any discontinuance of relationships due to concerns about a supplier’s sourcing practices.
Following consultation with the OECD, LBMA will require refiners to begin disseminating high-level information to LBMA on a phased-in basis. With effect from 1 January 2022, refiners will disclose to LBMA the number and location of high-risk suppliers. In 2023, refiners will complete all relevant contractual changes with suppliers to allow for greater disclosure, while continuing to provide information to LBMA. Thereafter, refiners will provide LBMA with the full list of suppliers operating in high-risk locations. Future versions of the RGG will focus on fuller public disclosure of this information.
Future Development
Two years ago, LBMA set out the five strategic objectives for the Programme.
Huge progress has been made, with the launch of both the International Bullion Centre Recommendations (please see Financial Market Enhancements section for further details) and RGG Version 9, improving the transparency and disclosure requirements, and strengthening the auditor training programme.
Looking ahead, LBMA is committed to working with the industry to define sustainability for the global precious metals market. This will involve identifying the supporting priorities, in line with the UN Sustainable Development Goals, as well as developing the next three-year strategy for Responsible and Sustainable Supply Chains. LBMA will be engaging with market participants in the first half of 2022 to help develop the proposals and agree the strategic outcomes.
Outreach
The pandemic changed the way we engaged with external stakeholders, imposing a virtual presence at key international events, such as the OECD Forum on Responsible Mineral Supply Chains. LBMA also actively sought out the views of key partners on priorities, objectives and actions through bilateral conversations, participation in constructive external events, such as African Mining Indaba, and through ongoing engagement with collaborative initiatives with partners such as the RMI, RJC, WGC and ICMM.
In 2020, LBMA developed a webinar programme to help stakeholders understand the market challenges and developments. These proved, and continue to prove, to be very popular, and have supported the efforts to engage and better communicate across all key stakeholders. The monthly Responsible Sourcing Newsletter has gone from strength to strength and continues to be a valuable source of information to a wide range of stakeholders.