Sustainability and Responsible Sourcing Report 2024
Refiners’ Responsible Sourcing Performance 2023
Overview
Overall Refiners have continued to improve their systems and controls, with a lower number of non-conformances reported, as well as fully implement the requirements of the Disclosure Guidance 2. This was the first year that the Refiners had to disclose list of high-risk suppliers.
The first assurance reports were delivered to LBMA at the end of March, with a priority given to reviewing Refiners with higher-risk or more complex supply chains. This was done to test how well the disclosure of high-risk suppliers was being met by Refiners.
Refiners were inconsistent with the implementation of this disclosure requirement. In order to clarify our expectations, a notice was sent to all Refiners outlining the necessity of this disclosure and how any delay or failure to provide it would impact the approval of their reports, and therefore the issuing of their LBMA certificate.
Refiners were also reminded of their obligations to share greater detail in their assurance reports, particularly instances in which enhanced due diligence or risk mitigation was triggered and what measures were taken.
Where a Refiner did not include all the necessary disclosure, the review process was paused until the Refiner either satisfied the requirement or provided a plausible justification that it did not apply to its supply chain. Disclosures of high risk suppliers was reviewed against the Refiner’s Country of Origin data and challenged by the Responsible Sourcing team. In some instances, this required the Refiner being asked to disclose how it assessed the risk level of suppliers in certain jurisdictions and to provide their identities nonetheless.
Non-Conformances: Trends and Moving Forward
Identification of Non-Conformances (NCs) during assurance engagements is a useful tool for the market to understand the progress of Refiners in improving their responsible sourcing practices. This section provides some insight into the NCs declared for FY2023 so far (with 85 of the 99 GDL Refiners having submitted their annual assurance reports as of July), as well as a consideration of FY2022 reports that arrived after the publication of the last year’s Sustainability and Responsible Sourcing Report.
A key observation we noticed when analysing the NCs across GDL Refiners was the dip in overall numbers as management systems were adjusted to conform with all the new requirements. Generally, for the year following the release of a new version of the RGG, there is a spike in NCs, after which the necessary corrective measures are taken, and the numbers trend downward in subsequent years. This has proved true in the review of the FY2023 reports, with the culminative number of NCs dropping from 149 to 88 NCs compared to FY2022.
With the launch this year of version 2 of the Responsible Silver Guidance, we expect a similar trend among our silver-only accredited Refiners next year. In anticipation of this, LBMA is encouraging silver-only Refiners to familiarise themselves with the Guidance and to reach out to LBMA with any questions.
Non-conformance often indicates how robust and effective a Refiner’s management systems are. These systems determine how the business operates and engages with stakeholders, regulates the supply chain policy expectations of its counterparties, supports its employees to do their jobs successfully and keeps check on internal processes. A strong management system will be well prepared to handle the growing demand for increased engagement in and disclosure on the Refiner’s policies and practices.
With respect to the FY2023 non-conformances, those related to Steps 1.1 (low risk), 2.1 (across all levels), and 2.2 (high risk) saw the biggest decreases in frequency, while also remaining the most common source of NCs overall.
LBMA Guidance Five Steps
- Establish Strong Company Management Systems
- Identify and Assess Supply Chain Risks
- Design and Implement a Management Strategy to Respond to Identified Risks
- Obtain Independent Third-Party Assurance on Supply Chain Due Diligence Practices
- Report Annually on Supply Chain Due Diligence
Within the NCs we observed an uptick for those relating to incomplete Due Diligence documentation (particularly relating to missing information on material transport routes between mines and Refinery) where the issue is systemic (rather than occasional) or
is a recurring lower NC from previous years. This partially explains the elevation of risk levels among the NCs, as incomplete due diligence impacts a Refiner’s ability to accurately assess the risk level of its counterparty and apply the appropriate risk mitigation or enhanced due diligence.
Under the RGG, unresolved NCs from previous years are also automatically elevated to a higher level (medium or high), necessitating a Corrective Action Plan that demands that the Refiner resolve any shortcomings within a specified timeframe (90 days for medium NCs and one month for high NCs).
While non-conformance instances with Step 3 (risk mitigation) have dropped, this is a part of the compliance reports where the disclosure could be significantly improved. As mentioned in the previous section, in assessing assurance reports, the Responsible Sourcing team has been interested in not only the validation of certain sourcing policies by Assurance Providers, but details of the instances and ways in which they have been used.
If a Refiner did not implement any risk mitigation or enhanced due diligence measures during the past year, we also expect this to be expressly validated in its assurance reports. With ESG factors growing in importance with RGG v9 (and on the broader sustainability landscape), a greater focus has also been placed on assessing how ESG-specific risk identification and assessment processes are incorporated into Refiners’ operations and supply chain policies. This has been identified as another area of improvement and where LBMA will provide additional support to GDL Refiners in future years.