Sustainability and Responsible Sourcing Report 2023
Chapter 2: General Counsel Report
LBMA’s Sustainability and Responsible Sourcing Programme
If an organisation states that it is satisfied with its current sustainability and responsible sourcing programme, it has a problem.
Today’s improvements become tomorrow’s status quo and, due to the urgent global context, stopping there can be read only as complacency.
The continuous improvement of standards and business practices, coupled with strong governance, forms the bedrock of the Responsible Sourcing Programme (RSP). Momentum exists to drive this improvement as an organisation and also collaboratively across the market.
Over the past year, the LBMA team has grown. It’s overseen the implementation of the first year of the Responsible Gold Guidance version 9 (RGG v9); developed the Responsible Silver Guidance version 2 in alignment with RGG v9; and after extensive consultation with the market, published an ambitious three-year Sustainability and Responsible Sourcing Strategy.
Governance has also been strengthened with a review of internal policies and procedures, including Due Diligence. This year has seen a greater focus on discussion with governments on issues such as combatting fraud and organised crime. This sees a continuation of the work started in 2020 when LBMA published recommendations for International Bullion Centres (IBCs), with the aim of building leverage to eliminate gold laundering. LBMA is engaged with IBCs in a number of jurisdictions including the UK, USA, UAE, China, Turkey, Singapore and India. As with the IBC work, collaboration with government will also be instrumental in giving the ASM initiative a realistic chance of success. Clearly, collaboration is crucial for driving meaningful change.
Sakhila Mirza (General Counsel, LBMA)
This new three-year strategy reaffirms LBMA’s commitment to the continuous improvement of responsible and sustainable sourcing practices in the precious metals sector. The scope is much broader this year, reflecting the urgency of addressing current and emerging sustainability issues in the market, with the climate, biodiversity and other UN Sustainable Development Goals all brought into focus.
• Maximise our positive contribution to sustainable development; and
• Minimise any adverse ESG impacts of gold mining, refining, trading and other market practices.
LBMA sets out clear deliverables for the next three years and – where deliverables are not possible to define immediately – there is a plan in place on how to approach defining and working towards new goals together. The strategy outlines ‘why’ and ‘what’. Next year
will be about defining ‘how’ in detail, together.
LBMA recognises that, as an organisation, it must start with itself and look at where its own practices can be improved, as well as pushing for change in the wider market.
This work includes examining LBMA’s ESG practices, governance, equality and diversity, as well as those processes relating to its core sustainability activities. The work also extends to addressing critical sustainability issues in the market, such as climate, biodiversity and UN Sustainable Development Goals.
EU Alignment Assessment
Recognition under the EU Conflict Minerals Regulation remains a high priority for LBMA. This process commenced in January 2020, but due to the challenges of Covid-19 it was delayed. With the original application being based on the Responsible Gold Guidance version 8 – as version 9 was not launched until the end of 2021 – LBMA provided an updated application to the EU earlier this year. The application reflected all the developments that LBMA has worked on across 2021 and 2022. In summary, the updated application includes the following:
• Launched RGG v9 in December 2021, for implementation through 2022.
• Launched the Third-Party Audit Guidance (TPAG) in November 2022, to support the implementation of RGG v9.
• Published a new Disclosure Guidance to support refiner reporting and transparency, with version 1 launched in December 2020 and version 2 launched in December 2022
• Updated the Refiners Toolkit to implement the new requirements. • Developed a new Assurance Providers Toolkit, to support consistency across the assurance engagement process in relation to the implementation of the RGG v9 requirements (to note: this will be implemented for assurance engagements commencing 2024).
• Significantly strengthened the oversight and quality control of the RSP, including the quality of Assurance Providers.
• Enhanced training requirements - Assurance Providers are required to undergo LBMA’s annual mandatory training totalling six hours, followed by an exam for which they must receive a mark of 70% or higher.
• Improved LBMA’s transparency, through LBMA’s Annual Responsible Sourcing Report, first published in September 2020, as well as requesting, and publishing, Country of Origin data for all the gold and silver being refined by our GDL refiners. This enhanced reporting on LBMA, Refiner and Assurance Provider performance during the year provides further clarity on, and confidence in, the RSP.
• LBMA has also enhanced the transparency of the independent governance of the RSP, Whistle Blowing Good Delivery List Rules, the Board SubGroup and LBMA itself. This has enabled LBMA to move much faster in situations which can impact market integrity; for example LBMA was able to suspend all Russian refiners shortly after the outbreak of the war in Ukraine.
• Enhanced the Incident Review Process (IRP) in order to ensure the integrity of the RSP in between assurance engagements. This includes public reporting when IRPs are announced, concluded and the outcome of those IRPs. These are published as they occur as well as in LBMA’s Annual Sourcing Report.
• Published a revised version of the Global Precious Metals Code in December 2022.
• In 2023, through its Special Assurance Process, LBMA introduced a requirement that Chinese Refiners attest to the absence of forced labour in their supply chains and factory operations.
Gold Bar Integrity – Technology to Support Continual Improvement
With the advent of sanctions, increased sophistication in organised crime, complex geopolitical considerations and pressing consumer demand for transparency, the use of technology to address these issues is timelier than ever.
Consumers and investors want to know that their gold has been responsibly and sustainably produced. Consumers want to know where their gold has come from and who produced it, and have certainty over its purity and authenticity. And regulators want to be sure that anti-money laundering/terrorist financing and illicit trade issues are being addressed.
Recent geopolitical events have increased concerns as stakeholders want confidence that they are not sourcing gold from conflict-affected areas or from countries that appear on the UN, US, UK, EU (and any other relevant) trade and economic sanctions lists. In addition, fraudulent and misrepresented bars need to be removed from the market to ensure market integrity. The Gold Bar Integrity (GBI) initiative can help address these concerns, as it marries together two components: a database and a security feature. The security feature is a physical feature that establishes the identity and verifies the authenticity of a gold bar and essentially works like a passport building on the provenance and allowing the movement of the bar to be tracked and traced when used in conjunction with a database.
The GBI database – a transparent ledger of gold bars – will hold information on each gold bar that enters the Loco London market. The database allows any member of the supply chain to input information, if given permission, and can be adapted to many use cases. In 2022, with a view to ensuring the integrity and quality of supply chain provenance data, LBMA and the World Gold Council launched the Gold Bar Integrity (GBI) pilot. The goal of the initiative was to offer participants a chance to better understand the technology, the benefits of data accessibility and the need to collaborate on a shared solution that can demonstrate chain of custody transparency.
The potential benefits of GBI include improved transparency, prevention of counterfeiting and combatting money laundering, upholding sanctions, improved data sharing, seamless reporting to enable a strong Good Delivery List, and enhanced transparency and reporting to meet consumer and governance demands concerning ESG.
These benefits will provide the global market with the trust and confidence to support the integrity of the market.
What Are the Next Steps?
A number of security features have already been reviewed by the Security Features Panel from the perspective of the technology and it will be for market participants to decide which security features to use. A Request for Proposal was launched in August 2023 for database providers to outline their solutions.
Looking to 2024
With the broadening of the scope to include all that is happening in the Sustainability as well as Responsible Sourcing, LBMA will grow its core activities to meet the expansion of the remit of the RSP as it develops.
We look forward to the industry coming together in March 2024 at the LBMA Sustainability and Responsible Sourcing Summit, and working together to define and achieve agreed goals.