Sustainability and Responsible Sourcing Report 2023
Sustainability and Responsible Sourcing Programme Highlights
Overview
Gold plays a unique role in the global economy in stimulating economic growth, protecting the financial security of nations, communities and families, and enabling advances in medical, environmental and communication technologies.
Public trust is fundamental to the many positive contributions that gold makes to socio-economic progress. At the heart of this effort lies LBMA’s Responsible Sourcing Programme. In the face of a constantly shifting world of geopolitics, tightening regulatory environments and expanding public expectations of responsible business practices, LBMA can never be complacent.
Looking back over 2022, it was a turbulent year that saw the Responsible Sourcing team respond to various challenges. Unprecedented sourcing threats – such as the Russian invasion of Ukraine, a mercenary group operating in gold-rich but unstable countries in Africa, illegal miners in the Brazilian Amazon, and forced labour concerns in China – all required quick and meaningful responses from LBMA. You can read more about these challenges and our responses in Chapter 10: The Changing Landscape: Addressing New Sourcing Challenges.
This year also saw the team address two perennial concerns that test the integrity of the Responsible Sourcing Programme (RSP): the sustainability and governance challenges posed by the unregulated Artisanal and Small-scale Mining (ASM) sector; and ways to maintain and enhance the rigour of the assurance process that validates Refiners’ conformance against LBMA sourcing and disclosure requirements. An update on our ASM initiative can be found below. Efforts to strengthen the Assurance Programme are detailed in Chapter 6: 2022 Auditor Review and Update.
In a change from past years, readers will note in Chapter 5: 2022 Refiners’ Responsible Sourcing Performance that we extensively highlight the broader due diligence systems LBMA has in place to complement and reinforce the RSP. Due Diligence is fundamental to LBMA’s overall governance and risk management, and challenges the common misperception that a Refiner’s compliance with the RSP is decided solely by the annual assurance process.
Since the extensive update to LBMA’s due diligence policies and procedures, recent improvements are highlighted as well as the broader governance structure that supports the norms and responsible business practices expected of GDL Refiners.
Additional detail is also provided to explain the Incident Review Process and the way in which Assurance Reports are reviewed and approved.
LBMA published its first Sustainability and Responsible Sourcing Report in 2020. We encourage readers to consult past editions to learn more about LBMA and the evolution of the Programme over the course of our journey.
The Highlights
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG): RISE IN STANDARDS
2022 was the first year for Refiners to publicly disclose how they are delivering against new requirements introduced in the Responsible Gold Guidance version 9, with much more detail on their environmental performance.
Refiners were required to address the Environmental, Social and Governance (ESG) factors in their primary gold supply chain, by ensuring that their suppliers had policies and practices to (for example):
- Comply with environmental, health, safety and labour regulations;
- Manage air, water and land pollution;
- Engage with communities and also manage business integrity and support ethical conduct.
Refiners had all of 2021 to implement the new requirements introduced in RGG v9. Overall, Refiners have been actively engaged with suppliers to meet the ESG requirements. LBMA’s review of the assurance process hasn’t highlighted any material concerns, but recognises that more work is still needed, which will be reflected in future iterations of the Responsible Gold Guidance. This supports the ongoing commitment of improving standards.
ESG AT THE CENTRE
Our efforts to promote and measure ESG considerations by Refiners doesn’t stop there. LBMA reaffirmed its commitment to this growing area of concern by placing ESG at the centre of our 2023-2025 Sustainability and Responsible Sourcing Strategy (see Chapter 2: General Counsel Report).
One of the five pillars of that strategy is LBMA’s implementation of the Declaration of Responsibility and Sustainability Principles announced at the LBMA/LPPM Global Precious Metals Conference in Lisbon in October 2022. Convened by LBMA and the World Gold Council, the Declaration is a shared commitment on behalf of the global gold industry.
It commits signatories to ten key sustainability objectives, including responsible sourcing standards, respect for human rights, the advancement of the UN Sustainable Development Goals, and action and disclosures on climate change.
A link to the Sustainability Declaration is included in Useful Links at the back of this report.
ARTISANAL AND SMALL-SCALE MINING – BUILDING LEVERAGE
When LBMA launched its Artisanal and Small-scale Mining (ASM) initiative last year, direct sourcing of ASM material accounted for less than 1% of the combined throughput of GDL Refiners – despite accounting for as much as 20% of annual gold production. While we are aware this unprecedented initiative represents the most ambitious effort ever by an industry group to address the long-standing sourcing obstacles facing the sector, we are realistic and clear-eyed in our expectations.
We do not expect immediate change, nor do we seek to solve the myriad of complex and country-specific challenges of the ASM sector writ large. Instead, we are driven by a sincere desire to examine how the evolution of responsible sourcing frameworks have unwittingly contributed to ASM’s exclusion and to create a new sourcing model that would impose credible, practical and realistically attainable due diligence standards on responsibly sourced ASM material that would remove the market barriers to GDL Refiners.
In 2022, LBMA commissioned Phuzumoya Consulting led by Gregory Mthembu-Salter, a former member of the UN Group of Experts on the Democratic Republic of Congo, to undertake a Feasibility Study that could guide our work. The Study made several recommendations, which Mthembu-Salter and LBMA began operationalising in 2023. Please refer to the LBMA ASM Feasibility Report in Useful Links at the back of this report. In addition, see Chapter 8: The Responsible Sourcing Eco-System and LBMA Partnerships, on how LBMA is implementing the recommendations provided in the report.
LBMA WILL INCORPORATE THE LATEST THINKING AND INDUSTRY REQUIREMENTS INTO ANY FUTURE VERSIONS OF THE LBMA RESPONSIBLE GOLD GUIDANCE TO ENSURE IT REMAINS FIT FOR PURPOSE.
RECYCLED GOLD
LBMA continues to reference the definitions of Recycled Gold set out in the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (third edition) Supplement on Gold.
However, LBMA recognises the sourcing vulnerabilities and governance challenges posed by the sector. Public and industry calls for a review of the definition have also sparked a valuable debate about how the process could contribute to clearer and more consistently applied classifications across different gold-related industries and jurisdictions.
While the challenges in the ASM and Recycled Gold markets are often approached through separate lenses, they actually share many of the same risks and vulnerabilities and so should be considered two sides of the same coin. Illicitly mined and traded gold bypasses credible due diligence in trading hubs, where it can be mixed with other legitimate feedstock to obscure its true origin.
In this way, the recycled sector can be exploited by criminal networks to launder their production into the global supply chain.
For reasons like this, RGG v9 clarified LBMA’s requirements for Recycled Gold and introduced more granularity when undertaking due diligence or reporting on Recycled Gold as an origin.
Among the key changes was to have Refiners disaggregate recycled supplies listed in their Country of Origin report according to different material types (i.e. jewellery, industrial by-products or investment bars). Refiners are also expected to undertake more stringent due diligence on recycled material by going as far down the supply chain as possible. Most notably, this includes a new requirement that all high-risk suppliers, particularly intermediate Refiners in high-risk trading hubs, undergo an OECD-aligned assurance
of their supply chains.
Over time, this level of detail will give us a more accurate picture of the market and enhance our ability to spot and respond to either trade anomalies or sourcing concerns.
LBMA also participates in discussions focused on improving implementation of the OECD definition, including but not limited to the Precious Metals Impact Forum.
It must be made clear, however, that participation, support and guidance do not constitute endorsement. LBMA will always consult with Members, GDL Refiners and other interested parties when updating guidance.
LBMA will incorporate the latest thinking and industry requirements into any future versions of the LBMA Responsible Gold Guidance to ensure it remains fit for purpose. To this end, LBMA will endeavour to participate in, support and guide any credible initiatives that seek to reach consensus on any future definition of Recycled Gold.
The International Standards Organisation (ISO) Technical Committee 174 (TC 174) that deals with Jewellery and Precious Metals has recently set up a Subgroup to establish a definition for Recycled Gold. LBMA is a ‘Liaison’ for TC 174, which means that we attend Subgroup meetings as a recognised expert in this field. The Subgroup will also be looking at definitions/standards relating to Responsible Sourcing of precious metals. Independently, LBMA is part of the British Standards Institute (BSI) STI/53 Committee, which deals with ‘Specifications and test methods for jewellery and horology’. This Committee represents the UK in TC 174.
NOT JUST ABOUT GOLD: REVISION OF RESPONSIBLE SILVER GUIDANCE
At the beginning of 2023, LBMA began revisions to the first version of the Responsible Silver Guidance, in place since September 2017. Rather than introducing wholesale changes, the revision focused on aligning the standard to the higher requirements outlined in Responsible Gold Guidance version 9, which underwent a comprehensive overhaul in 2021.
One key change that was made was to remove the De Minimis Threshold, which had previously excluded material containing less than 15% silver by weight (kilograms) from the scope of the Silver Guidance.
While the first draft had removed mention to artisanally-mined silver material, following consultations with Refiners, this was reinstated.
The draft of version 2 was released for public consultation in July 2023. Following consideration of feedback received, LBMA intends to launch the final version by the end of the year, for implementation throughout 2024.
LBMA Training
While significant thought and resources are invested into improving the knowledge base of Approved Service Providers (see Chapter 6: 2022 Auditor Review and Update), LBMA also recognises how training opportunities for LBMA Members and GDL Refiners supports better implementation of the Responsible Sourcing Programme.
To ensure consistency of knowledge by the compliance teams of GDL Refiners and LBMA Members, we continue to hold introductory training courses in responsible sourcing and the Loco London market. While the former provides an overview of key reporting requirements of the RGG and common sourcing challenges, the latter focuses on educating stakeholders on the historical and current role London plays as the world’s pre-eminent gold market. In one instance, LBMA provided a bespoke training that combined both these courses for the entire staff at a GDL refinery that had undergone significant internal restructuring. Due to the success and demand for such courses, LBMA intends to create a new training module in 2024 directed specifically at compliance teams working with GDL Refiners.
While Refiners must offer all relevant employees annual training in the OECD’s Five-Step Due Diligence Framework and their obligations under the RGG, this course will be premised on the annual training LBMA offers Approved Service Providers.