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Mineral commodity traders not sufficiently managing ESG risks

A study into environment, social and governance (ESG) due diligence in the extractive commodity trading sector has revealed that while corporate commitments on ESG issues are relatively widespread, these commitments are rarely shown to be translated into systematic measures.

This was the major finding in a study undertaken by the Responsible Mining Foundation (RMF) – a Swiss-based independent research organisation – titled “Implementing ESG Due Diligence and Transparency in Extractive Commodity Trading” published in March 2021.

The study brought to light the increased awareness shown by governments, financiers, customers and consumers into the commodity trading industry and the need for it to demonstrate more systematic action and transparency on ESG issues if internationally agreed aims on human rights, sustainable development and accountable financial flows are to be achieved.

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Speaking during a partner webinar session, which formed part of the 14th OECD Forum on Responsible Mineral Supply Chains, Jennifer Rietbergen-McCracken from the RMF said that there is growing recognition of the importance of responsible supply chains – including those associated with the trade in extractive commodities, namely oil and gas, metals and minerals – because of the high stakes involved for sustainable development and resource governance.

“The trading of extractive commodities is of huge importance, not only in maintaining global flows of these resources but also in providing many resource-rich countries with critical revenues for their economic development. The sheer scale of the industry is exceptional in terms of both volume and value,” Rietbergen-McCracken said during the webinar discussion.

She highlighted that companies that trade extractive commodities are vulnerable to significant ESG risks in their supply chains, particularly when sourcing or transporting material in conflict-affected or high-risk areas, or areas of weak governance. “Despite this, the commodity trading industry has traditionally been seen as operating in a highly opaque manner, with limited accountability for its contribution to, or involvement in, any adverse ESG impacts,” she said.

The study, which assessed the ESG due diligence and public disclosure of 25 geographically dispersed companies trading metals, minerals, oil and gas, found that due diligence systems, where they exist, tend to focus more on the identification of ESG risks than on the assessment and management of these risks and that evidence is weakest on companies measuring how effectively they are avoiding ESG risks such as human rights abuses, bribery and corruption and illicit financial flows.

Non-disclosure of public interest information

The study brought to light that the vast majority of companies choose not to disclose information on the payments they have made to governments and State-owned enterprises (SOEs) for the purchase of the state’s share of production – information that is of strong public interest.

The overall results are weak with the companies scoring an average of only 23% on ESG due diligence systems and 28% on public disclosure of public interest information.

Despite this, Rietbergen-McCracken said that there are a few companies starting to take the lead on human rights due diligence and public disclosure of their payments to governments.

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According to Inês Schjølberg Marques from the Extractive Industries Transparency Initiative (EITI), stakeholders in resource rich countries have increasingly called for transparency of the sale of commodities by governments and SOE’s given the potential governance risks involved. Therefore, the EITI’s 55 member states are required to disclose this information as it helps show the full picture of revenues from oil, gas and minerals.

The EITI therefore published reporting guidelines for companies buying oil, gas and minerals from governments in September 2020 for use by companies buying oil, gas and minerals from governments to inform their disclosures on payments to governments in their own company reports.

Commenting on the findings of the RMF report on payments to governments, Schjølberg Marques said she was not to surprised by the poor reporting performance given that these disclosures are still being done on a voluntary basis. “We have seen some progress being made on disclosures since we launched our reporting guidelines, with companies such as Glencore, Trafigura and Total disclosing details on their payments to governments for commodity purchases,” she says.

Schjølberg Marques believes that the EITI reporting guidelines provides a good starting point for governance and ESG indicators seeking to measure the transparency practices of trading companies.

Chantelle Kotze
Chantelle Kotze is a Johannesburg-based media professional. She is a contributor at Mining Review Africa (Clarion Events - Africa) and has created content for the media brand over the past 6 years.