Makeshift tents cover the shafts of an open pit at the Kasulo township in Kolwezi, Democratic Republic of the Congo, on Saturday, Feb. 24, 2018. So-called artisanal mining is as commonplace as farming in many parts of Congo. Photographer: William Clowes/Bloomberg
Makeshift tents cover the shafts of an open pit at the Kasulo township in Kolwezi, Democratic Republic of the Congo © Bloomberg

The London Metal Exchange will only allow responsibly sourced metals to be traded from 2022, as rising demand from consumers and investors for sustainable products prompts one of the biggest shake-ups in the organisation’s history.

Under the new rules, producers operating in high-risk areas or conflict zones will need to meet international guidelines on responsible sourcing or face being delisted from the 142-year-old exchange.

The plans, which will be announced on Tuesday, mark a significant departure from the exchange’s history in which metallurgical standards have determined the brands of metals eligible to trade on the LME, the world’s biggest marketplace for the likes of copper, zinc and aluminium.

However, responsible sourcing has come into focus after it emerged in 2017 that some of the cobalt — a key material in the batteries of smartphones and electric vehicles — traded on the LME could have been mined by children in the Democratic Republic of Congo. 

“It is a big step,” said Matthew Chamberlain, LME chief executive. “If you look at the last 100 years our brand lists have been maintained purely on the basis of metallurgical quality. We’re now introducing a new element, which is saying we also have expectations in the way metal is sourced.”

The overhaul of the rules will require all producers to take a “Red Flag” assessment, and those brands considered by the LME to be riskiest must then adopt an OECD-aligned responsible sourcing standard by the end of 2022. If they fail to, they risk being delisted from the exchange.

Since the controversy over cobalt supply emerged, the price at which the metal trades on the LME has been at a discount to other industry assessments. “If you look at what happened to our cobalt contract it’s a reminder of the potential consequences of getting the price discovery part of the equation wrong,” said Mr Chamberlain.

Initial proposals released by the LME in October were sharply criticised by more than a dozen campaign groups and non-governmental organisations, which called for more achievable timelines, an assessment of corruption risks and a transparency requirement over the sourcing of metals.

Mr Chamberlain said that feedback had been taken on board, citing the 2022 compliance deadline and a decision to publish the results of the Red Flag assessments. To ensure corruption and bribery risks are captured by the new rules, producers will have to confirm whether they “facilitate disclosure of financial crime and corruption risks” under the Extractive Industries Transparency Initiative, a separate standard focused on payments the mining industry makes to governments.

“The NGOs said to us you shouldn’t underestimate the power of transparency,” Mr Chamberlain said. 

However, the LME has stopped short of adopting broader UN principles on human rights and OECD guidelines for multinational enterprises.

“We’ve decided that probably would be going beyond our role,” said Mr Chamberlain. “We’ve explained that to the NGOs. But obviously it is up to them to take a view.”

In addition to the responsible sourcing, LME-approved producers will also be expected to work towards meeting environmental standards. 

“I’m not sure we’ve reached the point where environmental standards are an absolute prerequisite for consumers to take metal. But there is certainly greater awareness,” said Mr Chamberlain.

For companies such as Rio Tinto and Rusal, which produce low-carbon aluminium, Mr Chamberlain said the LME was looking at ways those brands could be identified in its system.

However, Mr Chamberlain said he could envisage a time when only low-carbon material would be traded on the exchange.

“Ultimately, where I believe the world will move over the coming years and decades, is that it becomes a requirement for everybody just like ethical sourcing,” he said.

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