Fourteen non-governmental groups have criticised proposals by the London Metal Exchange to ensure its metals are sourced responsibly, saying the exchange risks creating a “greenwashing mechanism” that overlooks serious supply chain problems such as corruption.

The NGOs said a decision by the City’s exchange to ban cobalt that does not meet responsible sourcing guidelines discriminates against small-scale miners over large global mining companies.

“Heightened supply chain due diligence on cobalt, as with all other LME metals, must be triggered by assessment of all supply chain risks, including corruption risks,” the NGOs said in a letter to the LME’s chief executive Matthew Chamberlain. “Corruption is a supply chain risk that has been long-overlooked by companies engaged in responsible sourcing, but which carries heavy consequences.”

The move comes amid growing scrutiny of the global cobalt supply chain, since two-thirds of the world’s supply of the metal comes from the Democratic Republic of Congo, one of the poorest and most corrupt countries in the world. Cobalt is a critical battery metal that is used in almost all lithium-ion batteries in electric cars.

London-listed Glencore is the largest producer of cobalt from the Congo, but over 10 per cent of the country’s supply also comes from small-scale miners, which mine by hand. Concerns that metal on the LME may have come from small-scale miners has caused its cobalt price to trade at a discount to other prices quoted by private price assessment agencies.

In October the LME issued proposals for new responsible sourcing requirements, singling out cobalt. It said suppliers of the battery metal needed to comply with responsible sourcing standards by the end of 2020 or they will be removed from the exchange.

In particular, the exchange said it would target cobalt brands that trade at a discount on the LME due to market concerns about the sourcing of the metal.

The group of NGOs, which includes Amnesty and Global Witness, said the LME was wrong to single out lower priced cobalt and said it should focus on all metals and all producers on its exchange.

“Heightened supply chain due diligence on cobalt, as with all other LME metals, must be triggered by assessment of all supply chain risks, including corruption risks,” the groups said. “Corruption is a supply chain risks that has been long-overlooked by companies engaged in responsible sourcing, but which carries heavy consequences.”

The letters lists as examples the relationship between Glencore and former Kazakh mining company ENRC and Dan Gertler, the Israeli businessman who has been sanctioned by the US, to secure access to lucrative mining licences.

“Glencore and ENRC have defended these transactions but they have in any case had real consequences in terms of stock price,” the letter says. “These cases have demonstrated that addressing and mitigating corruption risks is not just an ethical imperative; there is a clear business case to trade responsibly.”

In addition the NGOs said metals producers should report annually on their progress on assessing and managing their supply chain risks, rather than completing self-assessments.

“The current LME proposal, which hinges upon membership of industry schemes and their audits, will not ensure that individual company business practices are in line with international standards,” the NGO letter said. “Worse, the current draft risks creating a greenwashing mechanism that will allow significant supply chain problems to go unnoticed, hidden behind industry scheme memberships and audits.”

A spokeswoman for the LME said it had received 39 responses to its recent discussion paper on responsible sourcing.

“The LME’s role is now to identify a path forwards which balances the diverse views of its stakeholders (including civil society organisations), while achieving the LME’s stated aim of helping the broader metals industry embrace key principles of responsible sourcing and environmental stewardship,” the exchange said.

Get alerts on London Metal Exchange Ltd when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Comments have not been enabled for this article.

Follow the topics in this article