Companies increasingly have to fulfill due diligence on their metals supply chains due to increased regulations, new industry standards and growing customer requirements. Supply chain transparency and accountability are creeping up the international agenda.
Yet, while many initiatives have been launched to address the issues of due diligence and to support companies, downstream buyers and their suppliers still face numerous challenges. We explain how the Ravara Community, the new partnership between Levin Sources and Ravara, can help the entire supply chain create value and positive impact.
As defined by the OECD, due diligence is a progressive and continuous process that companies should undertake to identify and mitigate supply chain risks linked to the extraction and trade of minerals and metals. Traditionally focusing on conflict and human rights issues, due diligence should also cover risks linked to health and safety, working conditions, environmental protection and integrity. The implementation of due diligence requires a number of steps: Putting in-place strong systems of control over the supply chain, undertaking an initial risk assessment of each supply chain to identify red flags, conducting enhanced investigation on red flagged supply chains, auditing suppliers and reporting on due diligence.
Increasingly facing pressure from regulators, customers, investors and civil society to implement due diligence and be accountable for risks in their supply chain, companies must be more accountable and transparent in their management of environment, social and governance (ESG) issues in their supply chains. Beyond overarching initiatives from the UN (for example the United Nations Guiding Principles on Business and Human Rights) or the OECD (Guidelines for Multinational Enterprises, the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas), due diligence for minerals and metals is increasingly subject to regulations around the globe, for example the US Dodd Frank Act, which came into force in 2011, or the EC regulations on conflict minerals, starting from 2021).
Trade associations like the London Metal Exchange and the London Bullion Market Association have taken steps forward by increasing member accountability and increasing their responsible sourcing requirements. For the past 10-15 years, a number of standards have also been developed by the industry to address risks in their supply chain.
In that context, companies implementing and undertaking due diligence usually face numerous challenges, for example:
- The scope of due diligence is growing and will ultimately cover all metals and minerals, especially those needed for the low carbon transition, in all geographies and all relevant risks. Looking forward then, companies need their due diligence management systems to be ahead of this evolution, scaling up while keeping the costs down. So far, except for a few leaders, many companies are taking a compliance-led de minimis approach, having adopted minimum due diligence standards as recommended by the OECD Guidance or the US Dodd Frank Act. This means they have only focused on understanding some of the risks from sourcing the so-called ‘conflict minerals’ (tin, tantalum, tungsten and gold ores and metals), coming from so-called Conflict and High-Risk Areas (CAHRAs). The risks covered are often limited to the Annex II Risks from the OECD Guidance, which focuses on risks linked to conflict and exclude other important human rights issues including health and safety, working conditions or environmental issues. The determination of CAHRAs is subjective and unfortunately some companies mistakenly consider that CAHRAs only include DRC and the adjoining countries (i.e. the countries in scope for the US Dodd Frank Act).
- Companies’ due diligence management systems are often fragmented and require a lot of manual work, juggling between different internal or external systems and databases and chasing suppliers. Valuable time is being spent by procurement or compliance teams on administrative duties, such as collecting and organizing data, endlessly communicating back and forth with suppliers, or over-complicated reporting. This prevents them from focusing on what matters; actually managing the risks identified and supporting their suppliers at tier 1 and beyond.
- Current IT due diligence solutions are often designed to be used internally, rather than collaboratively, and lack an understanding of the complexity and challenges linked to responsible metals supply chains. Also, solutions are often not inclusive and don’t fit the needs of smaller companies, who represent a large proportion of suppliers in metals supply chains. This includes sourcing from Artisanal and Small-Scale Mining organisations, who require a nuanced approach, rather than avoidance, as is still often the case. A collaboration of ASM advocates are pushing for this exact relationship with the #EngageASM campaign.
- Companies may rely too much on audits or multi-stakeholder initiatives as the nexus of their due diligence efforts. Suppliers commonly consider audits to be a check box, a “one-off” exercise, generating passive behaviour and not incentivizing them to take ownership of the due diligence process. Audits are also time consuming and require a lot of preparation, especially when companies don’t have the right management tools or their documentation is scattered across different internal systems and teams. The most important stage, risk management, is often merely ignored or the minimum is done to ensure compliance rather than seeking to avoid or minimize future risks, or mitigate or remedy risks arising. Suppliers often lack support and training on how to implement corrective actions and integrate due diligence into their daily operations. At the same time, buyers don’t have the tools which facilitate collaboration with suppliers or other stakeholders in the due diligence process. Also, the quality and level of disclosure of audits has been questioned. Little information is shared on non-compliance and what companies are doing to address incidents of non-compliance, either publicly or with buyers who requested the audit. Forward thinking companies and first movers have started to look beyond audits and now direct their efforts on impact creation, often in line with the UN Sustainable Development Goals.
- Companies across the supply chain have to navigate a complex web of industry standards and certifications for both their own operations and their suppliers. Although those standards are often aligned, at least against the OECD Guidance, they don’t usually share much data on compliance and corrective action plans. Companies spend a lot of time completing questionnaires that are near-to identical, just in different formats. Companies need tools that facilitate standardization of such processes to reduce the effort and cost.
Equipped with our experience and understanding of the challenges to implement due diligence at all stages of the supply chain, Levin Sources and its partner Ravara have launched The Ravara Community, an online platform and social network of trusted vendors working across metal and mineral supply chains. Going beyond the audit-driven approach, the Ravara Community empowers companies and their suppliers to undertake and demonstrate their due diligence efforts to other members of the Community. It allows companies to streamline their due diligence systems in line with the OECD’s 5 steps whilst fostering supply chain transparency and resilience.
Here are a few benefits to business of using the Ravara Community.
- Companies save time on administration and paperwork by centralizing and standardizing documentation and communications, automating some workflow (for example: data completion, communications, alerts, production of audit reports)
- The platform makes it easy for companies to engage with their suppliers, share information and build capacity. Each vendor has their own account to complete online self-assessments and provide the relevant documentation. Suppliers are empowered with the tools to be proactive for risk assessment and management, and ultimately own the due diligence process. They can share their profile and the relevant due diligence information with other members of the community by selecting different levels of disclosure according to their comfort level
- The platform also acts as a supply chain mapping tool, where first tier suppliers can invite their suppliers onto the platform, who can do the same. This is a long-term exercise that can support the identification of organisations and risks across the supply chain, to the origin of sourced materials
- The Ravara Community is flexible and scalable, catering to all metals, all geographies, all standards and any risks buyers want or are required to address
- Companies complete relevant levels of vetting to demonstrate their trustworthiness and credibility as a business partner: including a KYC and validation process; gap assessment of their due diligence system or standards performance reviewed by Levin Sources; rating by members of the community
- With a strong interoperability and API, the Ravara Community can easily integrate with existing IT systems, to avoid duplication and to support existing internal systems
- Strong analytics and reporting make it easy for buyers to monitor supplier activity and prioritise their engagement with suppliers depending on the level of risks identified. This increases visibility on companies’ level of compliance and required corrective actions.
- Once a company is assessed and receives recommendations, buyers can engage in a new business relationship quickly, cutting the time spent on risk assessment. Buyers can then focus on supporting those vendors implementing corrective actions and generate positive impacts
- Collaboration across the supply chain is critical to achieve due diligence and share the costs – a key area that the Ravara Community uniquely addresses. Companies joining the platform benefit from a vast pool of resources from the diverse partnerships between Levin Sources, Ravara and key stakeholders who support the implementation of due diligence
- Companies can find new and reliable business partners. For example: If a gold refiner is looking to expand the traders they do business with, they can use the Ravara Community to scope new suppliers and use the sustainability and due diligence profile of each candidate to determine their strategy for approach and engagement
In our next blog on the Ravara Community, we will detail how our solution maximises and expedites the opportunities that better responsible sourcing practices generate in achieving the Sustainable Development Goals. Stay tuned!