Industry expectations for LSM-ASM relationships – where do we stand?

For large-scale mining companies (LSM), managing relationships with ASM stakeholders is crucial in order to mitigate operational and financial risk and to maintain their social licence to operate. But there are other reasons too why LSM companies should pay more attention to ASM engagement and management. Increasingly, downstream buyers, customers and also investors are asking questions about how these relationships are handled by their LSM suppliers. This is accompanied by a growing body of industry standards and guidance on the topic.

These standards provide a useful pointer for companies that are trying to understand what is already expected of them or will be in the future. Even if not all the mentioned standards and requirements will be applicable for each LSM company or at each mine site, their expansion provides a view of the broader movement in the sector towards paying increased attention to ASM-LSM relationships. Below we present a summary of these expectations, discuss what they mean in practice, and highlight some of the key emerging trends.

What does industry guidance say about ASM-LSM relationships?

Several standards, industry requirements and expectations for ASM-LSM relationships have emerged in recent years. Today, two broad sets can be distinguished:

• expectations around engaging with and managing ASM as a stakeholder to an LSM mine site,
• and expectations on LSM companies sourcing or buying minerals from ASM producers, who become their subcontractors or suppliers.

a) LSM engaging and managing ASM

For managing ASM around LSM sites, three key expectations stand out in particular: LSM should (1) manage risks related to ASM, (2) engage with ASM as stakeholders, and (3) where possible support the improvement, formalisation and professionalisation of the ASM sector more generally. Expectations have evolved over time, and the last requirement in particular is a more recent trend, recognising the role LSM can play in collaboration with other actors in enabling a formal, responsible ASM sector.

As a starting point, the GRI standards on sustainability reporting include an ASM-specific indicator for companies in the mining and metals sector. This requires companies to report on the “number (and percentage) of company operating sites where ASM takes place on, or adjacent to, the site; the associated risks and the actions taken to manage and mitigate these risks.” It’s important to note that the guidance not only mentions risks to the company, but also risks that ASM poses to the companies’ stakeholders (e.g. communities), as well as risks that the company may itself pose to stakeholders, including ASM. To fulfil this requirement, LSM companies need a solid site-level monitoring and reporting system geared to the dynamic ASM situation, and include ASM in all risk assessments and risk management systems.

Several standards and industry guidelines go beyond this risk-based approach, also including requirements for on-going and proactive engagement with ASM stakeholders, as well as, where applicable, for a contribution to the improvement and formalisation or professionalisation of (legitimate) ASM more broadly. This may be done as part of a multi-stakeholder engagement programme, together with the respective government authorities and civil society, as well as with ASM stakeholders directly.

Examples include the Responsible Mining Index’s assessment criteria, as well as the Risk Readiness Assessment tool developed by the Responsible Minerals Initiative, which is used by downstream customers to assess risks related to their LSM (and other) sources. These extended requirements are also reflected in the Responsible Jewellery Council’s Code of Practices (RJC COP) and the Responsible Mining Standard developed by the Initiative for Responsible Mining Assurance. Although ICMM’s performance expectation regarding ASM remains more general, requiring, “where appropriate” engagement with government to support improvement of ASM, many sector specific standards and guidelines include more detailed and expansive requirements, including De Beers’ Best Practice Principles, the Copper Mark, and the World Gold Council’s (WGC) Responsible Mining Principles. The WGC has also published a list of concrete suggestions for actions related to ASM to be taken by LSM companies. Fulfilling these requirements calls not only for solid monitoring and risk management, but also requires LSM companies to include ASM stakeholders in ESIAs, stakeholder engagement plans, resettlement and livelihood restoration plans, and community development plans, as a standard practice.

b) LSM sourcing from ASM suppliers

Along with the variety of models for LSM management of ASM, industry guidance for a ‘collaboration model’ has also emerged, specifying the requirements and expectations for LSM companies who source from ASM suppliers or sub-contractors, where the legal framework permits such practices. These requirements mainly revolve around conducting appropriate due diligence and risk mitigation on and with the ASM supplier, in accordance with the OECD Due Diligence Guidance (OECD DDG). However, a few standards, such as the RJC’s COP and De Beers’ Best Practice Principles go beyond the OECD DDG and include requirements to mitigate additional risks such as mercury use and environmental impact, working conditions and health and safety, and providing direct or indirect support to ASM suppliers in achieving this. The RJC even includes the requirement to work towards offering ‘fair commercial terms’ for ASM suppliers, something few other industry standards mention but may be crucial for the development and improvement of ASM communities (and thus ultimately lowering the threat that disgruntled ASM communities may pose to the LSM neighbour).

Despite these emerging standards and guidelines, LSM companies who engage in a commercial relationship with ASM suppliers – including as a way to manage site-level relationships – still often face hesitancy and risk-aversion from their downstream business partners and customers towards such models. However, this trend may be reversing slowly. Ensuring that (legitimate) ASM producers can reach responsible markets has been the recent focus of a variety of downstream market associations such as the LME, the LBMA, and the WGC, who have (re)designed their requirements, principles and standards to enable and encourage inclusion of legitimate ASM in supply chains.

With all these standards and guidelines, what is the minimum LSM companies need to do?

Considering the current landscape of standards and industry expectations, and likely future trends, it becomes clear that no matter which ASM engagement or management model an LSM company chooses, it must consider and implement a few minimum requirements:

• Put in place robust ASM monitoring and reporting systems, which allow for a continuous information flow and enhance an up-to-date analysis and understanding of the ASM context and dynamics in all its facets.
• Feed this information into a process that enables the identification of ASM-related risks, the assessment and prioritisation of these risks, and the implementation of management or mitigation measures through cross-departmental controls.
• Include ASM in their stakeholder engagement plans, and conduct either direct or indirect engagement with such actors through an approach that is tailored to the specific (and often divergent) characteristics of the various actors within ASM. The OECD’s Guidance on Meaningful Stakeholder Engagement includes a set of key requirements for engagement with ASM stakeholders, which provide a useful starting point.
• Give consideration to or explore opportunities to support or facilitate the formalisation and professionalisation of the ASM sector, where feasible and appropriate, in particular in collaboration with government and civil society.

Since one of the minimum expectations is engagement with ASM stakeholders, our next blog in this series will provide concrete suggestions and examples of how LSM companies could approach and engage directly or indirectly with ASM stakeholders, and discuss some of the most common pitfalls LSM companies encounter in this process. Stay tuned!

Photos: Olivia Lyster for Levin Sources in Brazil, 2016

• Tagged:
• Copper
• Diamond
• Gold
• ASM
• ASM - LSM