Following the Chain: OECD Guidelines for Gold Supply Chain Due Diligence

In an era where ethical sourcing and responsible investing are gaining prominence, the gold industry faces increasing scrutiny. A staggering amount of illegally obtained gold is entering international markets annually, highlighting the urgent need for robust due diligence measures. The OECD Guidelines for Gold Supply Chain Due Diligence offer a comprehensive framework to address these challenges, ensuring that gold is sourced responsibly and ethically.

Understanding the OECD Due Diligence Guidance

The OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas is a set of recommendations designed to help companies respect human rights and avoid contributing to conflict through their mineral sourcing practices. While initially focused on tin, tantalum, tungsten, and gold (3TG), the guidance has been broadened to include all minerals. It provides a detailed five-step framework for risk-based due diligence, offering specific supplements for various minerals, including gold.

The primary objective of the OECD Guidance is to cultivate transparent mineral supply chains and promote sustainable corporate engagement in the mineral sector. By doing so, it aims to enable countries to benefit from their mineral resources while preventing the extraction and trade of minerals from becoming a source of conflict, human rights abuses, and insecurity.

The Five-Step Framework

The OECD’s five-step framework provides a structured approach to due diligence in the gold supply chain:

Establish Strong Company Management Systems: This involves adopting a supply chain policy, establishing internal controls, and ensuring top management commitment to due diligence. Companies should also establish a system of transparency, information collection, and control over the gold supply chain, maintaining records of due diligence processes, findings, and decisions.
Identify and Assess Risks in the Supply Chain: Companies need to identify potential risks in their supply chain, such as human rights abuses, conflict financing, and money laundering. This involves mapping the supply chain and assessing the risks associated with each actor and location. Trade data can be a means of carrying out simple checks for red flags related to the gold they source.
Design and Implement a Strategy to Respond to Identified Risks: Based on the risk assessment, companies should develop and implement a risk management plan. This may involve mitigating risks through supplier engagement, improving traceability, or, as a last resort, disengaging from high-risk suppliers.
Carry Out Independent Third-Party Audit of Refiner’s Due Diligence Practices: Independent audits are crucial to verify that due diligence practices are effectively implemented at key control points in the supply chain, such as refiners and smelters. These audits should gather findings and recommend specific improvements to existing processes.
Report Annually on Supply Chain Due Diligence: Transparency is key to building trust and accountability. Companies should publicly report on their supply chain due diligence policies and practices, including their risk assessment and management plan.

Challenges in the Gold Supply Chain

The gold supply chain is complex and faces unique challenges that make transparency and traceability difficult:

Complexity: Gold supply chains often involve numerous actors, from artisanal miners to refiners and manufacturers, making it difficult to trace the origin of gold.
Value and Transportability: Gold’s high value and ease of transport make it susceptible to smuggling and illicit trade.
Financial Crimes: The gold sector has been linked to financial crimes such as corruption, money laundering, theft, smuggling, fraud, and tax evasion, as well as human rights abuses stemming from organized crime and terrorist financing.
Artisanal and Small-Scale Mining (ASM): ASM operations, while providing livelihoods for many, often lack formalization and can be associated with environmental damage and human rights abuses.

Implementing the OECD Guidance: Practical Considerations

Implementing the OECD Guidance requires a collaborative effort from all stakeholders in the gold supply chain. Here are some practical considerations:

Supplier Engagement: Companies should engage with their suppliers to communicate their expectations on due diligence and build responsible sourcing relationships.
Risk Assessment: Companies should formalize their risk assessment methodology, including the identification of red flags, to clarify their strategy for risk prioritization and risk-based due diligence.
Traceability: Improving traceability is crucial for identifying and mitigating risks in the gold supply chain. This may involve using technologies such as blockchain to track gold from mine to market.
Collaboration: Companies can collaborate with industry initiatives, civil society organizations, and governments to share information, develop best practices, and address systemic challenges in the gold supply chain.
Third-Party Audits: Companies at identified points in the supply chain should have their due diligence practices audited by independent third parties.

Benefits of Implementing the OECD Guidance

Implementing the OECD Guidance offers numerous benefits for companies, communities, and the environment:

Enhanced Reputation: By demonstrating a commitment to responsible sourcing, companies can enhance their reputation and build trust with customers and stakeholders.
Reduced Risk: Due diligence helps companies identify and mitigate risks in their supply chain, reducing the likelihood of contributing to conflict, human rights abuses, and financial crimes.
Improved Access to Markets: As consumers and investors increasingly demand ethically sourced products, companies that implement due diligence may gain a competitive advantage and improved access to markets.
Sustainable Development: Responsible sourcing can contribute to sustainable development by promoting responsible mining practices, supporting local communities, and protecting the environment.
Compliance with Regulations: Key aspects of the OECD Due Diligence Guidance are adopted into the EU Conflict Mineral Regulation 2017/821, entering into force on January 1st 2021. Under this new law, European importers of tin, tantalum, tungsten and gold from conflict-affected and high-risk areas, are obligated to perform due diligence in their supply chain.

The Role of Governments and International Organizations

Governments and international organizations play a crucial role in promoting the implementation of the OECD Guidance. This includes:

Providing Guidance and Support: Governments can provide guidance and support to companies on implementing due diligence, including developing national action plans and promoting awareness of the OECD Guidance.
Enacting Legislation: Governments can enact legislation to require companies to conduct due diligence in their mineral supply chains.
Supporting Industry Initiatives: Governments and international organizations can support industry initiatives that promote responsible sourcing and due diligence.
Monitoring and Enforcement: Governments should monitor and enforce compliance with due diligence requirements, taking action against companies that fail to meet their obligations.

Conclusion

Following the chain of responsibility in the gold supply chain is not just a matter of ethical sourcing; it’s a critical step towards ensuring stability, security, and sustainable development in conflict-affected and high-risk areas. The OECD Guidelines for Gold Supply Chain Due Diligence provide a robust framework for companies to identify, assess, and mitigate risks, promoting responsible practices that benefit both businesses and communities. By embracing these guidelines, the gold industry can pave the way for a more transparent, ethical, and sustainable future.