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The missing links in responsible supply chain management

Home / EOS Blog / The missing links in responsible supply chain management

We recently returned from the OECD’s 12th Forum on Responsible Mineral Supply Chains in Paris. The forum gave its attendees an opportunity to engage with stakeholders from miners to smelters and refiners, local communities, NGOs, government organisations from Africa’s Great Lakes region, as well as global technology, consumer and automobile companies.

We have come away with several lessons, namely that a) existing due diligence processes do not address human rights issues at mines, b) that managing supply chains is part of risk management and that the root cause of child labour is poverty and c) that the employment status of miners in cooperatives is crucial.

Existing due diligence processes do not address human rights issues at mines

The five-step framework of the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas is closely followed by the Responsible Minerals Initiative, which conducts supplier due diligence for global companies.

However, as the due diligence processes only extend to the smelters, they fail to address the issue of labour exploitation, including child labour. This is crucial as the most severe and salient human rights risks tend to occur in the trading process or at the mines, at large-scale as well as artisanal, small-scale mines (ASM), before minerals such a cobalt even reach the smelters.

As shown in a series of reports and short films on child labour in the cobalt supply chain by news network CNN, children follow their parents into mine work. They are involved in transporting and eventually trading minerals in the local markets. Encouragingly, following the latest report, companies such as car manufacturer Daimler have promised to extend their efforts in supply chain management to the mine level.

We believe that downstream companies have a responsibility to ensure total transparency in their end-to-end supply chains. Simply pushing this responsibility to upstream suppliers to address the human rights issues indicates a lack of accountability.

Supply chains are part of risk management, but the root cause of child labour is poverty

It is too simple to say that we can avoid child labour if we stop purchasing from ASMs. As the demand for and prices of cobalt surge, larger mines may still have to purchase minerals from their smaller peers to meet demand.

In addition, a fifth of the world’s cobalt comes from the Democratic Republic of Congo (DRC), where communities may find cobalt in the grounds of their houses or in their backyards. According to local NGOs, such as Buon Pastore and PACT, families have been relocated from these backyard mines. Some have been adequately compensated but others have not. The remediation process is non-transparent and may even be unfair. This contradicts the recommendations of the UN Guiding Principles for Business and Human Rights. We therefore encourage downstream companies to partner up with local NGOs to help develop alternative sources of incomes for the local population.

We believe that the key to addressing the risk management aspects of supply chains is to establish a traceability system that certifies the origin of the mineral. This will have the added benefit of reducing bribery, corruption and money laundering risks in the opaque local trading system. Above and beyond risk management, companies should also consider their impact on society and understand what positive developments they could contribute to within the realms of their operations.

The importance of the employment status of miners in cooperatives. Are they dependent workers or freely self-employed?

In 2015, the World Bank updated the international poverty line (IPL) to $1.90 a day. The minimum wage in the DRC was last revised in January 2009. It is 1,680 Congolese francs per day, the equivalent of $1.04 today and 50% below the IPL.

In the UK, the Taylor Review of Modern Working practices clarified the employment status of contract workers. As many of the miners or diggers are deemed to be dependent workers with few or no alternatives of employment in the mining regions, we question whether they should be considered self-employed in the state-managed cooperatives, as they are now, or whether they should be classed as dependent workers. And if they are dependent workers, whether they should be entitled to minimum employment benefits is an important topic for wider discussions.

One immediate action that should be taken is to revise the minimum wage in the DRC. Another is to conduct a wider consultation on the labour practices of some strategically important sectors, such as mining, in the Great Lakes region.

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Christine Chow Dr Christine Chow manages the team of engagement associates at Hermes EOS and is responsible for the financial services, technology and extractive sectors in Asia ex-Japan. She has over 20 years of experience in portfolio management, research and investment consulting. Christine's PhD thesis on shareholder engagement for responsible investment was short-listed for a UN award in Sweden for industry relevance and academic excellence. Christine is a member of the Court of Governors of the London School of Economics and a member of the School’s Investment Sub-Committee.  She was an adjunct associate professor in the Department of Finance at the Hong Kong University of Science and Technology. She was also a member of the greater China committee of the Hong Kong Retirement Funds Association between 2014-2016. Christine has worked at a number of multinational corporations such as Merrill Lynch, Schroders and Hewitt. In the 1990s, she was responsible for establishing strategic partnerships in fund management for the Schroders Group, especially in Mainland China. Christine is a graduate of the London School of Economics and the University of Melbourne. She also completed an executive education course on financial engineering at Stanford University.
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Claire Gavini Claire Gavini focuses on engagements in the consumer goods and retail and industrials sectors. Prior to joining Hermes EOS, Claire worked in internal audit. She holds a Masters degree in Internal Audit and Corporate Governance from the IAE School of Management Aix-en-Provence and a Masters degree in International Organisations from the Institute of Political Studies of Grenoble in France. She speaks French and has a good working knowledge of Spanish.
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