The new Organisation for Economic Co-operation and Development draft final Supplement on Gold, OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, has been released. The guidance establishes (5) steps for companies to follow when performing their gold supply chain due diligence:
- Establish strong company management systems.
- Identify and assess risks in the supply chain.
- Design and implement a strategy to respond to identified risks.
- Carry out independent third-party audit of refiner’s due diligence practices.
- Report annually on supply chain due diligence.
The first two steps are required. However, if your company completes these two steps and finds that there are no risks in your supply chain, then you are finished. Certain “emerging industry-wide supply chain initiatives”, such as the International Conference of the Great Lakes Region certification scheme, “may also deliver credible assurance that a supply chain does not contribute to conflict or serious human rights abuses” (OECD Gold Supplement, p. 4).
Step 1 – Establish Strong Company Management Systems
The following 5 points are the primary components of Step 1:
- Adopt and commit to a supply chain policy for identifying and managing risks for gold potentially from conflict-affected and high-risk areas.
- Structure internal management systems to support supply chain due diligence.
- Establish a system of transparency, information collection and control over the gold supply chain.
- Strengthen company engagement with suppliers.
- Establish a company and/or mine level grievance mechanism.
Specifically for downstream companies, Step 1 includes requesting suppliers to identify the upstream refiner(s) for any gold-bearing materials and products. When the refiner is identified, “request verification that the refiner(s) has conducted due diligence in accordance” with the OECD Gold Supplement (OECD Gold Supplement, p. 14). Then any information gathered should be passed on to downstream customers.
Step 2 – Risk Assessment for Downstream Companies
Downstream companies should identify to the best of their ability what refiner(s) forms any part of their supply chain. If the refiner(s) can be identified, companies should obtain preliminary evidence of the refiner’s due diligence to see whether they have identified, or reasonably should have identified, red flags in their supply chains. If the refiner’s due diligence does not raise any red flags, then the company does not need to perform any additional due diligence for that refiner. However, Step 1 management systems still need to be maintained and reviewed.
If the refiner does find red flags during its due diligence, or does not know, then these risks must be acted upon by performing Step 3.
Step 3 – Design and Implement a Strategy to Respond to Identified Risks
If refiner(s) have not been identified: Downstream companies must make timely progress on identifying refiners in their supply chain through either individual efforts or a collaborative industry process.
If refiner(s) has identified red flags: Downstream companies may opt to continue trading with a refiner during risk mitigation, temporarily suspend trade while the refiner performs risk mitigation, or terminate trade with a refiner when risk management is not feasible. Ongoing risk assessment is required, particularly when a company changes suppliers.
Step 4 – Carry Out Independent Third-Party Audit of Refiner’s Due Diligence Practices
The OECD Gold Supplement contains some fairly-detailed guidelines for a third-party audit of refiner due diligence practices. For downstream companies, it is recommended that they participate and support this third-party audit.
Step 5 – Report Annually on Supply Chain Due Diligence
Downstream companies should incorporate “additional information on due diligence for responsible supply chains of gold from conflict-affected and high-risk areas” into their annual corporate responsibility reports (OECD Gold Supplement, p. 41). Included in the reporting should be a description of actions taken to accomplish Steps 1, 2 and 3.