Due diligence systems fall short of robust risk management in extractive sector – report

MINING.com Editor | March 21, 2023 | 

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Two Swiss-based independent research organisations have reported a few trading companies active in the extractive sector are disclosing financial data that others in the industry still claim needs to be kept confidential.


This is one finding from the 2023 edition of the Extractive Commodity Trading Report, which assesses ESG policies and practices of a sample of companies trading oil, gas, minerals or metals.

The new report, produced by the World Resources Forum (WRF) and the Responsible Mining Foundation (RMF), uses public data to assess 25 companies’ public disclosure and due diligence on corporate governance and risks of human rights abuses, illicit financial flows and environmental damage in their supply chains.

The report finds that while there has been no marked shift towards more responsible practices since the previous assessment in 2021, most companies show some improvement.

Key findings of the report are: Most due diligence systems fall far short of robust risk management; little effort has been made to improve effectiveness of due diligence systems; some companies are debunking the myth that public disclosure harms competitiveness and anti-bribery and corruption systems rarely supported by practical measures.

The report found weak progress overall, with some individual improvements, calling into question whether companies are ready to respond to the likely increased regulation of this traditionally opaque sector.

The report reveals that while most companies choose not to publicly disclose financial information such as their annual turnover, the taxes they pay, or their purchases from governments or state-owned enterprises, on each of these issues few companies, both private and public, show strong and voluntary disclosure.

“This report shows that trading companies can follow the examples of their more transparent peers to meet society expectations on public disclosure without compromising their own competitiveness,” Dr. Mathias Schluep, Managing Director of WRF said in a media statement.

According to the report, most companies’ due diligence systems are very limited, often stopping at the initial step of setting expectations for their suppliers.

Few systems extend to the critical stages of assessing supplier compliance, engaging with suppliers, and taking action to address any non-compliance.

Without these elements, the due diligence systems will never contribute to the prevention of critical supply chain risks, WRF noted, adding that there is little sign that companies are making efforts to review and improve the effectiveness of their due diligence systems.

About two-thirds of the companies show no evidence of tracking their performance on managing human rights risks in their supply chain.

The report’s findings are set in the context of ongoing commodity flow disruption and price volatility linked to recovering economies and sanctions imposed by some countries in response to the war in Ukraine.

Companies in the commodity trading sector are expected to come under greater scrutiny as banks and regulators demand more transparency and more evidence of responsible practices, WRF pointed out.

Alongside the detailed assessment of companies’ ESG measures, the Report shows that over the last five years, more than half of the assessed companies (or employees of these companies) are known to have faced investigations or court cases related to illegal practices such as bribery, price manipulation, fraudulent transactions, money laundering and tax evasion. Incidents are reported to have involved over a dozen countries including all regions of the world.

The full report is here.