Handbook on Environmental Due Diligence in Mineral Supply Chains

1. Introduction

Abstract

This introduction sets out why risk-based environmental due diligence matters to businesses operating in mineral supply chains and considers environmental due diligence in the context of two important topics in the minerals sector: artisanal and small-scale mining (ASM) and circular value chain approaches.

Why environmental due diligence matters to businesses operating in mineral supply chains

Enterprises play a key role in advancing sustainable economies and can contribute to delivering an effective and progressive response to global, regional and local environmental challenges, including contributing to reaching the goals of climate change mitigation and adaptation. Meanwhile, environmental degradation presents risks to people and the planet that may be heightened by business activities. Expectations for environmental action by the private sector have been spurred by public policy, civil society, the scientific community, investors and industry itself, with public pressure and litigation playing an important role.1 Nationally Determined Contributions (NDCs) include the objective to mobilize finance flows towards low greenhouse gas (GHG) and climate‑resilient development and recognise non-party stakeholders, including business, as an integral part of the global solution (United Nations Framework Convention on Climate Change, 2016[1]).2

Increasing demand for minerals to fulfil the material needs of a growing and increasingly affluent global population (OECD, 2019[2]),3 renewable energy targets and demand for minerals such as cobalt, copper and lithium for the energy and digital transitions is driving growth in the mining and metals sector. Although a more ‘circular economy’ based on recycling and reuse of minerals has clear potential for reducing certain environmental risks and adverse impacts, primary extraction of minerals will remain critical to delivering the low-carbon transition and, more broadly, achieving the Sustainable Development Goals (SDGs).4 There is an insufficient amount of metals currently in circulation for the deployment of low-carbon technologies at a scale consistent with agreed climate targets, and therefore continued mineral extraction is needed (IEA, 2021[3]).

Identifying and addressing adverse environmental impacts in the upstream segment, where this primary mineral extraction takes place, may help an enterprise maximise positive contributions to society and sustainable development, improve stakeholder relationships, protect its reputation, and create more value by reducing operational costs by, for example, finding ways to use less water or energy. Due diligence processes can also help prevent supply chain blockages and delays, and reduce the time it takes to bring new assets onstream, which is of critical importance when delivering the digital and low-carbon energy transitions. Comprehensive due diligence processes can also help an enterprise meet legal requirements on labour, environmental, corporate governance and anti-bribery requirements.

The respect for and fulfilment of the human right to a clean and healthy environment has been recognised in resolution 48/13 of the UN’s Human Rights Council.5 An enterprise will need to understand the links between environmental and human rights risks in the minerals sector and how to make use of due diligence processes – often already used for human rights risks – when addressing environmental risk and vice versa. Once environmental risks and adverse impacts have been identified, an enterprise should consider the ways in which they generate human rights risks and adverse impacts and ensure any mitigation or remedy addresses both categories. Recognising human rights to a clean and healthy environment is particularly important in ensuring a just transition to global net-zero emissions and continued responsible engagement rather than disengagement as the primary approach to environmental risk management in supply chains.

Circularity and enhanced use of secondary resources

As stated above, the demand for minerals and metals to support a growing, low-carbon, global economy over the coming decades cannot be met by one type of source alone. Both primary (mined) and secondary (re‑used, refurbished, remanufactured, recycled, recovered) materials will be critical to achieving the clean energy and digital transition. This Handbook therefore promotes RBC in mining, recycling, and minerals and metals processing, all of which will be critical for sustainable development.6

Box 1. The circular economy

Although there is no one accepted definition of the circular economy, a circular economy seeks to: (i) maximise the value of the materials and products circulating within the economy; (ii) minimise material consumption, with particular attention to virgin materials, hazardous substances, and certain waste streams (such as plastics, food, electric and electronic goods); (iii) prevent the generation of waste; and (iv) reduce hazardous components in both waste and products (OECD, 2020[4]; OECD, 2021[5]).

In pursuing a circular economy, there are a variety of mechanisms that can modify the flow of products and materials through the economy, and ultimately result in lower rates of natural resource extraction. The OECD has highlighted three main mechanisms including:

• Closing resource loops – the diversion of waste from disposal and subsequent transformation into secondary raw materials.

• Slowing resource loops or flows – the retention of products, and their constituent materials, in the economy for longer periods.

• Narrowing resource flows – generating additional economic value from a fixed amount of natural resources (OECD, 2019[6]).

Source: OECD (2021[7]), The role of OECD instruments on responsible business conduct in progressing environmental objectives, https://mneguidelines.oecd.org/The‑role‑of-OECD-instruments-on-responsible‑business-conduct-in-progressing-environmental-objectives.pdf .

The application of circular economy principles and the use of secondary materials can contribute to the reduction of environmental impacts (Bibas, Chateau and Lanzi, 2021[8]; OECD, 2019[2]). Downstream businesses, as well as upstream businesses like smelters or refiners, may consider where opportunities exist to implement circular economy principles in the design, production, remanufacturing, distribution, consumption, and collection of their products and how these opportunities may be integrated into their business model. Circular economy principles need to be scaled-up and enhanced in mineral supply chains so that materials can be more efficiently and routinely collected and recovered from end-of-life products. Sourcing from secondary materials to complement or replace primary raw materials can offer opportunities to reduce environmental harms if secondary materials or energy from secondary materials are sourced responsibly.

The availability of recycled materials on the market depends on the availability of materials that could be recycled but also on their actual recycling rates (which depend on the technologies currently in place, the economic case for recycling them, regulation in place, etc.) and materials from the ‘urban mine’ (in-use material stocks), which only become available after a time lag (IEA, 2021[3]). For bulk metals, recycling practices are well established and metals are readily available, but this is not yet the case for many energy transition metals such as lithium and rare earth elements. Emerging waste streams from clean energy technologies (e.g. batteries and wind turbines) are expected to increase after 2030, at a time when mineral demand is set to still be growing rapidly. The IEA estimate that by 2040, recycled quantities of copper, lithium, nickel and cobalt from spent batteries could reduce combined primary supply requirements for these minerals by around 10% (IEA, 2021[3]).

Recycling will not eliminate the need for continued investment in primary supply of minerals and according to the World Bank, investment in primary supply will still be needed even in the case that recycling rates reach 100% by 2050 (World Bank, 2020[9]). Therefore, the Handbook recognises the role of both primary and secondary supply chains in sustainable development, but also notes that, if poorly managed, both can cause environmental risks and impacts. It is important to note that although primary mining in general has more environmental risks than recycling, it can hold significant economic opportunity for regions with high mineral endowments (and in some localities, the only economic opportunity), provided there is good governance and equitable distribution of benefits to the state, local communities, and investors.

Sourcing from Artisanal and Small-Scale Mining

One of the overarching objectives of OECD RBC instruments is the sustainable development of mining communities through responsible engagement, including in high-risk and conflict-affected areas where many producers may be informal. While ASM presents some unique risks, avoiding it altogether instead of seeking to address those risks typically only worsens conditions for mineral-producing communities.

ASM is a source of livelihoods and employment in many regions of the world. It is estimated that ASM employs between 40 and 100 million people worldwide, compared to 7 million in industrial mining (IGF, 2017[10]). Besides being a major source of employment in many developing countries, ASM can also help address security of supply issues for critical minerals, including those key to driving the green transition (Moore et al., 2020[11]).

In many countries, ASM takes place in a regulatory grey zone, whereby its economic role is not explicitly recognised and facilitated by the state, including being properly legislated or regulated, but is largely tolerated. The Minerals Guidance encourages businesses to engage with ‘legitimate ASM’ and provides a framework for doing so. This framework is elaborated on in the OECD FAQ on Sourcing Gold from Artisanal and Small-Scale Miners (OECD, 2016[12])

Responsible engagement of ASM producers can lead to the progressive formalisation of ASM activities. Formalised mine sites are more capable of working through formal channels of trade, implementing risk management plans, and appear to be subject to more regulatory inspection visits regarding environment, waste management, and radioactivity. In view of these considerations, this Handbook recommends that businesses and other stakeholders seek to engage with legitimate ASM producers in a spirit of progressive improvement, including by considering the provision of technical and financial support to help ASM actors implement corrective action plans. To channel this support, there are several industry-led or multi-stakeholder collaboration and cost sharing mechanisms already in place, and there is the potential for others to be developed.7

Notes

← 1.  This includes climate litigation, with the 2021 judgement by the District Court of the Netherlands highlighting the role of the OECD Guidelines for MNEs in understanding the duty of care owed by business on climate action and emissions reduction obligations: Milieudefensie et al. v. Royal Dutch Shell plc, https://uitspraken.rechtspraak.nl/inziendocument?id=ECLI: NL: RBDHA:2021:5339.

← 2.  Non-party Stakeholders under the United Nations Framework Convention on Climate Change include national governments, cities, regions and other sub national entities, international organizations, civil society, indigenous peoples, women, youth, academic institutions, as well as businesses) acting as individual entities or in partnerships.

← 3.  See Part I of OECD’s Global Material Resources Outlook to 2060: Economic Drivers and Environmental Consequences (OECD, 2019[2]) or Chap 2.1 of UNEP’s Global Resources Outlook (UNEP, 2019[51]).

← 4.  It is important to note that circular economy approaches can be applied at all stages of the minerals supply chain, including extraction. For example, the recovery of minerals from extractive waste rather than reverting to landfill or the reuse/recycling of equipment.

← 5.  For more information and resources on Human rights and the environment, please see the website of the OHCHR’s Special Rapporteur on human rights and the environment, https://www.ohchr.org/en/special-procedures/sr-environment.

← 6.  Product design and production processes of downstream enterprises are also crucial for sustainable development as product design and the choice of materials used in production determine the type of products that enter the market as well as how recyclable these products are.

← 7.  This issue is explored further in the OECD Position Paper on Costs and Value of Due Diligence in Mineral Supply Chains (OECD, 2021[50]).