Blog | Oct. 27, 2017

Responsible mineral supply chain efforts in China: progress and challenges

This blog post was originally written for the Business and Human Rights Resource Centre

What do jade from Myanmarlapis lazuli from Afghanistan and gold from the Democratic Republic of Congo have in common? 

They are all valuable minerals, linked to the funding of armed groups or corrupt military networks, and documented by Global Witness in our efforts to ensure the resources we use in our daily lives are responsibly mined and traded, and not linked to human rights abuses, conflict or corruption. 

They are also all minerals for which China is the main physical market.

The Chinese government’s “Going Global” policy has resulted in Chinese state and privately owned firms investing and trading across the world, and across multiple resource sectors. President Xi’s next-generation “Belt and Road” policy is having comparable and far reaching consequences. However, China’s growing demand, matched with its global investment and trade, comes with greater responsibility.

The UN Guiding Principles on Business and Human Rights make companies responsible for checking and mitigating human rights risks, independent to the obligations of States to protect human rights. The international community has clearly indicated that it is no longer sufficient for government to have the sole responsibility of deciding where or how a company can do business.

In this context Chinese industry has been active in supporting its members with guidance, drawing on existing international standards for responsible mineral sourcing.

A Ministry of Commerce-linked Chamber for mineral traders, known by its acronym CCCMC, developed guidelines for undertaking checks along mineral supply chains, known as due diligence, based on the recognised standard of the Organisation for Economic Co-operation and Development (OECD).

The guidelines set out an ongoing, iterative five-step process, whereby companies review their supply chains for specific risks — associated with conflict, human rights abuses and other serious misconduct — and take action to mitigate those risks.

Companies are also expected to publish detailed, specific information on the action they have taken, to ensure information flows along the chain.

Supply chains, particularly in countries with unstable politics or conflict, are dynamic. This means that even the most well-managed supply chains are vulnerable to the possibility of contributing to human rights abuses or corruption. 

Due diligence is about how a company does business, not where. Under the mineral due diligence process, companies aren’t expected to completely remove a particular risk from their supply chains. The process is not about pulling out of high risk mining areas, but rather staying in place and engaging responsibly—continually checking supply chains to look for warning signs and risks, and when necessary, taking the appropriate steps to address these problems.

The due diligence principle has gained traction in China because of US legislation requiring certain companies whose products contain tin, tantalum, tungsten and gold (so-called ‘3TG’ minerals) to carry out due diligence on minerals that may originate from Congo or its nine neighbouring countries.  The legislation has meant that Chinese companies processing or refining minerals have had to start demonstrating their supply chain checks through targeted audits to maintain business relationships with US-listed customers.  Chinese due diligence practice has also been influenced by the passing of laws for the 3TG sector in Rwanda, Congo and the European Union.

Companies trading or using cobalt in products have come under the spotlight following an Amnesty International report documenting the use of child labour in Congolese artisanal mines.  In response, CCCMC, along with a group of international and Chinese companies and the OECD, established the Responsible Cobalt Initiative. The scheme is making progress in building understanding of due diligence in the wider cobalt industry and increasing the means and incentives for implementation.

However there are many challenges before mineral supply chain due diligence becomes mainstream in China.

Not enough Chinese companies are aware of the CCCMC guidelines. And few companies understand the value of supply chain checks – both for protecting their own reputation and sustainable resource supply, as well as for the communities and workers who may suffer associated abuse. Standards in China are currently voluntary, which means incentives for carrying out supply chain checks are weak and, where they do exist, are often due to contractual obligations.

Much greater effort is needed by the Chinese government and industry to inform companies of risk-based due diligence and the importance of undertaking the process, as well as build stronger incentives for implementation.

Only then can Chinese companies be confident that they are operating in line with international expectations for responsible business conduct.  

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