Digitalising the mining & metals global supply chain: 2019 sustainability update

As corporate responsibility evolves, and the focus on corporate sustainability grows, more businesses in the mining and metals and related sectors are referencing the long-term potential of blockchain technology and platforms to address challenges associated with mineral provenance and supply chain transparency. Here we provide an overview of key developments we've been monitoring since our last report, including: regulatory and enforcement updates, information on the Responsible Minerals Initiative (RMI)'s Blockchain Guidelines, and a survey of industry pilots.

Regulatory and enforcement landscape

Digitalisation is emerging as a key driver in transforming the mining and metals industry's engagement with states, customers, communities, employees and the environment, from upstream exploration, valuation and extraction to market. Blockchain, famously described as "a technology in search of a problem," is being considered as a tool to support and to be used alongside AI, IoT, advanced analytics and other technologies to build platforms that achieve business goals associated with increased security, efficiency, transparency, traceability and cost savings.

The market for blockchain technologies and platforms is embryonic; industry agreement on key components is lacking. Like other emerging technologies, blockchain was introduced without unified standards for mass adoption, although efforts to address this gap by domestic and international technical standard-setting bodies, industry-driven processes, and ESG initiatives are currently underway.

In parallel, the legal and regulatory framework relevant to the management of human rights risk and broader sustainability issues in corporate operations and supply chains continues to expand, with some evidence of increased enforcement actions, including the recent US Customs and Border Protection detention order targeting Artisanal and Small-Scale Mine (ASM) gold from eastern DRC.

The indications that blockchain is being discussed, or at least considered, in relation to the eventual fulfillment of ESG reporting and compliance goals are growing. It remains to be seen whether blockchain technologies and platforms emerge as viable tools enlisted at scale by companies seeking to address first productivity, efficiency and KYC concerns, and later an expanding set of ESG disclosure and due diligence requirements and expectations, and in reference to standards that are becoming more mature.

Industry regulation

The trend toward self-regulation continues, as major minerals exchange platforms and industry associations announce requirements and issue new guidance documents and tools. The London Bullion Market Association plans to approve a process for companies using blockchain to track the movement of gold by the end of the year. By 2025, the London Metal Exchange (LME), reportedly supporting a consortium initiative to build a blockchain-based system to track the trade of certain metals, will allow only responsibly sourced metals to be traded on its exchange.

Last year, inspired by the uptake of RMI's Conflict Minerals Reporting Template and its underlying data exchange standard, the RMI published Blockchain Guidelines to promote alignment of mineral supply chain due diligence across different industries. The Guidelines aim to create an interoperable ecosystem with standardized data and shared standards. Little commentary on uptake of the first version, which focuses on upstream actors, is available; companion guidelines for downstream actors are expected to follow once testing concludes.

Challenges have already been identified: among them, the reality of applying foundational or industry performance standards to ASM producers that typically operate outside of established mining networks, where standards are easier to verify.

Expansion of use cases

Greater convergence between high-tech and other sectors—including automotive, energy, extractives, finance, telecom and government—to pilot blockchain-enabled solutions is apparent, as is growing competition among blockchain-enabled schemes to disrupt the traditional rules of competition.

No one appears to have solved the data input challenge yet, referring to the fact that blockchain-based systems can be corrupted where individuals who tag product conspire to enter incorrect data at the outset, and pass off blacklisted ore as responsibly sourced. No one has yet demonstrated an unbroken chain of custody from mine to manufacturer and credibly linked ore to ultimate product at each processing stage. Once that is demonstrated, it remains to be seen whether blockchain can be harnessed to track the achievement of performance standards related to human rights, fair labour practices, environmental standards, anti-corruption and other factors.

Predictions and conclusions

As industry continues to explore blockchain technologies and platforms, time will tell if these tools can provide a reliable and scalable means of achieving the increasing demands of supply chain diligence standards.

Click here to download PDF.

See also:

› Digitalising the mining & metals global supply chain: Blockchain brings sustainability to the forefront

› Building a sustainable battery supply chain: Is blockchain the solution?

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2019 White & Case LLP