In this blog, I reflect on the challenges faced by ARM in voluntarily implementing due diligence activities in artisanal and small-scale mining (ASM), so that mineral importing companies know how they could manage ESG risks in their supply chain without stigmatizing and excluding ASM miners from legal markets—miners who will struggle with implementing the recently approved Corporate Sustainability Due Diligence Directive (CSDDD). By adopting a risk-based approach to due diligence, focused on the specific risk level associated with each actor rather than stigmatizing stakeholders previously labeled as “high risk”, companies can prevent well-intentioned compliance with standards from displacing mining communities and organisations into non-transparent markets. These disreputable markets indirectly benefit from the exclusion of the most vulnerable miners in the supply chain. 

With the approval of the Corporate Sustainability Due Diligence Directive (CSDDD) by the European Parliament, expectations are growing for a broader commitment from mineral importers to respect the human and environmental rights of the communities inhabiting the territories where their subsidiaries, suppliers, and business partners operate. Refiners and importers of minerals doing business in the European Union will be required to map their supply chains up to the production sites, identify and assess environmental, social, and governance (ESG) risks throughout the upstream supply chain, and implement monitoring, assurance, and reporting mechanisms. This is to avoid doing business with organisations/companies that violate human rights, deforest, destroy ecosystems, or have links to criminal organisations. 

Implementing such far-reaching management systems will not be an easy task for companies located thousands of miles away from where minerals are extracted and then aggregated by processors and traders before being exported. Moreover, mineral importers sourcing from Central and South America, Africa, or Southeast Asia will need to have management systems in place with differentiated approaches for due diligence in ASM-related supply chains. In these supply chains, minerals providers may encounter limited capacities to comply with international standards; there could be conflicts between communities and companies due to historical backgrounds and cultural differences; and even political conflicts because the laws (or their de facto implementation) of some producer countries limit small playersaccess the mineral market. 

Therefore, we fear that when faced with these specific ASM challenges, companies may rush to cut off trade relations, which could negatively impact the more than 40 million vulnerable people who depend on mining for their livelihood. However, with the right advice, companies could adopt risk-based due diligence approaches, recognising the counterpart and strengthening relationships to enable the exchange of information about the business, social, and environmental setting. With this approach, due diligence would not only contribute to mitigating risks but would also improve the competitiveness of the business, via reputation enhancement and strengthening of minerals providers or business partners with lower capacities. 

We call this Fair Due Diligence, and we implement it at ARM through the combined use of the CRAFT Code and the Fairmined Standard, which together provide a progressive ladder of requirements and incentives to promote compliance while building capacities in organisations. Developing this framework was necessary to address three situations we have encountered over the past 20 years working towards the development of better ESG practices in ASM. Companies obliged to comply with the CSDDD are likely to encounter one of these situations when implementing their own due diligence processes.  

1. The confusion between informal and illegal mining and its relation to the market access barriers faced by stigmatised legitimate miners 

Acknowledging the existence of vulnerable groups/communities in the supply chain does not deny that there are illegal actors who do not want to formalize their operations, violate human rights, and mine in ignorance of environmental, safety, and health standards necessary to mitigate ESG risks. Therefore, a framework to properly classify miners and know when to engage and under what criteria trade relationships could be initiated or suspended is necessary to mitigate companies legal and reputational risks. 

We provide this framework in the CRAFT Code, which introduces the concept of legitimacy to differentiate informal organisations willing to improve their performance (if appropriate assistance is channelled) from illegal groups that under no circumstances could be legalised, either because they operate in prohibited areas, have conflicts with their surroundings, or have no intention of complying with the laws.  

The CRAFT Code sets out legitimacy guidelines for four different cases, depending on the legal context in which ASM operates, and indicates which risks lead to the immediate termination of trade relationships and which can be mitigated while keeping trade relationships active. 

Thus, management systems can more efficiently allocate risk management controls to be implemented for each organisation in the supply chain. 

2. The ambitious aspiration to implement rigorous standards in rural areas with limited access to specialised technical assistance and training: 

The guidelines for responsible sourcing established by the EU will not reach mineral providers by inertia. The standards are likely to spread more quickly to larger companies with robust compliance systems, but artisanal and small-scale providers will require the channeling of training and technical assistance to adapt their management systems to the required standards. Without a supportive approach to progressive improvement, mineral buying companies have an ethical duty to inform in their sustainability or due diligence reports on the potential impacts of exacerbating poverty and inequality levels in mining communities within the companiesinfluence area. 

To avoid leaving behind the most vulnerable actors in the chain, we had to create the CRAFT Code with minimum requirements that prepare miners for Fairmined certification. Combined, the Standards provide a ladder of progressive requirements that prevent the exclusion of miners who want to improve their performance but cannot do so without support.

Initially, the CRAFT Code provides basic requirements to mitigate supply chain risks. Then, with the guidance of the Fairmined Standard, policies and protocols aimed at creating shared social and environmental value are put in place, improving business resilience to social and environmental challenges that could affect the viability of operations in the long term. 

Nevertheless, the CRAFT Code is a standalone, open-source standard that can be freely used by companies or associations to create responsible sourcing programs for ASM. The modular design of this standard allows it to be applied in supply chains of precious metals, gemstones, tin, tantalum, and tungsten (3T), coal, and even critical minerals for the energy transition, such as copper and cobalt. Companies can use the CRAFT Code to create their own responsible sourcing schemes, leveraging its recognition as a framework standard for upstream mechanisms. 

3. The difficulty of enforcing voluntary standards in regions where other buyers are willing to buy without the paperwork 

The CSDDD must be mandatorily complied with by mineral importers and companies manufacturing them in the European Union. Whereas mineral aggregators, processors, and producers upstream in their supply chain are not legally obliged to comply with the norm. If compliance costs are too high and not adequately distributed, mineral producers are likely to turn towards less regulated markets of dubious reputation. 

Hence our insistence that due diligence should be presented as an attractive process for miners, linked to incentives, training and access to more reputable markets, rather than focusing on audits in which some non-community consultant is sent to inspect mining sites and interrogate the community. Approaching due diligence as an inspection process conducted by auditors with no links to the parties is efficient in the corporate world, but its pertinence in the ASM context deserves more scrutiny. In our experience, this approach is not culturally appropriate in many rural communities exposed to multiple security risks mentioned above. 

However, this is not to say that rigour in assurance processes should be sacrificed, but rather that assurance systems should trade the stick for the carrot and empower the miners to strengthen their own internal control processes.

We use tools
such as the CRAFT Report or the Fairmined pre-audit, for example, so that miners, with the proper technical and legal support, gather and share key information for due diligence with other actors in their supply chain. Finally, the Fairmined premium and technical assistance channelled through international cooperation projects often encourage miners’ efforts, albeit with some challenges that require another blog for rigorous analysis.

To sum up

Discussions around these three situations have guided us in designing risk management systems with differential approaches for ASM-linked supply chains. In addition to the functionality built into conventional due diligence systems, it allows companies to: 

In this way, the companies we advise can claim that their due diligence and risk management systems have differential approaches that ensure a fair relationship with ASM. This prevents legitimate miners in vulnerable situations from being displaced into non-transparent markets, controlled by criminal organisations with international reach. After all, they find ways to blur the origin of the minerals and introduce them into legal markets. 

For personalised advice on social and environmental due diligence, contact us at: gro.s1720632375enime1720632375lbisn1720632375opser1720632375@sdra1720632375dnats1720632375

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