Introducing the Conflict-Free Gold Standard: A Guide for the Electronics Industry

Introducing the Conflict-Free Gold Standard: A Guide for the Electronics Industry

By Terry Heymann, director, Responsible Gold Program, World Gold Council

Gold’s unique properties make it indispensable to a variety of technology-related sectors including electronics, medicine, energy efficiency and environmental science. Despite the turbulent economic climate, demand for gold from these industries remains high.  It amounted to more than 460 tonnes, worth over $23 billion in 2011.  The electronics sector accounts for more than three quarters of this demand — some 330 tons. In 2011, semiconductors, automotive and industrial electronics and wireless equipment all increased their demand.

Regrettably, some of gold’s unique characteristics, including its high value and portability, have made it a potential source of finance for illegal armed groups engaged in civil wars and insurgencies.  While the proportion of newly-mined gold tainted by an association with armed conflicts is very small, it is important that responsible companies take steps to block metal misused in this way from entering their supply chains. This is crucial for downstream users in the electronics sector who want both to provide reassurance to campaigners and consumers and to comply with emerging legislative requirements and normative standards.

The civil wars and insurgencies in the Democratic Republic of Congo (DRC), which stretch over the last decade and a half, have claimed more lives than any conflict since the Second World War. Unfortunately, reports from the United Nations and others suggest that one element in the conflict has been the illegal exploitation of some of the DRC’s mineral wealth to fund the armed groups. Concerns that tin, tantalum, tungsten (the 3 Ts) and gold from the DRC may have been tainted by the conflict led to the inclusion of a section in the U.S. Dodd-Frank Act 2010 requiring U.S.-listed manufacturers to ascertain the origin of any of the four so-called ‘conflict minerals’ used in their products. If they are found to have come from Central Africa, the company must then ensure that the minerals have not been implicated in funding conflict. While driven by admirable humanitarian motives, there are concerns that such an approach may lead to a de-facto embargo of responsible-produced minerals from the region, as downstream users look to reduce their legal risks and compliance costs. This has the unfortunate impact of penalizing legitimate, artisanal and small-scale miners and potentially increasing tensions as people look for alternative forms of livelihood for themselves and their families.

Before the passing of the Dodd-Frank Act, the leading gold-mining companies had already initiated work to devise an industry-led process through which gold produced responsibly and without funding armed groups could be identified. After almost three years of work by these miners and refiners, the World Gold Council published the Conflict-Free Gold Standard in October 2012.  Its development involved global consultations across five continents with governments, international institutions, NGOs, academics and supply chain participants and on-the-ground stress-testing.   Its introduction will do much to further increase confidence that gold can be used by downstream companies in confidence that it has not funded such conflict as has been seen in the DRC.

The Conflict-Free Gold Standard is a framework through which gold miners can demonstrate and provide assurance that their operations have been conducted in a manner that does not cause, support or benefit unlawful armed conflict or contribute to serious human rights abuses or breaches of international humanitarian law. The Standard is based on internationally-recognised benchmarks such as the Organisation for Economic Co-operation and Development’s (OECD) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, the U.N. Guiding Principles on Business and Human Rights and the Voluntary Principles on Security and Human Rights. When a company is operating in an area assessed to be “conflict-affected or high risk,” the Standard sets out expectations of how it should act and the systems it should have in place — on topics such as human rights, the control of security providers, the disclosure of payments to governments, regular community engagement, and the availability of whistle-blower facilities and of a grievance mechanism for use by local people.

Implementing companies will have to disclose their conformance with the Standard publicly and such public reporting will be subject to rigorous independent scrutiny through external assurance providers.  The information disclosed by the company will be useful to a range of stakeholders including the next participant in the supply chain (usually a refinery), governments and civil society groups.

The Standard provides a key building block that refiners can then use as part of their due-diligence process so that they can provide assurance to downstream users. A number of assurance processes have been developed for use by gold refiners — including the Conflict-Free Smelter Programme, developed by the Electronics Industry Citizenship Coalition and the Global e-Sustainability Initiative (EICC-GeSI). Similar industry-led approaches have been developed by the London Bullion Market Association and the Responsible Jewellery Council. The three organizations have agreed to mutually recognize each other’s approaches, offering relief to those concerned about ‘audit fatigue’ and associated business costs.

In common with the OECD Guidance, the Conflict-Free Gold Standard applies to armed conflict situations around the globe. The Conflict-Free Gold Standard is designed to “operationalize” the Guidance for gold miners. One example of this is deciding which countries or regions should be considered “conflict-affected or high-risk.” The OECD Guidance does not identify such areas nor provide guidance on how they should be identified but lays that responsibility on companies. The Conflict-Free Gold Standard, in contrast, lays out an approach that supports companies in making this determination.  In order to assess whether the area should be considered  as “conflict-affected or high-risk,” the Standard requires companies to determine whether there are any international sanctions that prevent the trading of gold and requires companies to use external sources of information, including as a primary benchmark, the Conflict Barometer produced by the Heidelberg Institute for Conflict Research.

The OECD Guidance has also been recognised by the U.S. Securities and Exchange Commission as a framework for use by companies in conducting their due diligence about the origins of gold, in their rules for implementing section 1502 of the Dodd-Frank Act which were published in August 2012. However, unlike the OECD’s global approach, the U.S. legislation only focuses on the Democratic Republic of Congo and its nine neighbouring countries.  Another difference is that Dodd-Frank seeks to establish the provenance of specific pieces of metal while, realising the complexity of metal supply chains, the OECD Guidance and related industry schemes rely on companies being able to show that they have implemented a credible “due diligence” process.

It is important that, in combating the potential misuse of gold, legitimate producers operating in conflict-prone areas who are not fuelling armed conflict are not shut out of international markets. Stigmatizing countries or depriving thousands of people of their legitimate livelihoods does not build peace and stability. This is why the World Gold Council and a number of leading electronics companies are working together through the U.S. Government-led Public-Private Alliance on Responsible Minerals Trade in the African Great Lakes Region. Gold mining in the DRC is dominated by informal and relatively small-scale mining. It is currently difficult for these miners to provide the paperwork and external checks required to demonstrate that their production is “conflict-free.” But the project will help them to clear this hurdle through increased formalization of their activities.

As the situation in the Eastern DRC worsens again, the need for initiatives such as the Conflict-Free Gold Standard is more vital than ever. Neither producers nor end-users of gold want their products to be associated with the violence and human rights abuses in the region — or, indeed, in other parts of the world.

The Conflict-Free Gold Standard represents a landmark achievement. It is the first initiative, developed by the private sector, albeit with significant input from a full range of stakeholders, which provides a performance standard for companies operating in areas impacted by armed conflict.  Responsibly undertaken, mining makes a big contribution to economic and social development in many emerging markets.  Responsible gold mining creates new opportunities for these nations and communities — and demand from the electronics industry plays an important role in supporting such development.

More Information

Documents related to the Conflict-Free Gold Standard, are available on the World Gold Council website. Films, including views from government, industry and civil society on the Standard are also available to view.

For more information about the EICC – a coalition of leading electronics companies working together to promote efficiency and social, ethical, and environmental responsibility in the global supply chain – click here.

 

SEMI
www.semi.org

January 8, 2013