Environmental due diligence in minerals supply chains (OECD)

Our key takeaway: The OECD Handbook on Environmental Due Diligence in Mineral Supply Chains highlights the importance of conducting robust due diligence to adequately address companies’ impacts on the environment. The prioritisation of such risks and impacts underlines all stages of the due diligence process, from identifying high-risk parts of the value chain to focus their efforts on, to reporting on how companies have addressed their most severe and likely risks and impacts. Notably, the Handbook highlights the interconnection between adverse environmental impacts and human rights risks such as impacts to workers and communities, access to livelihoods and land tenure rights. The OECD recommends in particular that companies (1) look at, and address, the human rights impact of their own operations and supply chain activities in the context of their environmental management and due diligence measures, not least to further the just transition to a low-carbon economy; (2) prioritise their most severe, and likely, risks and impacts for action to secure the best and most effective outcomes for people and planet; and (3) use their leverage, the level of which depends on their position in the supply chain, to cascade robust due diligence measures to prevent and mitigate environmental and human rights risks and impacts, including those hidden in more remote tiers of the supply chain.

The OECD published ‘Handbook on Environmental Due Diligence in Mineral Supply Chains’ (September 2023):

• Environmental due diligence matters to businesses operating in mineral supply chains: The Handbook outlines the reasons why companies in mineral supply chains should conduct environmental due diligence: (1) Increasing pressure from civil society, the scientific community, investors, and consumers, as well as the proliferation of lawsuits, for companies to address their environmental impact on people and planet; (2) Demand for, and supply of, extracted minerals is increasing as we shift towards a low-carbon economy. This brings with it increased environmental and human rights risks and adverse impacts; (3) Increasing legal and regulatory need for businesses to address the interconnections between human rights and environmental risks when addressing either of the two or both in their due diligence processes. For instance, the right to a clean, healthy, and sustainable environment is an emerging internationally-recognised human right and is critical to a just transition: “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”; and (4) Robust environmental due diligence is beneficial to business: “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.”

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• The environmental issues in the upstream segment of mineral supply chains: The Handbook highlights the different ways that environmental impacts may arise and manifest: (1) “Impacts that result directly by an entity’s operational practices”, for example, mines discharging toxic waste resulting in water, air and soil pollution; (2) “Impacts that are enabled by, but not a direct result of, an entity’s operational practices”, for instance, opening up roads that attract other economic actors who causes adverse environmental impacts; (3) “Impacts that are cumulative and collective in nature” where the “aggregate impact can be greater than the individual activities.” For example, the air emissions of multiple refiners reduce air quality within an airshed; (4) “Impacts that have chronic, persistent or constantly recuring adverse consequences for human or ecological systems over a long period of time.” For instance, large-scale consumption of water which results in water scarcity and aquatic ecosystem impacts; (5) “Impacts that are permanent or irreversible” such as cutting down primary forests; and (6) "Impacts that are acute and occur over a short period of time”, such as dam failure which results in severe and immediate harm to local communities and the environment.

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• Prioritisation of risks and impacts underlines robust environmental due diligence efforts: The Handbook outlines how companies’ prioritisation of risks and impacts based on their severity and likelihood of occurring is key to every step of the HREDD process, “starting with the high-level scoping of risk issues that then informs the deeper-dive assessments on higher-risk business relationships, through to how an enterprise responds to actual or potential adverse impacts. It also shapes how businesses are expected to track and report on their due diligence.” Prioritisation of risks based on severity and likelihood also enables businesses to allocate resources to actions that secures the best outcomes for people and planet, and in a way that “is efficient, effective and aligned with international standards.” While due diligence applies to all actors along the mineral supply chain, the nature of such measures differs depending on their position along the supply chain. For instance, smelters and refiners are positioned at key points of the minerals supply chain and play a unique role as “control points.” Downstream entities can check and monitor that control points are conducting robust due diligence, which will pressure control points to use their leverage over their suppliers in more remote tiers of the upstream supply chain to ensure they are also addressing their environmental risks and impacts.

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