Blockchain, ESG, and mining standards

U.S. supply chains for critical minerals in energy, automotive, aeronautic and defense markets are up against the challenge of establishing credible "green credentials" amidst sweeping company promises, increased standards and new regulations.

The arbitrary nature of voluntary initiatives, combined with ill-defined industry certification, has made it difficult to compare resource provenances and prove against human rights violations and other practices damaging to the environment and overall sustainability.

Given the potential complexity and opacity of traditional supply chain recordkeeping that can be lost, altered, or falsified at several points along the mine-to-consumer supply chain, even well-intentioned industry leaders find standards difficult to meet.

In the critical mineral mining industries, investor emphasis on environmental, social, and governance (ESG) reporting has led to a growing subindustry of varied audits and certifications for the materials and companies involved along supply chains.

Because critical minerals are by nature fungible – difficult to differentiate between kilos of the same mineral – it is still possible for suppliers of low-standard materials to bypass standards and sell into the supply chain.

Now that the critical minerals mining sector has been making concerted efforts to measure up to regulatory demands developing around the clean energy transition, what's needed next is to standardize the measuring stick itself.

To quickly and efficiently achieve net zero at scale, international consensus and commitment to a common approach outlining effective and provable actions are needed.

Two types of initiative

Voluntary initiatives include any action taken by a company, industry or government that goes above and beyond what existing environmental laws and regulations require.

Currently, companies with more than perfunctory internal ESG reporting rely on third-party auditors to assess practices or facilities against social and environmental standards, the more advanced resulting in certifications to cite to regulators, customers, and investors as evidence of responsible conduct.

Minerals sector initiatives fall into two main categories: facility-level initiatives, for example, might evaluate whether a mine is promoting workforce diversity and has adequate measures in place to prevent water pollution, etc.

The Standard for Responsible Mining, developed by the Initiative for Responsible Mining Assurance (IRMA), represents a facility-level standards evaluation.

The second initiative type is a supply chain due diligence initiative, assessing responsible sourcing of raw materials and addressing human rights and environmental stewardship at each step along the supply line.

In Australia, Canada, and the U.S., along with 20 additional member countries, standards are outlined by the Organisation for Economic Co-operation and Development's (OECD) Due Diligence Guidance for Responsible Business Conduct and the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, providing a framework to identify, assess, and mitigate risks in mineral supply chains.

Some global non-profit standards and certification organizations, such as the Aluminum Stewardship Initiative's Performance Standard, incorporate both facility-level and supply chain due diligence audits to assess both a company's respect for human rights and the environment and its oversight of companies it sources from.

Mercedes-Benz has set an example in this regard through the decarbonization of its aluminum supply chain. From aluminum produced with renewable energy to testing out material with a minimum of 25% post-consumer scrap, the automotive manufacturer expects to extend its use of material certified from mine to supplier according to the standards of ASI.

Solving provenance

There are several initiatives utilizing blockchain technology to trace minerals from their source all the way through to end-use products so that stakeholders across the supply chain can know that the mined materials going into their products are ethically sourced.

In simple terms, a blockchain is a continuously growing database of ordered records, called blocks, linked in a chain. Each block uses cryptographically encoded data from the previous block, a timestamp, and transaction data.

This technology facilitates supply chain tracing with streamlined, secure records as detailed as needed. Importers no longer need to rely on labor-intensive and inefficient documentation passed along a string of suppliers to determine origins.

With secure digital provenance, companies all along supply lines would increase their products' appeal to global markets by standardizing traceability, lowering costs, and improving regulatory compliance in their home countries.

Setting the bar

In 2021, Everledger was awarded A$3 million (US$1.9 million) by the Australian government for a "digital certification" pilot project to investigate the use of their blockchain technology for tracing critical minerals throughout the supply chain from extraction to processing and onward to global exports.

"How do we actually become negative in carbon emissions, and yet still supply the world's needs for critical minerals? It's a daunting proposition," said Jeff Haworth, Director of the Geological Survey for Western Australia. "Clean energy technologies will quadruple by 2040. Demand for batteries will accelerate nine to tenfold over the next decade. All countries and car companies have ambitions around batteries and EVs, so we need to mine those resources responsibly. We can't rely on carbon offsets."

Everledger is also providing Ford with an electric vehicle battery passport designed to track EV batteries throughout their lifecycle to ensure responsible management throughout their original use, second-life repurposing and end-of-life recycling.

"For a long time, we focused on 'what we supply,'" said Tony Knight, Chief Geologist for Queensland, Australia. "The 'how we supply it' piece is incredibly important these days. That's what will differentiate suppliers into the future. We're seeing greater urgency to trace where a product came from and then track its journey into second life within the circular economy."

Similarly, Teck, one of Canada's leading mining companies also operating in the U.S., Chile, and Peru, has announced a partnership with the supply chain management company DLT Labs to utilize blockchain technology in tracing the radioactive element germanium from source to customer.

This data collection solution will move beyond improving records of responsible sourcing to track ESG practices along the supply chain, including greenhouse gas emissions and product certifications.

Humans as resources

The human factor of ESG is also in focus across the industry due to several exposés regarding the use of child labor and modern slavery in mining and processing minerals like cobalt and tin.

Because companies are at different stages of their sustainability journeys, and as ESG reporting matures, the audit profession will be required to expand training and specialization to meet increasing complexities in demand.

It will no longer be enough to comply with regulatory bodies and investor concerns. Transparency and disclosure will also be required to establish sustainable workforce strategies and appeal to the next generation of diverse, tech-savvy personnel.

The pressure to reduce costs has often impacted audit length and quality; limiting the time available for social audits undercuts auditors' ability to privately interview workers, follow leads, and corroborate information. Audits conducted in just a few days only provide a snapshot, where systematic or more subtly presenting abuses are easily overlooked.

Audit and certification initiatives in the field have primarily been developed between accountants, mining companies, and industry groups, which, while relevant, are potentially limited in their ability to develop a more holistic scope.

This can place bias on evaluation of company policies and systems, overlooking internal and external social impact of companies' conduct. The weight of the evidence considered by audits should increasingly reflect all stakeholders. Audit approaches should reflect consultation of affected communities, workforce, and NGOs.

Follow-through

The mining industry has suffered image issues for generations, slowly working out from under dated stereotypes over the past decades toward an increasingly modernized, diversified, and sustainable standing in public opinion.

Broadly presenting findings of audits can aid in this transition and incentivize corrections. Publishing reports on audit processes and results creates a culture of honest oversight, as well as establishing a company's commitment to act on noncompliance by self-remediation and support of remediation by suppliers.

Voluntary initiatives require clear and adequate procedures for ensuring issues identified during audits are corrected, as well as establishing effective grievance processes through which affected workers and communities can challenge the results of an audit and seek improvements.

Organizations like the Responsible Minerals Initiative, which boasts over 400 member companies, are creating a broadening range of respected resources for companies across industries to better address responsible supply chain sourcing and improve regulatory compliance.

Solutions are in place, the technology works, and as the evolving landscape of critical minerals mining comes closer to meeting global policymakers' visions, international cooperation and support continue to grow.