Swiss commodity trading and mining giant Glencore is the subject of multiple judicial proceedings and is frequently in the line of fire for its human rights record. Glencore’s sustainability chief discusses how the company approaches due diligence across its vast operations.
From mineral extraction to oil trading and agricultural products, Glencoreexternal link does business in more than 50 countries. Some, like Australia, have a long history of mining and robust regulations. Others, like the cobalt-rich Democratic Republic of Congo, are high-risk settings that many companies would avoid.
Anna Krutikov, who is in charge of Glencore’s sustainability policy, has been in her role since 2015. She took part in discussions that helped shape the Swiss government’s human rights guidelines for the commodity sector, which makes up about 4% of the country’s GDP.
Glencore mines and trades raw materials present in everything from smartphones to electric vehicles and food.
Do you know where all your commodities come from?
The approach that we’ve taken is to prioritise high-risk commodities. Take cobalt. The overwhelming majority of the cobalt that we trade is our own, so we know where that comes from. But any third-party cobalt that we trade must go through our focused due diligence program. We mark it as high risk due to the potential that it comes from the Democratic Republic of Congo (DRC). We are working with our businesses to make sure that we have full traceability of the commodities that we source using a risk-based approach. We have a very cross-functional collaborative approach.
What are the challenges associated with revamping your due diligence processes?
It’s the scale and the diversity of the footprint. You have very different challenges in Canada and Australia than you do in the DRC. And doing human rights due diligence on a trucking company versus doing due diligence on a supplier is very different. It’s fair to say that due diligence in the traditional procurement space is well established. There is a lot of expertise, there are a lot of frameworks that are tested and tried across the business community. Due diligence on commodity trading is probably a bit less known in terms of existing precedents. It’s more challenging in terms of establishing those formal processes and looking through the whole value chain. To that effect, the guidance that the Swiss government developedexternal link is really helpful.
What guides your community engagement and investment strategy?
We want to help create resilient communities. Mining is by definition a finite business. We know that we won’t be operating in a certain area forever. Our commitment is to work with the communities to help them build a sustainable livelihood and achieve resilience so that once the mine closes the community can be successful. This means that wherever we operate we look to invest quite heavily in training and in local business opportunities that are not linked to mining, such as plumbing, carpentry or agriculture. One of the challenges that we see for example in the DRC where one of our operations was previously operated by the state mining company, is this culture of enormous dependence on the mine. Historically, when the state company was still running the mine, they provided everything. They ran all the shops. They ran all the schools. They ran all the infrastructure – the whole town was run by this company. We still see that culture of dependence today. There is an expectation that the mines should provide for everything. That’s not sustainable.
So our focus has been to look at training opportunities and provide support in developing businesses that help diversify the economy and move away from that dependence on the mine as the only source of livelihood.
How does Glencore account for the revenues generated on the ground and ensure transparency in that area?
We publish an annual report on our payments to governments in line with the EU transparency directiveexternal link. Last year, for the first time, we also published our payments to the national oil companies in EITI countriesexternal link. This is based on the logic that national oil companies are still part of the public sector and we support the same principle of accountability there.
In some countries, like DRC, the legal apparatus is seen as particularly weak, so when someone has an issue with a mining company like Glencore there are few avenues for that person or community to have their rights restored. What do you say to that?
It hasn’t been our practical experience but I’ve definitely heard that perception. I think the solution is to strengthen the local legal apparatus and to support holding the local governments accountable for fulfilling their responsibilities better. This is the principle behind transparency for us. We disclose the numbers, the amounts that we paid to the local governments in a very granular breakdown. And we had feedback from NGOs in DRC telling us that this is the first time that such information was even available within the country. It’s the first time that the people of the Congo were able to see how much money goes to their governments. And this information is now supporting conversations between the civil society in the DRC about transparency and accountability. And it’s happening within the country. This is so crucial both in terms of catalysing civil society as well as driving change within the government.
Similarly, in terms of human rights regulation, the longer-term success is in strengthening the local system and enabling it to be resilient and sustainable.
On that subject, your 2018 report says there were no human rights violations. How do you define a human rights incident?
Historically we’ve defined these incidents as single or multiple fatalities that occur as a result of some kind of an interaction with the community. What we’ve recognised is the need to refine that further to look at other aspects of human rights and to think about providing greater training around that.
According to the NGO community and the trade unions, you have human rights incidents that are not appearing in your reports. Where’s the disconnect?
We will be publishing a human rights report in May of this year that will have a lot more detail about some of these specific challenges.
How are you working in the emerging space of human rights due diligence?
We certainly see an increased interest from our customers in being able to identify and map out the full value chain. Therefore, the emergence of commodity-specific schemes that look at transparency and responsible business practices for a particular commodity, whether it’s cobalt or lead or copper, becomes more important. That’s the big area of focus: understanding the value chain, understanding the risks all the way through and then engaging.
Multinationals generally recognise this. You’re not always going to be able to change things single-handedly, but you can engage in multi-stakeholder initiatives and platforms to increase that leverage and work more broadly to improve practices. That’s something that we’re really seeing develop quite a bit – also in Switzerland; We were a member of a Swiss government-led advisory group developing guidance for commodity trading companies on implementing the UN’s Guiding Principles on Business and Human Rights.external link
But obviously, there are no-go areas. If you’re working with a supplier that is not going to stop using child labor, you can’t work with that supplier. But where we do identify certain gaps, we will in general try and work with that supplier and agree a set of corrective actions that we can follow over time and see improvements in practice. That’s consistent with the approach that companies take across industries, not just in commodities but in textiles and other sectors.
Glencore says it recognises the science behind climate change. How serious are you about moving away from coal production and addressing climate change issues more broadly?
We consider the products that we produce to be crucial to the transition to a low-carbon economy. And so we’ve committed to prioritising investments in those enabling commodities. We consider that coal does have a role to play in the energy mix in the medium term and we also recognise the objective of the Sustainable Development Goalsexternal link for people to have universal access to affordable energy. However, to signal our commitment to fighting climate change and to emphasise the diversified nature of our portfolio weexternal link have committed to limit coal production to current levels going forward and to prioritising investments in the materials that enable the transition to the low-carbon economy such as copper, zinc, nickel and cobalt.
Mining such materials can have very negative environmental consequences. How do you address that?
Our assets are required to have environmental management plans which are based on detailed environmental risk assessments. The environmental management plans address also how to deal and mitigate those risks. The operations are required to conduct environmental impact assessments, typically every five years. However, if an operation is going through a change of profile like for example an expansion or closure, such assessments are conducted sooner.
Are there any business opportunities or operations that you have closed or foregone because of the environmental consequences?
Yes, we have not gone ahead with certain acquisitions or expansion projects because we consider the environmental risks to be too severe.
Can you give me any recent examples?
I’m sorry, that’s confidential.
Focus on Glencore
Known for a high appetite for risk, Glencore has a long history of working in conflict areas and with controversial governments. Glencore is the successor to a company established by oil kingpin Marc Rich, who was indicted in 1983 on a wide range of criminal charges including tax evasion, fraud and trading with Iran in violation of US sanctions.
Switzerland-based and listed in London, Glencore acquired miner Xstrata in 2013. The company is active in countries around the world and has been accused of human rights abuses and environmental damage several places including Peru and Congo.
Glencore employs 158,000 people worldwide. IndustriALL Global Union raised concerns over its workers’ rights violations last year in a report submitted to the United Nations Human Rights Councilexternal link. The company says it has engaged with the trade union to address the concerns, particularly in the DRC.
On the legal front, the United States is investigating Glencore’s activities in Nigeria and Venezuela over its agreements to secure oil supplies for its trading support. Its compliance with the US money-laundering laws and the Foreign Corrupt Practices Actexternal linkis in question.
The US Department of Justice is also scrutinising the company’s activities in the Democratic Republic of Congo, Africa’s biggest copper producer. Glencore also sources cobalt, a byproduct of copper, through its industrial mining operations in DRC.
Glencore’s net profits fell to $3.4 billion in 2018.The firm’s commodity trading business saw its operating earnings fall by 17% to $2.4 billion, while mining rose 15% to $13.3 billion.
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Switzerland, a global commodities hub
Switzerland is home to about 500 companies working in the commodities sector. All together they employ about 35,000 people and contribute to 4% of GDP – more than the tourism industry.