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Implementation of conflict-free gold standard is under way

8th March 2013

By: Samantha Herbst

Creamer Media Deputy Editor

  

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The World Gold Council (WGC) says is pleased with the industry’s reception of its Conflict-Free Gold Standard (CFGS), which has been welcomed by various stakeholders – including WGC member companies and nonmember companies – who are working on its implementation, says WGC director Terry Heymann.

Published in October, after more than two years of processing industry input and opinion, the CFGS provides a common approach for gold producers, through which they can assess their operations and provide assurance that their gold has been extracted in a manner that does not cause, support or benefit unlawful armed conflict, contribute to serious human rights abuses or breach humanitarian law.

“The standard has been designed to increase trust and transparency in the gold supply chain, providing further confidence that, responsibly under- taken, gold mining is an important source of social and economic development,” says Heymann.

Developing the standard began in early 2010, when WGC board members, comprising senior executives from member companies, approached the gold authority about the possibility that newly minted gold contributed to unlawful armed conflict.

The simultaneous occurrence of initiating work on the CFGS and the US Securities and Exchange Commission’s (SEC’s) Dodd Frank Act and the Organisation for Economic Cooperation and Development’s (OECD’s) due-diligence guidance coming into effect affirms the importance of this issue for the global mining industry, he states.

As a result of the Dodd Frank Act, which imposes obligations on US companies to identify whether they source conflict minerals from conflict areas, and the OECD’s due-diligence guidance for responsible supply chains of minerals from conflict-affected and high-risk areas, the WGC formed an internal working group with representatives from member companies to develop the first draft of the standard, ensuring that it corroborated with the other developing initiatives.

The WGC actively sought and incorporated input from the broadest range of stakeholders, including governments, supply chain participants, nongovernmental organisations investors, academics and civil society organisations.

After a range of consultative events, including roundtables chaired by external parties, one-on-one meetings, written commentary and pilot studies at member operations, had taken place, the council released the first draft of the CFGS in June 2011.

This was followed by a subsequent draft, released in March 2012, after another set of roundtable events were held in Lima, Peru; Melbourne, Australia; Brussels, Belgium; and Dar es Salaam, Tanzania, besides other countries.

“Having made significant progress since the first draft, we thought it was important to gain more input and consultation. We used that to make a few further changes, which led to the final publication of the standard in October last year,” says Heymann.

The CFGS represents a landmark achievement, as it is the first initiative developed by the private sector that provides an approach for operating in areas affected by armed conflict.

Companies that can demonstrate that they are operating a mine in a conflict-affected or high-risk area in a way that does not support or benefit unlaw- ful armed conflict should be encouraged to continue operations, he adds.

“The closure or suspension of a major source of employment and/or government revenue may accentuate the crisis and accelerate an area’s descent into conflict. Companies will be required to report publicly on their conformance with the standard and external assurance will be required on this disclosure,” he asserts.

Implementation and External Assurance

Implementing the CFGS is the responsibility of individual companies and not that of the WGC, explains Heymann.

While the council can facilitate learning among member companies, it will not certify companies’ performances, owing to it being a membership organisation.

He says that, if the WGC were to decide on whether companies conform to the CFGS, it might create a conflict of interest, reiterating that it is not the role of the WFC to make such decisions.

“We see our role as developing the standard and implementing strong processes through which companies can demonstrate that what they are doing is fair, which is why external assurance is so important.”

Heymann explains that companies looking to conform to the standard need to have evidence of conformity acknowledged by an external assurance provider.

“There is an increasing awareness of quantifying examples of responsible operations. “In fact, the number of support agencies and consultants willing to provide assurance on responsible mining is growing,” he says, adding that, in some ways, external assurance is becoming an industry in itself.

Heymann cites several different companies prepared to provide external-assurance services, including established accounting firms PricewaterhouseCoopers and KPMG, as well as smaller, more specialised companies focused on the mining industry.

“Independent external verification makes the process of conforming to the standard a meaningful process – something that proves that the company is committed,” he says, adding that the growing body of advisors, consultants and external experts helping companies through issues related to sustainability and human rights is a positive adjustment, as it ensures that everyone is well placed to act responsibly in often challenging situations.

Heymann expects the first round of external assurance reports to be published early next year, assuming that companies with calendar financial years started implementing the CFGS as of January 1.

These companies will put the standard in place and implement it over the course of this year. They are likely to make public declarations about their conformance to the standard, which will be externally assured when their yearly 2013 report is published.

Challenges

Some of the concerns facing the implementation of the CFGS are artisanal miners and their responsible access to gold markets, says Heymann.
“Frankly, most of the concerns that have been historically related to the unfortunate occasions when gold is implicated in unlawful armed conflict are linked to artisanal miners that do not hold many rights, are not protected by government and are open to exploitation.”

He adds that the WGC is keen to ensure that issues pertaining to the formalisation of artisanal gold mining are dealt with and concedes that, although the OECD’s gold supplement is working well with host and donor governments, development agencies, civil society and private-sector participants to deal with these issues, it remains an area that needs more attention.

“It’s a significant and import- ant issue and it is going to require coordination from many different partners to progress,” Heymann asserts.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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