In Part 3 of our blog series to honour the UN’s World Human Rights Day, we consider the evolving mineral supply chain due diligence landscape, focusing particularly on the implications of the London Metal Exchange Policy on Responsible Sourcing for the extractive industry.

In October 2019, the London Metal Exchange (LME) unveiled a new policy to promote the responsible sourcing of metals.  The Policy on Responsible Sourcing (the LME Policy) sets out mandatory labour, environmental and supply chain due diligence requirements, and preventing conflict minerals from being sold on the exchange is a core tenant.  Metal producers (also referred to as “companies”) should take note of the new rules because the LME is the world’s largest market for industrial metals, and will not list non-compliant product lines, or brands, on its exchange.   As a result, producers that fail to adhere to the rules are likely to lose opportunities to compete for contracts.

The adoption of responsible sourcing obligations builds on a global shift in the extractives industry.  Over the past decade, organisations and institutions, such as the International Council on Mining and Metals, the Extractive Industries Transparency Initiative and the Organisation for Economic Cooperation and Development (OECD), have developed and refined various standards to encourage more sustainable and ethical practices.  These initiatives have largely been driven by market participants’ desire to reduce supply chain and operational risks; consumer demand for ethically sourced goods; and encouragement from the international community and investors to better align business practices with human rights and sustainable development principles.

Also of note are an increasing number of mandatory requirements; for example, EU-based companies are required to disclose under non-financial reporting rules their due diligence and key performance indicators around “conflict minerals” and, from 2021, they will have to abide by specific supply chain due diligence requirements if they are importing tin, tantalum and tungsten, their ores, or gold originating from conflict-affected and high-risk areas (CAHRA).  And publicly-listed U.S. companies have similar obligations pursuant to the Dodd Frank Act.

Within this evolving due diligence landscape, the LME Policy is notable in a number of respects.  It (1) obligates producers to comply with international due diligence standards that are, in many cases, more stringent than applicable national law; (2) requires third-party audits of producers’ environmental and occupational health and safety practices; (3) provides LME with investigatory and enforcement powers; and (4) creates a grievance mechanism whereby third parties can report potential instances of brand non-compliance.  The new sourcing requirements will be particularly consequential for producers reliant on minerals from resource-rich areas in Africa, such as the Great Lakes Region where there is ongoing conflict and child labour issues.

  1. Mandatory Risk-Based Due Diligence Requirements

The LME Policy obligates companies to implement risk-based based due diligence systems based on the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD Guidance).  The objective of this requirement is to prevent the sourcing of conflict minerals

First steps for companies under the LME Policy include establishing a policy for the supply chain of minerals originating from CAHRAs and forming an internal management team to support supply chain due diligence.  Once those steps are completed, producers must undertake a risk assessment to identify whether any red flags are present across their supply chain (also referred to as “red flag assessment” or “RFA”).   A non-exhaustive list of red flags include minerals originating from CAHRAs and known upstream companies that have interest in companies that supply minerals from or operate in a CAHRA.

Brands of producers that identify red flags are required to adhere to additional rules specified by Track A — the most stringent of three compliance tracks.  In comparison, producers that do not identify red flags have the liberty to choose Track A, Track B, or Track C.

Track Requirements 

  • Track A: To manage and mitigate their red flag risks, producers will be required to select an OECD Guidance-aligned standard to adhere to. A standard in accord with the OECD Guidance would require a producer to (1) assess the risk of adverse impacts, such as the risk related to financially contributing to non-state armed groups; (2) devise and implement a risk management plan; (3) have its practices audited by an independent, third party; and (4) publicly report on their due diligences policies and practices.
  • Track B: A third party auditor must confirm the accuracy of the RFAs, and companies are required to publish a copy of the auditor’s report online.
  • Track C: The LME, itself, will verify the accuracy of the RFAs, and the exchange plans to make more and more details from the RFAs publicly accessible over time.

Producers of listed Track A brands are required to submit their first standard audit report on December 31, 2023, while producers of listed Track B and Track C brands will be required to submit their first audit report to LME by June 30, 2022.  Producers of unlisted brands (i.e. brands that have never been listed on the exchange) applying to join the exchange after the relevant deadlines must submit audit reports as part of their applications. 

  1. Mandatory Certification Scheme

The LME Policy requires third-party audits of brands to verify their compliance with the International Organisation for Standardisation’s (ISO) 14001 and 45001 standards, or equivalent programs.  The two ISO standards require the implementation and maintenance of environmental management systems and occupational health and safety management systems, respectively.  To develop such systems, companies will have to establish relevant policies (i.e. environmental policies) and processes to further those policies, monitor progress toward achieving policy objectives, and review and report on outcomes to facilitate improvements.

Significantly, only producers’ smelting facilities (or equivalent facilities responsible for the final substantive step in production of LME grade metal) are required to meet the certification requirements.

Producers with brands listed on the exchange must submit their initial certifications by December 31, 2023.  After December 31, 2023, producers of unlisted brands must submit the certifications as part of their applications to join the exchange. 

  1. LME Oversight & Enforcement Capabilities 

LME will have the authority to verify compliance with the new policy and to enforce it.  For example, in the event that the LME determines that a brand is non-compliant, the LME may suspend or de-list the brand, or publish a public notice expressing that the brand is non-compliant.  Additionally, the LME will have discretion to reclassify a non-Track A brand to Track A at any time, if it is presented with information that would merit such action. 

  1. Third-Party Grievance Mechanism 

Significantly, any person may submit concerns to the LME that a brand does not adhere to the responsible sourcing requirements.  After receiving grievances, LME has broad discretion to determine whether and how to investigate.  According to the LME Policy, compelling producers to undertake an independent audit of the facts at the center of third party grievances is one method that the exchange may employ. 

Considerations for Companies Subject to the LME Policy

There are several immediate takeaways for companies subject to LME Policy:

  • If fully implemented, the LME’s mandatory due diligence and certification requirements will increase compliance costs for metal producers. Producers reliant on minerals from areas such as the Great Lakes Region of Africa will have to be especially diligent and consistent in their compliance efforts.
  • Achieving the relevant environmental and occupational health and safety certifications can improve producers’ reputations and stakeholder confidence, as well as help them gain a more holistic picture of their operations. Additionally, implementing supply chain due diligence can help producers to eliminate liability risks, as jurisdictions around the world enact laws to tackle issues, like child labour and corruption.
  • The LME Policy’s reference to the OECD Guidance reflects a broader trend of government and private institutions giving “soft law” responsible business conduct standards, such as those set by the OECD and the United Nations Guiding Principles on Business and Human Rights, a more legal and practical effect by incorporating them into binding policies. For example, governments have integrated these standards into international investment treaties and national extractives licensing regimes.  Thus, for actors in the metals industry there is value in developing an understanding of relevant soft law standards and following the evolution of standards and their application.
  • Given the growing use of non-judicial grievance mechanisms by civil society organisations, non-governmental organisations, and communities, producers can likely expect the LME grievance mechanism to be actively used. 


Covington’s Business and Human Rights team draws upon attorneys and policy experts with deep human rights backgrounds including service in government and international organisations, with non-governmental organisations, in media, and within multinational corporations, and integrates them across our U.S., European, African and Asian offices. We regularly advise clients with respect to human rights due diligence, best emerging practices in their policies and procedures, risk mitigation and litigation.