EU's new supply chain laws over-reliant on self-certification

An increasing number of voluntary certification initiatives measure companies' conduct against the initiative's own responsible business standard, and then certify companies or products if they comply with the requirements.

Human Rights Watch research found that certification and the third-party audits on which they are based have serious weaknesses, though.

Many certification bodies lack independence because they are industry-led and governed; audits are often short and superficial; and the certification process is not transparent. As a result, these certifications provide no guarantee that the raw materials or products a company uses have been produced under rights-respecting conditions.

Ethiopia

A case in point is the certification of the Swiss gold refinery Argor-Heraeus, one of the largest global gold refineries, by a gold refinery trade association. The company relied on the Lega Dembi industrial gold mine in Ethiopia, operated by the Ethiopian company Midroc Investment Group, as a source of its gold for at least five years, until 2018.

Throughout this time, the mine's toxic pollution harmed the environment and resulted in above-average numbers of miscarriages, stillbirths, and disabilities at birth. Argor-Heraeus took no evident steps to address the pollution and health risks, because the company hadn't even identified the problem.

Argor-Heraeus relied on the certifications, despite its links to the grave problems at Lega Dembi, to claim in its annual reports that it was sourcing gold responsibly.

Every year from at least 2013 until 2018, the London Bullion Market Association (LBMA), the trade association of major gold refineries and bullion dealers, certified Argor-Heraeus as being compliant with its "Responsible Gold Guidance."

The guidance requires refiners to identify human rights risks in their supply chain, and to suspend sourcing from a supplier if serious human rights abuses are found to be "possible." Argor-Heraeus did not do this for five years at Lega Dembi and yet continued to receive the LBMA's certification.

When asked what the audits said about Argor-Heraeus, the London Bullion Market Association said that it was not at liberty to disclose the contents of audit reports. Human Rights Watch has reviewed a summary of Argor-Heraeus' 2018 audit, the only one publicly-available, which does not mention the Lega Dembi mine.

In response to a Human Rights Watch enquiry, the LBMA wrote that its standard at the time did not explicitly include environmental risks.

Recently adopted European laws on supply chains of conflict minerals and batteries heavily rely on certification: the 2021 Conflict Minerals Regulation has established a process to recognise certification initiatives (called "due diligence schemes") as equivalent to the requirements of the regulation; the forthcoming Batteries Regulation foresees a similar model.

The EU's proposed Critical Raw Materials Act follows the same direction and uses certification as a tool to decide whether new mines are sustainable enough to merit government support.

And even in the context of the draft EU Corporate Sustainability Due Diligence Directive, some policymakers are continuing to push for audits or certifications as an indicator of compliance with their obligations under the proposed legislation. Germany has repeatedly attempted to exempt certified companies from liability for even negligence.

Argor-Heraeus no longer sources from Lega Dembi mine, following a wave of local protests over the mine's health impacts that led the Ethiopian government to suspend Midroc's mining license. Argor-Heraeus eventually learned about the environmental concerns, and put its business relationship with Midroc on hold a few days after the mine's license was suspended. (Lega Dembi mine was reopened around March 2021, but Argor-Heraeus ended its relationship with Midroc. Midroc has stated that they have taken measures to address the pollution.)

Lega Dembi provides an important lesson that governments should not rely solely on certifications and audits as evidence of a company's adherence to human rights and environmental standards. Regulators should conduct their own investigations, referring to a wide range of sources including from media, academics, nongovernmental organizations, workers, and community members.

Audit reports can be part of the mix, but should not be relied on as single source.

Rigorous and independent certification initiatives can be useful in encouraging companies to improve practices. But governments should not outsource oversight of mineral supply chains to industry-led initiatives.

The EU Commission and other EU institutions should not repeat the same mistakes made in previous legislation. They should ensure that future rules designed and their implementation to reduce the human rights, social and environmental costs of EU's imports do not allow companies to use certification to evade their responsibilities.