LME Week: Sustainability and data matter for metals

LME Week 2021 took place from Monday 11 October, and both the LME Metals Seminar and the LME Sustainability Morning demonstrated the growing importance of sustainability to the metals industry.

The London Metals Exchange (LME)’s sustainability drive is strongly influenced by the needs of the market; from producers looking for a fair price for their investment in more sustainable activities, to buyers looking to gain greater control of their own environmental, social & governance (ESG) metrics through a better understanding of their supply chain. The recent LME events showcased how industry participants are improving their own sustainability, and the actions the LME is taking to support them.

Event highlights

As with many conversations around sustainability, carbon dioxide emissions took centre stage, but this is not the only aspect of sustainability that matters to the metals industry. Low-carbon production is an important consideration in this energy-intensive industry, but mining includes many other potential ESG pitfalls, including water stewardship, biodiversity and habitat destruction, the rights of local communities, diversity and inclusion, and human rights, among others.

With so many potential supply chain issues, the reputational and financial risks are numerous, and each organisation needs to decide for themselves which are the most significant risks, as they are unlikely to be able to address all of them at once. Representatives from the LME therefore explained how, alongside the mandatory minimum standards of their responsible sourcing requirements, their new LMEpassport allows organisations to record metals’ additional sustainability information in an accessible digital system.

Organisations are increasingly asking their suppliers and partners for this ESG data. For example, many corporates have announced their commitments to net zero carbon emissions, including Trafigura and BMW who are moving to net zero by 2050. These commodity buyers will therefore need to have a clear understanding of the carbon footprint of each product they receive, and the sustainability of their supply chains, to manage their own carbon footprints. And we are already seeing finance agreements based on ESG criteria, which are also likely to grow in popularity as finance partners also tighten their own ESG strategies.

What will change for industry firms?

The need for better sustainability across the industry feeds into several changes we are likely to see, which were discussed both at LME Week and across the broader commodities industry recently.

The main change that metals firms are going to need in response to the sustainability agenda is around data transparency. This has been a talking point for many years but is now becoming a key part of how we do business. As organisations need a firmer grasp of their supply chain data, suppliers and partners not only need to have this data available, but need to ensure they have the processes to verify and easily share it externally, without compromising their own intellectual property.

This data transparency is also influencing a growing call for better standardisation across industry certifications, so that organisations operating across geographies, or with clients accepting different certifications, can demonstrate compliance with multiple standards within one process through equivalences.

This will require much greater collaboration between industry players, in working with industry associations to discuss what data is needed and what is feasible, and in collaborating with assurance providers to ensure standards are aligned and meet their stated goals.

But there also needs to be agreement over the aspects of sustainability that are not part of these standards. A product may be able to command a better price by virtue of its sustainable credentials – but only if this can be proven and traced back across the supply chain from consumer to source. Effective traceability processes are therefore essential, and need to be both auditable and verifiable.

Paper-based documents introduce many risks into these processes and can prove very difficult to audit. Digital processes can effectively share this critical information between your internal teams and with external partners, but true efficiency will only come from organising this data and agreeing the formats for its sharing and processing between the relevant parties. Agreements need to centre around organising data so that it is functional, rather than creating overly strict regulations that would prevent the business sharing any extra sustainability information.

Digitalisation is accelerating

The scale of ESG initiatives in the metals industry right now means that data management processes need to be standardised and effective across your entire organisation. Physical paper documents, manual data entry and copying data between systems are slow, create many unnecessary operational risks and do not have the same clear audit trail as digital processes. ESG initiatives now require collaboration across the entire business, and businesses will increasingly rely on ESG data to access markets and create a point of competitive differentiation in future.

It is therefore important for your organisation’s processes and technology to be able to support organisation-wide effective data sharing as well as having simple but readily controllable systems in place to share this data with external partners when it benefits your company. Industry digitalisation is progressing at pace, but so is the ESG agenda, and it is therefore not enough to simply have IT systems that can work with the current sustainability requirements. Now is the time to ensure that your sustainability data is being used effectively to create value in every area of your business, and to ensure that you have the technology and processes to continue creating value, whatever the next sustainability initiative will be.

 

Speak to us today to find out how collaborative commodity management can work with your other technologies to support your business, no matter what the next sustainability challenge may be.