The pressure on metals producers to provide more sustainable products is coming from multiple directions at once. Electric vehicles are driving demand for ethical battery metals whilst there is public outcry about human rights abuses in major mining areas, including in sub-Saharan Africa and South East Asia.
Meanwhile, construction and manufacturing industries are increasingly working to reduce their carbon emissions so looking for lower-carbon materials including steel and aluminium. And regulators are increasingly finding new ways to encourage decarbonisation, such as the EU’s Carbon Border Adjustment Mechanism which applies to iron, steel and aluminium amongst other commodities.
Many organisations are already seeing advantages from committing to sustainability beyond their obligations. ABAL, the Brazilian Aluminium Association’s, member plants have been ESG certified since 2016, but those going beyond to produce low carbon hydro-powered aluminium are seeing this make a difference when consumers pick their suppliers.
Sustainability on metal exchanges
Exchanges are also bringing in more sustainable sourcing requirements. The LME’s sustainability strategy aims to provide the metals industry with greater transparency and access to sustainably produced metal. The Exchange is in the process of bringing in more responsible sourcing requirements, and 96% of LME brands submitted their enhanced compliance information before the 30 June deadline last year.
The LME has also introduced LMEpassport which allows producers to voluntarily disclose any additional ESG credentials. Almost 50% of LME brands are currently voluntarily sharing this extra data.
The link between sustainability and traceability
This sustainability data creates several traceability challenges. Firstly, organisations selling on the LME, or any exchange with sustainability requirements, need to ensure that their products are compliant, and that they have the documentation and audit processes in place to prove it if needed.
And secondly, organisations that purchase more sustainable metal products have an opportunity to gain greater value from them if they can properly trace, verify and promote their sustainable credentials. Markets for more sustainable metals are still in their early stages, but are growing rapidly with increasing consumer demand, and product differentiation emerging that did not exist 24 months ago.
Commodity Management powers traceability
Gen10’s CommOS Commodity Management System incorporates more of the commodity trading process than a traditional CTRM and can provide far more of the traceability that is essential for maintaining compliance and adding value when trading sustainable metals.
One of the major challenges in managing and pricing sustainable metals is the lack of standardisation and standard certifications. At present, contracts for specific sustainable metals are dealt with OTC, meaning that pricing is not always clear, and adding to the complexity of managing the contracts.
The lack of standardisation also means that there can be multiple sustainability data fields associated with a contract or virtual lot (the digital representation of the physical goods as they move and transform through the supply chain) – it is certainly not a case of being a simple tick box. And each sustainability attribute may have its own impact on pricing.
CommOS allows you to define the quality data, including sustainability data, you want to manage, ensure this is attached to every virtual lot as it progresses through your processes, and automatically calculate its impact on pricing when creating contracts that specify certain sustainability attributes.
Tracking and logistics beyond CTRM
CommOS goes beyond traditional CTRM systems in including logistics and traceability functionality alongside the CTRM elements such as financial risk management. This means that when your operators manage their day-to-day processes, such as allocating stock to a shipment, they do so within the one joined-up system.
This means that quality data is held in the same place as your logistics data. There is no copying between systems or documents to introduce the risk of human error, and your risk management and reporting are updated automatically as contracts progress. The quality and sustainability data is linked to each virtual lot and each virtual lot can be easily traced across all stages.
And because CommOS creates a digital record of all activities, you have a full digital audit trail. This provides complete transparency as well as ensuring you have traceability of all stock across all purchase and sales contracts.
Improving risk management
Newer markets and more data can mean more potential risks, but CommOS can improve risk management too. As mentioned above, incorporating all business areas in one connected ecosystem reduces operational risk. And as well as the automated pricing calculations, CommOS includes automated workflows that ensure your approval processes and risk limits are followed, and controls that ensure all activities are compliant.
CommOS also includes the market and financial risk management features that you would expect to see in a good CTRM system, a particularly important feature given that there can be less liquidity in emerging markets. And another helpful feature is that it includes a CRM module. This allows you to manage the sustainability certificates of each counterparty, including alerts for expiration dates. It also makes it easier for your team to manage ongoing relationships, and surface buyers who are willing to pay a premium for sustainable products.
As more companies prioritize sustainability, the demand for sustainable metals is likely to increase. There are two major motivations for metals traders to embrace sustainable metals at this stage. Firstly, they have an opportunity to serve these growing markets, become a supplier of choice, and receive a premium for their sustainable products. And secondly, those organisations that do not capitalise on sustainability early on will likely be forced to catch up by market and legislation changes soon.
Traceability is one of the major challenges to overcome in satisfying the need for more sustainable metals, and traders need to have the right systems and processes in place to ensure this traceability. CommOS makes this traceability straightforward and effective, minimising risk and allowing your business to realise the full value of your sustainability data.
To find out how CommOS could support your sustainable metals trading, get in touch with us now.
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