(Monday 20 March 2023) : According to two independent Swiss-based research organisations, some extractive trading companies are bucking conventional wisdom by publishing financial data that others in the industry believe should remain confidential. This is one of the findings of the 2023 edition of the Extractive Commodity Trading Report, which assesses the ESG policies and practices of a sample of companies trading in oil, gas, minerals or metals. There has been no significant movement towards more responsible practices since the previous assessment in 2021, but the report notes that most companies have made progress on one or more indicators. Are they ready to respond to the likely increase in regulation in this traditionally opaque sector?
The report, published by the World Resources Forum (WRF) and the Responsible Mining Foundation (RMF), uses publicly available data (in the public domain or provided by companies) to assess 25 leading companies in terms of their disclosure and due diligence on corporate governance and the risks of human rights abuses, illicit financial flows and environmental damage in their supply chains. The Extractive Commodity Trading Report 2023 reveals that while most companies choose not to disclose financial information such as annual revenues, taxes paid, or purchases from governments or state-owned enterprises, on each of these issues a few companies (both private and publicly traded) are demonstrating strong and voluntary transparency. Dr Mathias Schluep, CEO of the WRF, said: “This report shows that commodity trading companies can follow the examples of their more transparent peers to meet society’s expectations for transparency without compromising their own competitiveness. According to the report, most companies’ due diligence systems are very limited. They often stop at the initial step of defining criteria for their suppliers. Few systems cover the critical next steps of assessing supplier compliance, engaging directly with suppliers, and then taking action to remedy any non-compliance. Without these elements, due diligence systems will never contribute to the prevention of critical risks in supply chains. And there is very little evidence that companies are making efforts to review and improve the effectiveness of their due diligence systems. For example, around two-thirds of companies are unable to demonstrate that they are tracking their performance in managing human rights risks in their supply chains.
The report’s conclusions are set against the current context of still significant disruption to commodity flows and price volatility, both of which are linked to the post-Covid economic recovery and the sanctions imposed by some countries in response to the war in Ukraine. With banks and regulators demanding more transparency and evidence of responsible practices from commodity trading companies, it can be expected that they will come under increasing scrutiny. Alongside the detailed assessment of companies’ ESG measures, the report shows that over the past five years, more than half of the companies assessed (or their staff) have been investigated or prosecuted for illegal practices such as bribery, price manipulation, fraudulent trading, money laundering and tax evasion. These cases involve more than a dozen countries, covering all regions of the world. And companies with relatively sophisticated compliance systems are among those involved in the reported incidents. While some of these practices clearly predate these companies’ current due diligence systems, they may call into question their effectiveness, while causing lasting reputational damage to the industry as a whole. The report offers a set of opportunities that companies could seize immediately to improve their ESG policies and practices. These ‘at hand’ solutions include adopting and adapting models provided by their peers, incorporating supplier criteria into contracts, documenting and reporting on what is already being done, and addressing cases where confidentiality is not warranted. The report also presents examples of good practice on a number of themes, including a guide and a financial incentive scheme to encourage supplier compliance with sustainable procurement requirements. Finally, the assessment provides clear evidence that legislation is driving improved practice. Companies subject to disclosure requirements – from governments, funders or others – on issues such as human rights, lobbying, taxes and transactions, tend to outperform their peers. Unfortunately, there is no evidence that they apply the same good practices in jurisdictions where they are not forced to do so. Without strong external pressure, the pace of improvement on these issues will remain very slow.
Published by: World Resources Forum, St. Gallen, Switzerland Contact: commoditytrading@wrforum.org Telephone: +41 71 554 0900
Companies assessed in the report: BP trading & shipping, CCI, Chevron Supply and Trading, CITIC Metal, ConocoPhillips, Eni Trade & Biofuels, ExxonMobil, Gerald Group, Glencore, Gunvor, LITASCO, Mercuria, Minmetals International, Mitsubishi Corporation, Mitsui, MRI Trading, Noble Resources, Phibro, RGL Group, Shell International Trading and Shipping, TotalEnergies Trading & Shipping, Trafigura, UNIPEC, Vitol, Wogen
Download the report: https://www.wrforum.org/wp-content/uploads/2023/03/ECTR-2023_WEB_Final.pdf
