4 Social and Environmental Impact
of Metal Extraction
91. Half of the world's top ten worst pollution
problems are mining related.[129]
Material is dug from the ground and then often crushed and processed
to extract the desired metal. Processing can use large volumes
of water and chemicals which need containment. Once the metal
has been extracted there are often large volumes of solid waste,
known as tailings, which can contain harmful substances associated
with the metal in the ground. [130]
Professor David Manning, Secretary for Professional Matters at
the Geological Society of London, gave the following example:
shale is taken out of the ground, it is treated with
acid in vats and then the materials are leached out and taken
away for refining. The important thing is that there is a huge
amount of residual material left because we are seeing mining
of a material that is quite low in concentration, even though
the ore metals are abundant in these particular deposits. So there
are huge amounts of waste. There is the use of acids. There is
the potential of natural radioactivity associated with the rare
earths in particular. So there is a whole accumulated set of issues
even before it leaves the mine to go through to wherever the output
of the mine is treated.[131]
92. Mining for metals is often also dependent
on large amounts of energy and, if the energy is generated using
fossil fuels, has a large carbon footprint. Research Councils
UK (RCUK) stated that "around 3% of total global energy demand
is used solely to crush rock for mineral extraction".[132]
There can also be significant social costs associated with mining
activities. People may be displaced from new mining sites; mines
can be dangerous environments, exemplified by the intensely reported
mining accidents in Chile and New Zealand last year;[133]
and violence and conflict can be driven by control of metal resources
in nations such as the Democratic Republic of Congo.[134]
93. Many of the witnesses to this inquiry expressed
the need to minimise social and environmental impacts of mining
activity.[135] However,
Professor Manning, Geological Society of London, pointed out that:
there are, undoubtedly, going to be environmental
costs. You cannot deny that in any mining operation. You have
to make sure that those [environmental costs] are acceptable.
Then it comes down to how you define what the acceptable environmental
burden is that mining might impose.[136]
94. The "acceptable environmental burden"
is set by national legislation. However, the globally distributed
nature of metal reserves means that mining activity comes under
widely varying regulatory regimes and, as the Geological Society
of London pointed out, "standards in some countries have
been low".[137]
Tighter regulations are likely to lead to increased prices as
"there is an associated price with better management of tailings,
radioactive waste and human welfare".[138]
We heard from several witnesses that the environmental and social
costs of mining should be included in metal production costs.
For example, Dr Mike Pitts, from the Industry Technology Division
of the Royal Society of Chemistry (RSC), stated that:
we are not really costing properly the use of virgin
material [...] the full costs of taking it out of the ground [should
be included] because that is usually displaced in another country.
It would be the energy cost and the environmental impact of mining
the material in the first place. That has to be taken into account.[139]
He also pointed out that:
Once you get to a certain low grade of ore in mining
some of these materials, the environmental impact goes up because
it is harder and harder to get to that. Although economics might
say, "If the price rises, we can get to more inaccessible
grades", there is a concomitant rise in the environmental
impact.[140]
95. The global nature of metal reserves and production
means the UK Government cannot directly regulate the environmental
and social costs of extraction and production of a metal used
in the UK. However, there have been a number of avenues suggested
to us that may improve the ethical standing of metal production
across the world and these are covered in this chapter.
Raising global standards
REGULATION
96. The vast majority of mining for metals occurs
outside the UK, and indeed beyond the borders of the EU. RCUK
explained that:
A serious challenge to [ethical] improvement is the
rise of mining enterprises based in large emerging economies,
but operating world-wide, which can adhere to different ethical
standards to those established in developed economies.[141]
However, the Mineralogical Society pointed out that:
the UK is still a global centre for mining finance
and home to two of the world's largest mining companies (Rio Tinto
and Anglo American). There are many other mining and exploration
companies and mining consultancies, of a range of sizes, based
in the UK. They are working worldwide on a range of resources
including critical metals.[142]
97. Mining companies registered in the UK are
subject to UK corporate law and according to Anthony Lipmann,
Managing Director of Lipmann Walton & Co Ltd and former Chairman
of the Minor Metals Trade Association (MMTA):
Companies are attracted to Britain to list [...]
on our stock exchange. These are the companies where a light has
to be shone on them through the Companies Act 2006 to make sure
that they bring up the level of their practice in sub-Saharan
Africa.[143]
98. The Companies Act 2006 requires that a company
must produce a Business Review as part of its accounts. The Business
Review "must, to the extent necessary for an understanding
of the development, performance or position of the company's business,
include", amongst other things, information about environmental
matters (including environmental impact), company employees and
social and community issues.[144]
99. In April 2010, the Corporate Responsibility
Coalition (CORE) published the report, The Reporting of Non-Financial
Information by FTSE 100 Companies, finding:
The most reported area of environmental information
was 'emissions, effluent and waste', which includes CO2
emissions; this information
is often required by other regulation and so is more readily available.
Yet even here, only one third of companies surveyed reported quantitative
information and 18% did not mention the issue at all.
[...]
The disclosure of high-quality social information
was better than that of environmental information. Over 90% of
companies provided quantitative or qualitative indicators of social
performanceor at least identified social issues. However
this is largely accounted for by the reporting of labour issues,
which includes health & safety. If labour issues are excluded,
then social issues were quantified in only 39% of reports, with
13% identifying no non-labour social issues at all. Of the other
categories of social issue, the area of human rights was least
well-served, with just 25% providing measures of some sort.[145]
100. The CORE report concluded that the Government
needed to review, amongst other things, the specification of Key
Performance Indicators and provision of official guidance for
reporting non-financial information. The report also recommended
that "the government should establish a monitoring mechanism
for the Companies Act, if it is to be implemented rather than
ignored".[146]
101. The potential for companies to locate themselves
abroad in order to avoid the burden of British regulations or
additional monitoring arrangements must also be considered. This
was a concern raised Rt Hon David Willetts MP, Minister of State
for Universities and Science, who stated that he "would be
reluctant to see UK specific regulations".[147]
102. We agree with the Minister
that action on improving the social and environmental impact of
mining needs to be taken internationally. We consider, however,
that the operation of existing legislation, in particular the
Companies Act 2006, could be improved to ensure that the social
and environmental impacts of companies listed in the UK and operating
outside of the UK are fully reported. We are concerned by suggestions
that the Companies Act 2006 is being ignored rather than implemented.
We invite the Government to explain what guidance is given to
companies for reporting social and environmental information,
what measures are currently being taken to monitor whether the
information provided in companies' business reviews is fit for
purpose and what action is being taken against companies that
are not complying with the guidance.
Unilateral action
103. We explored the extent to which the UK could
take unilateral action by asking the Minister whether the Government
should ensure that UK listed extraction companies "meet sufficient
social and environmental standards in their overseas mining activities";
he responded:
This is the kind of area where I think action is
best taken internationally. We are looking at ways in which we
can work with our partners on this and agree standards in the
extractive industries globally. I would be more wary of a particular
burden on a company that happens to have its headquarters located
in London and if a company's headquarters were located somewhere
else it would escape the burden. These issues are best tackled
with other countries alongside us.[148]
104. However, other nations are already acting
on this. The signing into US law on 21 July 2010 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)
saw the US lead the way in holding companies to account by requiring
oil and mining companies to disclose revenues they pay to governments.[149]
The Dodd-Frank Act also requires companies to provide information
on their use of conflict minerals (see paragraph 123).
105. We note the similarities between section
1504 of the Dodd-Frank Act in the US and the Private Member's
Bill, Resource Extraction (Transparency and Reporting) Bill,
which is due for its second reading in the House of Commons on
17 June 2011. The Bill aims to:
require certain companies engaged in oil or gas extraction,
and other mining activities, to disclose the type and total amount
of payments made to any national government, or any company wholly
or partly owned by a national government; and for connected purposes.[150]
106. We accept that international
regulation is the best way to ensure that UK listed extraction
companies meet sufficient social and environmental standards in
their overseas mining activities. The Government should advise
the House when and where it proposes to raise these issues in
international forums.
VOLUNTARY SCHEMES
107. There are other methods to promote good
social and environmental practice in the mining industry. Mining
companies can demonstrate their corporate and social responsibility
by joining international organisations that require adherence
to particular standards of mining. The Extractive Industries Transparency
Initiative (EITI) is an international body of members, including
governments and companies, that promotes transparency in mining,
primarily by requiring publication of all payments and revenues
a government receives from an extraction company.[151]
We heard from RCUK that:
Inter-governmental agreements (such as the UK-led
Extractive Industries Transparency Initiative) and the rise of
corporate responsibility initiatives amongst the western mining
sector (such as the Global Mining Initiative) have made major
advances in improving the social and environmental impact of mining
in the developing world.[152]
108. The problem with voluntary schemes is reaching
those nations and companies that are operating in a socially and
environmentally damaging way. We heard from Dr Jonathan Di John,
Lecturer in Political Economy at the School of Oriental and African
Studies, about the complex political and economic factors reasons
why some nations will not sign up to these initiatives:
The challenges of achieving a good governance agenda
and a transparency agenda in mining are going to be formidable.
We have the Extractive Industry Transparency Initiative, the EITI.
The World Bank championed this for the Chad-Cameroon pipeline
and it fell apart. As to one of the reasons why it fell apart,
one has to keep in context how political stability is maintained
in a country. Historically, and certainly in sub-Saharan Africa,
it was often maintained by bargains between different types of
elites, to give them incentives not to rebel against the state.
These bargains tended to take the form of giving huge economic
privileges and rents to various regional elites. Under state intervention
it was quite easy to do that because the state had big patronage
machines. Through state-owned enterprises they could control and
fix multiple exchange rates, give cheap credit and so on and so
forth.
In the era of economic liberalisation, a lot of the
hands of the state are tied. For instance, privatisation removes
many of the patronage opportunities that public enterprises [allow].
With financial deregulation there is less control of the financial
sector, so the patronage levers of elites to maintain stability
are much more restricted now than they were in the past. So you
are likely to see things like secret mining deals and the tolerance
for tax evasion. We are seeing those other ways to give elites
rents beginning to emerge. The problem of maintaining political
stability doesn't go away just because you have liberalised economically.
I think that it will be a formidable challenge to implement a
good governance agenda in these very poor countries because of
the nature of the way elite bargains need to be constructed. [...]
We must ask whether, historically, good governance has been the
means by which countries have maintained political stability.
If you look back in history, the answer is very troubling; regimes
have hardly maintained institutions that resemble anything like
"good governance".[153]
109. Another organisation that promotes social
and environmental good practice is the International Council on
Mining and Metals (ICMM): a professional organisation of mining
companies and associations, led by a council of the Chief Executive
Officers of the member companies.[154]
The Environmental Sustainability Knowledge Transfer Network (ESKTN)
told us:
With regard to ethical sourcing the leading mining
companies based in the UK participate in the sustainable mining
programmes and policies of the International Council for Mining
and Metals (ICMM). However there are potential problems with "invisible
imports" because of the difficulties ensuring the traceability
of metals incorporated in the parts or components of machines
and equipment.[155]
110. There are also labelling schemes that may
be useful to trace a metal's origin although, as explained above,
the origin of metal components in goods can be difficult to trace.
For example, the Fairtrade Foundation have begun a fair-trade
scheme for gold and an Ecolabel for the EU is being developed.[156]
The Natural History Museum stated that:
It may be possible to implement a "certificate
of origin" scheme that could track minerals along the supply
chain from mine to market. Industry-led efforts in this field
include pilot schemes by the Electronics Industry Citizenship
Coalition and the International Tin Research Institute. The Kimberley
Process, set up in 2003, addresses the trade in so-called blood
diamonds and is the most high-profile of this type of initiative.[157]
111. However, we heard from Professor David Clary,
Chief Scientific Advisor to the Foreign and Commonwealth Office
(FCO), that once a metal was "released" it was likely
to be very difficult to trace its origin.[158]
112. The Extractive Industries
Transparency Initiative and the International Council on Mining
and Metals are constructive initiatives, helping to address the
imbalance in national social and environmental regulations. We
encourage the UK Government to help grow their membership through
channels of international diplomacy and business networks.
113. Where labelling schemes
are possible, to trace a metal's origin from mine to market, we
conclude that the Government should support and encourage their
use.
Getting a fair deal for developing
countries
114. Many strategic metals are produced in the
developing world.[159]
Mining contracts in the developing world have been subject to
the International Monetary Fund's (IMF) Structural Adjustment
Policies (SAPs). Dr Di John, School of Oriental and African Studies,
gave us an in depth analysis of the effect that SAPs can have
on government revenues in countries where they were implemented:
In terms of social cost, from a developing country
perspective, I have done some work on the political economy of
tax regimes in sub-Saharan Africa, and in particular mining tax
laws. The current situation is that in many sub-Saharan African
countries a lot of strategic metals were nationalised and very
poorly managed. Many of these countries ran into very heavy debt
crises, and they were, in some sense, forced in their structural
adjustment programmes, to privatise. An example is the copper
industry in Zambia.
In return for that privatisation, there was a very
investor-friendly deal to companies to revitalise the copper mines
in Zambia, for example. In the 2000s Zambia was receiving a 0.6%
royalty on copper. That is, basically, peanuts. The IMF originally
endorsed that but now is coming round to saying that these countries
need to get a much better deal from mining in general. The tax
proceeds from mining would far outweigh any amount of increase
in aid from which they would be able to benefit during commodity
booms, which they are not. Zambia gets virtually nothing from
the commodity boom in terms of fiscal resources.[160]
Mr Lipmann, of Lipmann Walton & Co Ltd and the
MMTA, corroborated Dr Di John's analysis:
Zambia exports 700,000 tonnes of copper. That is
$7 billion today. That is before the by-products of silver, tellurium,
selenium, gold and cobalt, which [come] from copper as well, and
all the other things. Yet Zambia does not see anywhere near that
[...] That is because of the huge tax breaks that were given,
under pressure from the IMF.[161]
115. A royalty of 0.6% on copper mined in Zambia
is clearly very low; this was raised to 3% in 2007.[162]
An increase in royalties may help governments to regulate and
improve the social and environmental impacts of mining operations,
Dr Di John, School of Oriental and African Studies, continued:
I think we are likely to see a move in which the
IMF promotes an increase in the royalty rate, especially in poor
countries, because, in some senses, that is very consistent with
the social corporate responsibility movements, not just in the
OECD countries but in less developed ones. I would see a movement
towards a high royalty rate in mining generally, even in poor
countries.[163]
116. Charles Swindon, Chair of the MMTA Trade
and Lobby Committee, cautioned against raising royalties too far.[164]
This could be a disincentive to business and a restriction on
free trade. We note, however, the normal royalty on metals and
minerals for most countries in the Southern African Development
Communitya group of 15 nations of which Zambia is oneis
around 6%.[165] This
is similar to levels proposed in the US for mining on federal
land in the 2012 federal budget.[166]
117. Given that many of the
world's strategic metals reserves are located in the developing
world, there is an opportunity for developing nations to benefit
from mining revenues. Fair royalties on mining sales will equip
governments with funds that could be used to help improve social
and environmental conditions. We recommend that the Government,
through the UK's representation at the IMF, promote IMF Structural
Adjustment Policies that give a fair deal on royalties from mining
to developing nations.
"Conflict metals" in
the Democratic Republic of Congo
118. The situation in the Democratic Republic
of Congo (DRC) is extreme and highlights the risks to the stability
of the country associated with the extraction of metals from artisanal
or small-scale mines.
119. RCUK stated that:
Although formalised extraction by large enterprises
is the familiar face of mining in the west, informal artisanal
and small-scale mining (ASM) is a major extractive activity in
the developing world. Of the listed critical metals, only tantalum-niobium
(sometimes known as 'coltan' [columbite-tantalite]) is produced
in any quantity by ASM. The long-running civil war in the Congo
is, in part, caused by conflict over control small-scale coltan
mines. [167]
120. Mining for metals (niobium, tantalum, cobalt,
gold, tin and tungsten) in the DRC provides a livelihood for many
of its citizens yet sustains, and is in part responsible for,
the civil war. Mr Lipmann, of Lipmann Walton & Co Ltd and
the MMTA, explained why:
Tantalite has one particular problem, which is that
you can take it out with a bucket and a spade. It is artisanal.
It doesn't lend itself to huge companies. All the problems in
eastern Congo and western Uganda are because it is so easy to
mine. People are mining at the point of a gun. That is why the
war lords are able to have that power.[168]
121. Once material is extracted it needs to be
passed to multinational companies to be processed and exported
to manufacturers; this is the point at which international regulation
comes into play. Internationally, there are measures in place
to hold companies to account for their activities overseas. The
Organisation for Economic Co-operation and Development (OECD)
has responsible business conduct guidelines for multinational
enterprises, enforced at the national level by National Contact
Points (NCP).[169]
Requests can be put to the NCP to investigate complaints against
multinationals not following the guidelines. Amongst other complaints
in relation to the conduct of multinationals in DRC, in 2007 Global
Witness filed a complaint to the NCP against Afrimex (UK) Ltd,
a UK based minerals company. The NCP upheld the allegations against
Afrimex that it had initiated demand for minerals from a conflict
zone and paid taxes and mineral licences to RCD Goma,[170]
a rebel group credited with grave human rights abuses.[171]
The investigation of the complaint is now concluded and the NCP
made recommendations to Afrimex. However, Global Witness has noted
that "no follow up steps are taken to monitor [...] adherence
to the [...] recommendations".[172]
122. The OECD regulations require action to investigate
a producer that has been the focus of concerns over its practice.
However, in the US, companies are also required to provide information
on their use of conflict minerals. Under the Dodd-Frank Act, companies
must produce a detailed report on conflict minerals that they
use, defined as columbite-tantalite (niobium and tantalum), cassiterite
(tin), gold and wolframite (tungsten) or their derivatives, originating
from the DRC or an adjoining country.[173]
Mr Lipmann stated:
The laws which have come in, such as the Dodd-Frank
from the US about conflict-zone minerals, are actually changing
the situation on the ground. That is where law is beginning to
help. [174]
123. However, some mining organisations from
the region take a different view. As the Dodd-Frank Act requires
companies purchasing metals in countries neighbouring the DRC
to declare them, gold mining companies in Tanzania, and the Tanzanian
Government, fear they will lose business as a consequence of the
Act. Reuters Africa reported:
Mining firms see a possible 10 percent reduction
in demand for gold from the country as a result of the Dodd-Frank
legislation and a loss of more than 2,000 jobs in the sector.
[...] Tanzanian Deputy Minister for Energy and Minerals, Adam
Kighoma Ali Malima, said the U.S. legislation would have serious
ramifications for the country's economy.
[...]
TCME [The Tanzania Chamber of Minerals and Energy]
said Tanzania's annual gold export earnings could fall by $75
million and lead to a reduction of around $200 million in foreign
direct investment (FDI) due to an expected reluctance to develop
new mining projects.[175]
124. Artisanal mining presents
specific challenges in conflict areas such as the Democratic Republic
of Congo. The OECD guidelines are in place to hold companies to
account for their actions overseas. We are concerned, however,
that there is limited follow up in cases where allegations of
inappropriate conduct have been upheld. The Government should
work with the OECD to ensure that guidance for the follow up of
investigations is in place and available to all National Contact
Points.
125. In the US, under the Dodd-Frank
Act, companies are also required to produce a detailed report
on conflict minerals that they use. We recommend that the UK Government
evaluate whether similar legislation be introduced in the UK to
improve the social impact of mining in conflict areas.
129 The Blacksmith institute & Green Cross International,
The World's Worst Pollution Problems: The Top Ten of the Toxic
Twenty, 2008 Back
130
Ev 52, para 9 [Geological Society of London] Back
131
Q 21 Back
132
Ev w30, para 12 Back
133
"Celebrations as last trapped Chile miner is rescued",
BBC Online, 14 October 2010, www.bbc.co.uk/news/; "Blast
at New Zealand mine killed 29 men instantly, inquest told",
The Independent, 28 January 2011 Back
134
Ev w31, para 28 [Research Councils UK] Back
135
For example, Ev w30, paras 12-13 [Research Councils UK]; Q 83
[Mr Swindon] Back
136
Q 26 Back
137
Ev 52, para 9 Back
138
Q 21 Back
139
Qq 15-16 Back
140
Q 14 Back
141
Ev w31, para 27 Back
142
Ev w21, para 8 Back
143
Q 88 Back
144
Companies Act 2006, section 417 Back
145
Corporate Responsibility Coalition, The Reporting of Non-Financial
Information by FTSE 100 Companies, April 2010, p 8 Back
146
Corporate Responsibility Coalition, The Reporting of Non-Financial
Information by FTSE 100 Companies, April 2010, p 10 Back
147
Q 174 Back
148
Q 172 Back
149
US Federal Statute, Dodd Frank Wall Street Reform and Consumer
Protection Act, Public Law 111-203, section 1504 Back
150
"Resource Extraction (Transparency and Reporting) Bill 2010-2011",
Parliament online, http://services.parliament.uk/bills/ Back
151
"The EITI Principals and Criteria", Extractive Industries
Transparency Initiative Website, http://eiti.org/eiti/ Back
152
Ev w31, para 27 Back
153
Q 88 Back
154
"Homepage", International Council on Mining and
Metals, www.icmm.com Back
155
Ev 47, para 12 Back
156
"Fairtrade and Fairmined gold standards launched",
Fairtrade Foundation, www.fairtrade.org.uk/press_office/;
Ev w3, para 2.6 [Mr Morley] Back
157
Ev w24, para 15 Back
158
Q 138 Back
159
Ev w10 [Aerospace and Defence Knowledge Transfer Network]; Ev
57 [Royal Society of Chemistry] Back
160
Q 83 Back
161
Q 84 Back
162
"Mineral royalty tax", Zambia Revenue Authority,
2007, www.zra.org.zm Back
163
Q 83 Back
164
Q 84 Back
165
"Zambia maximises its revenue from production of metal",
Steel Guru, 8 March 2011, www.steelguru.com/metals_news/ Back
166
"(AMM) Obama budget adds mining royalty", Metal
Bulletin, 18 February 2011, www.metalbulletin.com Back
167
Ev w31, para 28 Back
168
Q 88 Back
169
"UK NCP - Steering Board", BIS Website, www.bis.gov.uk/policies/ Back
170
"August 2008: UK NCP Final Statement - Complaint from Global Witness against Afrimex (UK) Ltd",
UK NCP - Cases, BIS Website, www.bis.gov.uk/policies/ Back
171
"Global Witness vs. Afrimex", OECD Watch, http://oecdwatch.org/cases/ Back
172
As above Back
173
US Federal Statute, Dodd Frank Wall Street Reform and Consumer
Protection Act, Public Law 111-203, section 1502 Back
174
Q 88 Back
175
"Tanzanian mining group opposes U.S. disclosure law",
Reuters Africa, 3 March 2011, http://af.reuters.com Back
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