Understanding your supply chain
The recent, tragic, incidents in the Bangladeshi garment supply sector demonstrated that some of the West’s best-known brands did not truly understand their supply chain. Buyers of raw materials, end-consumers and non-governmental organisations (NGOs) now seek assurance regarding the provenance of many of the raw materials and products we buy, questioning the social and environmental impact of their production. Similar questions have been asked and solutions developed for several commodities, including cotton, palm oil, electronic components, minerals and gemstones from conflict areas, and pulp and paper. Politicians, shareholders and a wide-range of stakeholders are now asking similar questions about coal.
The future of coal is unclear. Climate change has driven a rethink about how we generate power. Renewables will likely provide an increasing amount of energy globally, particularly in OECD countries. Developing economies are basing their economic growth on affordable, indigenous energy supplies, which, in China and India, often means coal. Meanwhile, the shale gas revolution will continue to impact the coal industry.
The changing energy mix
For utility companies responsible for generating energy to drive both industrial output and keep a nation’s lights on, the changing energy mix has provided opportunities to introduce new low-carbon technologies. However, there is still a need for the provision of a baseload of power. For many utility companies globally, this means thermal generation using fossil fuels – underpinned by large volumes of coal. New technologies will be introduced here also, such as carbon capture and storage (CCS), which will reduce CO2 emissions and breathe new life into the coal sector.
However it is used, it is important to understand:
- Where coal is sourced.
- How it is mined.
- The social and environmental impact of mining and transportation operations.
- The working conditions facing miners.
- The impact on local communities surrounding the mines.
Many experts predict coal mining will grow by more than 50% in the next 25 years. If this is the case, then we have a right to understand the answers to the above points. The buyers of coal should make it a point to know these answers. They have a societal and moral obligation to know. Companies should be able to demonstrate that they are managing the risk associated with their business and their coal supply chain.
Coal growth in emerging countries
Coal is increasingly being extracted in countries, such as Mongolia, Mozambique, and parts of Indonesia that have previously had modest coal mining operations. There is currently no global standard for coal mining and performance varies significantly across the world and from company to company.
To fill this gap, several major energy utilities – DONG Energy, EDF, Enel, E.ON, GDF Suez, RWE and Vattenfall – came together to create Bettercoal, the first global multi-company initiative aimed at improving conditions at mine level. Other companies have joined them, including the Finnish generator Fortum and the Spanish utility Gas Natural Fenosa and the Port of Rotterdam, one of the key entry points for coal into mainland Europe. Bettercoal, a membership organisation of major coal buyers, will seek to fulfil its mission by conducting independent mine assessments, facilitating industry best practice sharing and offering support to mine-level capacity building.
The cornerstone of the Bettercoal initiative – and the basis for these assessments – is the Bettercoal Code. This code defines the expectations of member companies for ethical, social and environmental practices and encapsulates what Bettercoal believes to be good performance.
During late 2012 and early 2013, Bettercoal undertook a global consultation of the code, asking stakeholders to give feedback on the code and the initiative. Stakeholder meetings in South Africa, Colombia, Indonesia and Russia demonstrated overall support for such an initiative and indicated the code is robust and necessary. There are challenges in implementation. But for the first time, as a result of the Bettercoal initiative, coal buyers will have robust data on supplier performance rather than simply asking the supplier to abide by a code of conduct with little or no compliance measurement.
The Bettercoal principles are aspirational and set the tone for the rest of the provisions, which provide concrete expectations for coal suppliers. These provisions provide guidance in assessing the ethical, social and environmental performance of the coal extraction activities at the mine level. The focus will initially be on assessing current performance levels, communicating performance expectations and gaining support for adoption of better practices. Overtime, this will evolve to provide on-the-ground assistance, including relevant tools, guidelines, training and leading practices. This will provide greater assurance to coal buyers in Bettercoal.
Bettercoal has developed assessment guidelines that sit alongside the code. These provide qualified assessors with an objective assessment guideline of how mines perform against the code expectations. Self and third-party site assessments will address both actual performance (e.g. legal compliance) and management systems. Bettercoal believes that management systems must be in place to assure good performance and continuous improvement, and that certain levels of performance are required in certain areas, such as minimum age, working hours and environmental compliance.
Bettercoal members receive the performance assessments. They are obliged to integrate the assessment results into their own business decision-making and future coal purchasing decisions. It will train members’ coal buyers and compliance and risk officers on the code and its assessment toolkit, develop guidance on how to use assessment results and report on implementation progress.
Bettercoal is a long-term initiative supported by a growing list of major utility companies. However, it is open for membership to major coal buyers from other sectors, such as iron and steel, and cement manufacturers. There is a long road ahead, beginning with assessments of performance of major coal suppliers and then moving deeper into the coal supply chain.
Coal will be used in power generation and other purposes for years to come. While it is, we have a responsibility to ensure the coal supply chain is one where leading ethical, social and environmental performance is the norm and not the exception.
Martin has 20 years of experience working in the energy and extractive sector. As executive director of Bettercoal, he is responsible for this coal supply chain initiative and all aspects of the company’s development. This article was first published in the July 2013 issue of World Coal.
Read the article online at: https://www.worldcoal.com/coal/14082013/understanding_your_supply_chain_315/
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