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Managing shared risks

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World Coal,

Much has changed in the coal industry over recent years – but not the need for coal buyers and suppliers to manage social and environmental risks in the supply chain, argues Martin Christie, Executive Director of Bettercoal.

In July 2013 in this column, we flagged Bettercoal as a new supply chain initiative, seeking to make a positive impact on the ethical, social and environmental performance of coal mining. Much has changed since then – both for the initiative and for the context in which we all operate. What has not changed is the need for coal buyers and coal suppliers to identify and manage social and environmental risks in the supply chain.

And the industry context will remain complex and uncertain. While some continue to contest climate change science, 195 nations signed the COP21 agreement in December 2015. Even though coal has taken a fall, policymakers, companies and investors know that approximately 80% of all commercial energy consumed comes from fossil fuels. Coal will thus continue unabated in the short-term with several developing nations expected to continue to increase their demand for energy and infrastructure in the years to come.

Within this context, the rout of commodities in 2015 – 2016 has also impacted coal producers. Several US coal companies that Bettercoal had been working with filed for Chapter 11 bankruptcy protection; we are witnessing asset sales, changes of ownership and supplier companies restructuring.

However, this does not create an excuse for inaction for any party. Human rights and other social and environmental considerations are defining investment factors. Existing standards, such as the UN Guiding Principles on Business and Human Rights and OECD Guidelines for Multinational Enterprises, require companies and the financial community to conduct appropriate due diligence.

Bettercoal’s position is straightforward. As long as coal is a relevant source of energy and is used in production processes for steel and cement, the need to evaluate social and environmental impact caused by the extraction process is imperative. At the same time, we must recognise and share the best practice that some mining companies have taken to safeguard their licence to operate. To achieve this, we have designed an enabling system, rather than a certification system, which focuses on continuous improvement, rather than simply compliance.

Bettercoal offers a comprehensive assessment toolkit to help coal consumers and mines fulfil their due diligence on shared risks. These are the same risks that our members, coal buyers, see in their supply chain and are compelled to perform due diligence upon.

So what of our progress? In addition to completed self assessments, we have commissioned independent assessors to undertake site assessments in Colombia, Indonesia, Russia, South Africa and the UK. An important milestone was the re-assessment of the Colombian mine, the first to go through the full assessment cycle. More importantly, the ongoing engagement of this mine demonstrated the validity of the continuous improvement model.

We share our members’ wish to see quicker progress in the assessment programme and in 2015 we put in place activities to support this. Feedback from coal suppliers indicated that direct engagement helps them to understand the importance of the Bettercoal initiative and its relevance in coal purchasing decisions.

We have listened to all our stakeholders and are working to improve the Bettercoal system, including: strengthening our assurance framework and ensuring it is clearly communicated; reducing the burden on coal suppliers while, at the same time, demonstrating to them the value of participation in the assessment process; and tackling the challenge of how Bettercoal can work with coal traders and trading platforms.

To support us in our work, we established a multi-stakeholder technical and advisory committee including civil society stakeholders, a decision-making body that reports directly to the board of directors. This is an important step forward in the governance of Bettercoal and includes valuable insights from coal suppliers, Anglo American, Canyon Coal Pty Ltd (South Africa) and Glencore.

The challenge for 2016 – 2017 is to grow the assessment programme to include more coal suppliers. This is in progress with further site assessments in the pipeline in Kazakhstan, Poland and the US. And we have to look beyond that. The current Bettercoal membership is made up of some of Europe’s largest energy utilities. While we consolidate the Bettercoal assessment programme on coal imports into Europe in 2016, we need to examine our future strategy. Given the changing global context, we will need to understand how to deliver impact in regions where coal will continue to be the primary energy source for several decades to come.

Coal will continue to be challenged in a world transitioning to low carbon sources of energy. Those with billions of dollars invested in resources and reserves should be working more closely with those heavily invested in thermal generation, steel and cement. The CO2 debate will unfold over time – impacts on environments and communities close to mines are the here and now. There is and should be an even greater desire to address the shared risks with a real incentive for those in the supply chain that do so.

About the author: Since 2012, Martin Christie has been Executive Director of Bettercoal, a non-profit company that promotes the continuous improvement of corporate responsibility in the international coal supply chain. Previous roles include Head of Communication & Sustainability at BP Biofuels and Director of Corporate Social Responsibility at Katanga Mining.

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