Hidden in plain sight: Commodity traders’ human rights impacts and responsibilities
Commodity traders play a key role in connecting global value chains by moving raw materials from the point of production or extraction, sometimes transforming them through processes such as blending, crushing, smelting before delivering them, often across distant geographies, to manufacturers of goods for retail markets. They are very much part of the global value chain – while they make the connections, they do not operate outside of it – and share in the environmental, social and governance (ESG) impacts, and associated management challenges arising out of global trade. Despite this, research on human rights impacts has mostly focused on upstream and downstream activities; the middle, where commodity traders sit, has received far less attention.
Switzerland is one of the world’s most important commodities trading hubs, with the sector accounting for about 4.8% of the country’s gross domestic product. Swiss-based commodity trading companies handle 60% of world trade in both metal and grains, 55% of trade in coffee and 40% of trade in oil – but their impacts are not always readily apparent. A review of the Business and Human Rights Resource Centre (BHRRC) Company Response Mechanism database from its inception in 2005 to September 2020 found 92 commodity-related responses to allegations of abuse were sought from Swiss companies. While this does not constitute the total number of allegations of abuses related to Swiss commodity traders over this period – BHRRC only actively seeks company responses to allegations of abuse when no public statement is available, and normally does not seek responses to lawsuits or regulatory sanctions – the hidden nature of the sector means that its impacts might be similarly indiscernible.
Over half the allegations (60%) involved impacts on communities, ranging from land rights abuses, displacement and violence through to death threats against community members and violation of indigenous rights (including the right to Free, Prior and Informed Consent or FPIC), as well as negative health and gendered impacts. In one in three cases BHRRC invited Swiss commodity traders to respond to impacts on workers – including allegations of child and forced labour as well as unsafe or deadly working conditions – while almost one in five allegations recorded (23%) related to environmental impacts, including access to water. Almost all impacts (95%) were reported abroad.
Although public scrutiny of commodity traders is increasing – in 2019, Gunvor was fined for corrupting public officials in the Republic of Congo, and on 30 June 2021 the Swiss federal prosecutor announced its decision to open criminal investigations into the company’s activities in Ecuador – accountability and remedy for human rights abuses remains rare. In 2006, a ship chartered by Trafigura dumped large amounts of toxic waste in Abidjan resulting in death, injuries from poisoning, and environmental pollution. While the company agreed to out-of-court settlements, it did not admit liability and denied links between the waste and deaths.
Even where they may not through their activities directly cause adverse impacts, the UN Guiding Principles on Business and Human Rights (UNGPs) expect all companies to conduct human rights due diligence to identify and address adverse impacts that they contribute or are linked to. Glencore has been accused of turning a blind eye to poor health and safety standards and the risk of child labour in cooperatives in Porco, Bolivia from whom it buys lead, zinc and sliver. The company rejected the allegations. The risk of trading in soy, palm oil, beef, cocoa, coffee, rubber or wood that is linked to deforestation is one that commodity traders need to address. Furthermore, a 2019 Public Eye report identified additional human rights risks associated with trading agricultural or soft commodities. The report also alleged the business model of agricultural traders contributed to abuse. These human rights challenges cut across hard and soft commodities as do corruption and illegal and unethical tax behaviour, which exacerbate poor governance, contribute to human rights abuses and deprive people of their wealth, thus perpetuating poverty.
Looking ahead: Mandatory laws
These risks are massive and challenging for any single actor to address. Human rights and environmental due diligence is a key instrument for companies in all sectors to manage their impacts and is increasingly becoming a legally mandated requirement in a number of European countries. New legislation in Switzerland will introduce an obligation for large companies to report on non-financial matters, including environmental and human rights issues, and mandate due diligence regarding child labour and conflict minerals. Commodity traders will no longer be able to hide behind complex and opaque value chains. But are they prepared?
With the regulatory framework in Europe and beyond tightening, there is a real opportunity to push for an end to companies passing the buck. For this a whole value chain approach is required, which means all actors including commodity traders must accept and act on their responsibility, and collaborate with other actors to find solutions.
While there have been voluntary initiatives and efforts, including by the OECD and the Swiss Government, to support commodity traders in implementing the UNGPs, research by the Responsible Mining Foundation on the ESG, due diligence and transparency policies and practices of 25 companies in the extractive commodity trading sector indicates that voluntary action will not be enough to bring about change. Twenty-three out of the 25 companies assessed (92%) scored less than 50% on ESG due diligence systems, with nine companies failing to demonstrate any evidence of measures.
The time has come for the commodity trading sector to step up efforts to address human rights and environmental risks linked to their operations and business relationships. With the regulatory framework in Europe and beyond tightening, there is a real opportunity to push for an end to companies passing the buck. For this a whole value chain approach is required, which means all actors including commodity traders must accept and act on their responsibility, and collaborate with other actors to find solutions. By doing so, they may avoid complicity and move towards value chains that work better for everyone.