Commodity Trading – A Matter of Responsibility
The commodity sector is controversial in Switzerland. Human rights violations, environmental damage, and corruption are some allegations faced by the industry. The call for a more sustainable approach is, however, also a matter of responsibility. This was the focus of the 19th Lifefair Forum in Zurich.
In January 2015, seven inhabitants of the Zurich region made their way to Colombia. Their goal was to visit Glencore's coal mines – and point out any irregularities that needed to be eliminated. The trigger for this campaign was the fact that Ivan Glasenberg, CEO of the commodity giant, had to pay the canton of Zurich supplementary taxes in the amount of CHF 360 million in 2012. As a result, voters from several communities requested that part of that money benefit various aid organizations active in commodity-producing countries.
The request was the basis for the travel group's interest in resettlements, pollution, and worker exploitation. The result of this fact-finding trip was a critical 50-page report, addressed to Glencore. The CEO's reaction to this was surprising; he issued an invitation to the travel group and NGO representatives to accompany him on a second trip to Colombia. Insight in video form from this second trip, which took place in March 2015, was then shown at the opening of the 19th Lifefair Forum on the topic of "Discussing Commodity Trading" on June 8, 2015 (see box).
Switzerland as a Hub in the Global Commodity Business
This citizens' initiative not only shows that a sector once described as secretive is increasingly drawing public scrutiny, it also makes it clear that there is a certain willingness on the part of Swiss commodity groups – at least in Glencore's case – to publicly discuss the challenges in this sector.
There are various approaches to this topic, as Bruno Bischoff from Sustainability Affairs at Credit Suisse explained. One aspect is economic access. According to a 2013 estimate from the Swiss Federal Department of Finance, between one-fourth and one-third of international commodity trading is done by companies in Switzerland, making the country one of the most important commodity trading centers in the world. Another important aspect is personal responsibility; we are all – directly or indirectly – consumers of coffee, sugar, copper, nickel, and much more. This leads to the question of whether the consumer is responsible for developing a certain awareness of how commodities are produced locally.
Achieving Dialogue through Pressure?
The question of responsibility was extensively discussed in the forum. For instance, Michael Fahrbach, Global Head of Sustainability at Glencore, insisted in his keynote presentation that corporate responsibility is a key topic at Glencore. "Without social consensus, successful management is not possible. This is why we are committed to clear and binding standards that take into account human rights, environmental protection, and employee safety." Unfortunately, however, corporate responsibility within the commodities sector is often called into question in the public debate. This is despite the fact that Glencore has a detailed sustainability plan; although the implementation of measures and the achievement of solutions also take time. The problem is that the debate is sometimes too emotional, pushing facts into the background – "which is why we need more dialogue and fewer accusations."
Chantal Peyer, from the NGO Brot für Alle, stressed that while some major corporations had made changes to their corporate policy, the specific effects of these policies had not yet been felt in the developing countries. In Katanga, for example, rivers are still being polluted – by Swiss companies among others. External pressure is often decisive here for more transparency. "Many companies only follow a more sustainable approach once they are listed on the stock exchange, when they respond to media reports, or when they have to justify themselves to their shareholders." As a result, many privately held Swiss commodity companies still have the problem that they often do not have any specific information available on their sustainability and human rights policies. "In this area, most commodity groups are just getting started. At Glencore, for instance, change has been visible only since they went public in 2011," said Peyer.
Transparency – Changes in the Wind?
The transparency of commodity companies has repeatedly been the object of Swiss media reports in the last few months. On the one hand, the Swiss Federal Council has been praised on various occasions for implementing transparency requirements for commodity-producing companies as part of the revision of company law, but was also criticized for not applying them to commodity trading. On the other hand, Trafigura, one of the largest commodity traders, announced in November 2014 that in future it would voluntarily disclose payments to governments of 34 EITI (Extractive Industries Transparency Initiative) countries.
What role should the state play in this? Bruno Sauter, General Director of the Office for Economy and Labor for the Canton of Zurich, sees a clear division of responsibility. While the public should continue to ask critical questions, the state should only step in as regulator when something is wrong, because "the state cannot and should not regulate everything preventively."
The President of the Zug Commodity Association, Martin Fasser, also provided his opinion on the subject: "In this debate on transparency, the public and the critics expect too much. Much of what is traded in Switzerland comes from integrated companies – meaning companies that trade, mine, and produce, and thus regularly buy their own products." Company-internal trading, however, is subject to different disclosure obligations, he explained.
Outlook: Improvements in the Area of Sustainability
No one on the panel disputed that the complex commodity sector still has many hurdles to overcome in the area of sustainability. So how can progress be made in this area over the next five to ten years? For Thomas Hentschel, Director of the Swiss Better Gold Initiative, it is clear that consumers should take on more obligations. "Consumers must also be willing to pay higher prices for more sustainable and more responsible products."
Fahrbach reiterated this point, stressing that companies are not in a position to solve the problems alone. Partnerships are therefore crucial. Corruption or other forms of mismanagement can only be resolved jointly. However, as Peyer pointed out, significant progress requires regulation and urgent due diligence for human rights and environmental protection, which is why the government must act.