Ecolabeling in the Multinational Mining Industry: A Method toward Environmental Sustainability.

• Author: Maze, Rezina

TABLE OF CONTENTS I. INTRODUCTION 248 II. HISTORY OF ENVIRONMENTAL GOVERNANCE 251 A. Social Licenses to Operate 254 B. Influential Financing 256 C. Current Labeling in Mining 258 III. DIFFERENT ECOLABEL REGIMES AND THEIR VIABILITY 259 A. Public Ecolabeling Regimes 260 B. Private, Market-Originated Ecolabeling Regimes 266 C. Type of Ecolabel 269 IV. NGO-LED PRIVATE ECOLABELING REGIME 271 A. Mechanics of an NGO-Created Ecolabel 272 B. Why an NGO Label Is Effective and Why It Matters 277 V. CONCLUSION 280 I. INTRODUCTION

Organic. Dolphin-safe tuna. Energy Star. Blue Angel. All of these have something in common: they are ecolabels designed to convey a message of environmentally friendly production practices or usages to consumers. Ecolabels do not have one singular definition. For the purposes of this Note, ecolabeling is an effort of environmental certification standards that companies use to identify environmentally preferable products in the industry. (1) Due to the consumer education aspect of ecolabels, pressure from corporate buyers, and efficiencies that companies identify during the ecolabeling process, industries are incentivized to improve production processes to make them environmentally friendly. (2) This Note focuses on consumer demand for sustainable products as well as other market factors relating to sustainability, which has risen throughout the twenty-first century and only continues to rise with the international emphasis on combatting climate change. (3) Demand for ecolabeling existed in the consumer market prior to the early 2000s, (4) but ecolabeling has not proliferated many industries. Prominent industries with ecolabeling schemes include the seafood, timber, and consumer-appliances industries. As of the end of 2022, there are 456 tracked ecolabels across twenty-five industry sectors in 199 countries. (5) One industry noticeably missing a transnational, comprehensive ecolabeling regime is the mining industry.

The criticism the mining industry receives is due to the noticeable impact on the environment that mineral extraction creates and the impact of the usage of extractives on greenhouse gases, like coal. The industry is also infamous for blood, or conflict, diamonds, which now come with stronger reporting and authentication requirements (although only recently has a new reporting standard included the environment as a factor). (6) Often, mining companies are excluded from any socially responsible investment (SRI) from the financial sector due to their negative impact on the environment. (7) The reputation the mining industry cannot shake is in part due to the vast negative impacts of mining not only on the environment but also on pollution and health. (8) A report commissioned by the industry in 2002 to examine the industry's environmental, social, and human rights impacts demonstrates the mining industry's awareness of the negative environmental impacts that mining and production produce. (9) Corporate social responsibility (CSR) initiatives are among the most extensive in the mining industry, with growing engagement throughout the industry. (10) Even with the prominence of environmental and social governance (ESG) goals, mining corporations utilizing these goals do not have a strong enough incentive to enact tangible change. This leads to selective reporting and greenwashing. (11) Critiques of mining industries' ESG goals include a lack of actual effort and concern companies are just utilizing ESG goals as a public relations stunt. (12)

While organizations exist that regulate and monitor mining companies, they often do not include enough large-scale mining companies to create a globalized impact making a difference, or they focus on just one mineral. (13) International monitoring systems, like the United Nations Development Programme (UNDP) or the International Institute for Environment and Development, do not provide any true sanction to these corporations because there are no enforcement mechanisms in place. Other governing organizations with guidelines, such as the Initiative for Responsible Mining Assurance, have difficulties enforcing guidelines and move slowly, even if they have stronger technical knowledge of mining operations due to industry involvement. (14)

With the prominent rise of ESG goals in consumer-facing corporations, suppliers are presented with an opportunity to further environmental goals while meeting corporate customers' demands. (15) Because multinational mining companies do not often supply goods directly to the consumer (buying the final product that used the mined minerals), the mining companies are in a unique position to promulgate standards that start at the beginning of the supply chain process: extraction. (16) Since mining companies do not directly deal with the consumer, ESG goals within the mining company are not the sole means to effectively promote environmental sustainability and should not be the only means. While corporate reputation is a strong driver of market and consumer decisions, which can increase environmental efforts toward sustainability, supply chain pressure is another significant motivator. (17) That motivation is clear, because over three-fourths of the largest firms in eight global sectors utilized environmental supply chain contracting requirements in 2022. (18)

Ecolabeling provides the mining industry an opportunity to improve its environmental "street cred" because it promotes a regime that signals the environmental impact of production of extractives for consumers to differentiate and rank based off preferences. (19) As multinational corporations focus on CSR initiatives, ecolabeling can further those initiatives while creating a uniform means of promoting sustainability in the industry, starting from the source. Ecolabeling's success in other industries emphasizes the mining industry's opportunity to commit to sustainability and environmentalism while maximizing profit because corporate buyers are increasingly listening to consumers' demands, as seen with ESG goals and the increase of environmental supply chain contracting.

This Note analyzes the monitoring frameworks that the mining industry currently utilizes for sustainability initiatives and the possibility of initiating an ecolabeling regime. Part II examines the current ways multinational mining companies protect environmental sustainability and the current international mining governance framework. Part III analyzes the continued use of voluntary inclusion in industry councils and organizations for environmental protection and other ecolabeling regime possibilities as well as the trade implications public regulation of ecolabeling has. Part IV argues that private ecolabeling is a solution to further integrate sustainability goals in multinational mining corporations while avoiding the pitfalls and litigation a public regulatory regime brings.

2. HISTORY OF ENVIRONMENTAL GOVERNANCE

   Mining, from discovery to processing, is one of the most environmentally disruptive industries in the world. (20) The rise of CSR (and ESG goals) is largely due to the volume of the extractive industry's environmental disasters that have taken place since the 1960s. (21) As such an essential industry, mining's impact on the environment (and sustainable development, including human, Indigenous, and labor rights) cannot be ignored. However, mining companies' own environmental and sustainability reporting does not equate to actual action. The industry is aware of ESG goals and reporting but is guilty of not disclosing much detail about actual quantitative environmental impacts. (22)

   Private environmental governance often uses the same instruments as public environmental governance, such as information disclosure, marketable permits, and more. (23) Where public governance provides exceptions or gaps in environmental regulation, private governance can fill such gaps through emphasis on consumer preferences and contractual requirements. (24) Relating to carbon emissions, private governance focuses on inducing industrial companies to report on their corporate-wide emissions, while public governance focuses reporting requirements only on specific, large facilities. (25) Large companies that impose environmental standards throughout their supply chains are another effective example of private environmental governance that permeates multiple industries. (26) The social pressure companies face to protect the environment emphasizes the role that information disclosure has on companies' social licenses to operate, providing yet another private governance tool. (27)

   The concept of a social license to operate helps to explain the social risk faced by the mining industry because of mineral extraction's high social and environmental cost. (28) A social license to operate is essentially the acceptance and support of stakeholders near the mine, as well as the support of society as a whole. (29) By utilizing information accessible to consumers, companies can harness market pressure to comply with their social licenses to operate. (30) Consumer concerns regarding the environment can provide a strong pressure for companies to change products or supply chain management to implement environmentally friendly practices. (31) To earn a social license, mining companies cannot ignore their CSR activities--rather, their efforts to promote CSR are the reasons that mining companies have a social license. (32) It requires mining companies to do the morally right thing, rather than comply with minimum regulatory standards. (33) Not only does it provide mining companies incentive to comply and prioritize CSR, a social license is an "essential risk management tool" for mining companies because without stakeholder engagement and approval, mining operations are often delayed and costs rise. (34) However, not all companies highly value the social license to operate, creating an area that private environmental...