17 November 2023

‘Greenwashing’ fears plague mining audit industry

Maria Maggiore
Maria Maggiore
Chris Matthews
Chris Matthews
Mining companies use certification bodies to conduct social and environmental audits of their operations. But most schemes are voluntary - and beset by conflict of interest concerns and fears that communities are being overlooked.
“People are very afraid to speak out, because it would mean going against the main company in the region.” 

Beneath Chile’s vast Atacama Desert lies precious water - and the source of Ramon Balcàzar’s frustrations. Water rich in lithium salts abounds here, and Sociedad Quimica y Minera de Chile (SQM) controls much of it.

Its Salar de Atacama lithium mine is a major global supplier of the battery-critical mineral. It is also highly controversial, having faced allegations of environmental breaches and local opposition. And in September an independent audit of the site was published as part of SQM’s membership of a responsible mining initiative. 

Over the past two decades a slew of voluntary standards promoting best practice have been created. Mainly in response to high-profile disasters and exposés of mining’s destructive impact. Such schemes are designed to help clean up the sector, but critics argue that similar programs offer a veneer of sustainability.

Irma, the Initiative for Responsible Mining Assurance, developed by end-buyers like Microsoft and Tiffany & Co together with NGOs, is seen by many as the most thorough. Its Standard for Responsible Mining, used to audit SQM, assess a mine’s social and environmental performance. It was launched in 2018 to accommodate equally views of communities, labour unions, campaigners and industry. Its 60 members also include car manufacturers, like BMW and Volkswagen, which need ever-more lithium and mined materials for electric vehicles.
Lithium mines in Chile's Salar de Atacama, including the SQM operation.Google Earth

The SQM audit received a high score (75/100). But Balcàzar, a coordinator at the Observatory of Andean Salt Flats (Opsal), a regional NGO cooperative, believes affected locals were not adequately consulted. Auditors interviewed only eight people from four indigenous communities during an on-site visit. The report said that “due to time constraints, not all communities beyond the area of direct influence were engaged”.

“SQM is one of the most harmful companies of Chile, they are destroying the Salar de Atacama and now use Irma certification for greenwashing at international scale,” Balcàzar says. 

A bribery case involving a former SQM executive and several politicians began in February this year. Meanwhile, Chile’s environmental court told Investigate Europe that a probe into alleged breaches at the mine is still ongoing. SQM was charged in 2016 with six infractions and the firm then submitted compliance plans to resolve the case. However, indigenous communities have called for sanctions to be upheld and environmental authorities inspected the site in February.

The Irma audit noted some improvements were needed, including security and waste management. Yet Opsal and others are fearful of possible future water shortages in the Atacama, and the loss of ecosystems and wildlife around the salt flat.
Chilean authorities inspect the SQM mine in February 2023, in relation to a legal claim made by the Atacama Indigenous Council. Primer Tribunal Ambiental

In a statement SQM said its lithium has “one of the lowest environmental footprints” globally, and that the firm aims to produce carbon neutral lithium by 2030. It added that the company contributes “$10-$15 million annually to neighbouring indigenous communities”, and follows robust due diligence processes. SQM said that they also shared value with the wider commune of San Pedro de Atacama close to $20 million in 2022.
“SQM’s corporate sustainability reports, published since 2006, according to GRI since 2010, and independently audited since 2020, document all SQM’s activities with local communities,” the statement said. “We are proud of our continuous open dialogue with our neighbors. SQM has comprehensive agreements with 4 out of 5 communities in our area of influence.” 

Balcàzar says that the monetary contributions made by SQM to communities and the region, which have recently come under scrutiny, do not solve the long-term negative impacts of the mine.

“Injecting big amounts of money into communities, municipalities and universities does not resolve the environmental unsustainability of lithium (or copper) mining in Salar de Atacama…  ecosystems are damaged perpetually,” he adds.

SQM is one of the most harmful companies of Chile, they are destroying the Salar de Atacama.

Ramon Balcàzar

Irma told Investigate Europe that the audit could have been “more deeply informed” by increased feedback from indigenous peoples and civil society. Executive director Aimee Boulager said people were “rightly still sceptical” as Irma is new and only four audits have so far been completed. 

The auditors were ERM CVS, a UK firm owned by private equity giant KKR. It is part of ERM International Group, a consultancy with several mining clients. The business is part-owned by Corporación Financiera Alba, a Spanish investment fund. Alba also owns a stake in Acerinox, a stainless steel conglomerate, dependent on raw materials. Acerinox board member Tomás Armengol is a non-executive director at the ERM group. Corporación Financiera Alba did not respond to requests for comment.

An ERM spokesperson said its audit business is a separate and independent entity of the wider group. “ERM CVS is accredited to ISO 17021, which is the International Standard that specifies the requirements for certification bodies to ensure their independence and that management system certification work is carried out in a competent, consistent and impartial manner.”

However, as with all private equity funds, it is unknown who put up the money used by KKR to buy a majority stake in the ERM group. When asked how they could avoid conflict of interest if it is not known who the ultimate owners are, ERM said: “ERM does not have access to any KKR fund information. KKR does not have access to any ERM individual client information.”

The firm said it engaged several local stakeholders during the SQM audit, adding that it offered further interview opportunities to locals but received no responses.
Opsal campaigns against mining projects in Chile, Argentina and Bolivia.Opsal

ERM CVS is one of two Irma-approved auditors. It has completed two further Irma audits to date, including one of the Abermarle Salar de Atacama lithium mine which scored 50/100.

Audits are paid for by the mining firms directly, thus creating a business relationship with auditors, and stoking conflict of interest fears. 

Human Rights Watch, an Irma board member, said in May: “Irma still needs significant improvement… to safeguard the independence of its audits and to tackle actual or perceived conflicts of interests between audit firms and mining companies. Irma should also work to more effectively push mining companies to correct and remedy harms identified during audits.”

Even Irma itself recognises the current weaknesses. “We absolutely see risks in the potential auditor conflicts of interest,” Boulager said. She admitted trust is still being built, but said Irma’s detailed multi-stakeholder approach and the fact that reports are made public, separate it from other initiatives. 

“Irma is thus not only working to address conflict of interest, but to drive a fundamental change in how auditing is done… with community members and workers safe to engage and offer their full range of insights.” 

Anglo American is another member of Irma. Despite being part of several voluntary schemes, the multinational is facing backlash over a copper mine expansion in Chile and was accused in 2021 of failing communities at an iron ore development in Brazil. That mine is now being audited by ERM CVS.

Irma still needs significant improvement… to safeguard the independence of its audits and to tackle actual or perceived conflicts of interests.

Human Rights Watch

It was at another Brazilian iron ore mine in 2019 that a spotlight fell on the audit industry. When a dam at the Brumadinho mine collapsed, it triggered a mudslide that killed hundreds. Only weeks before the tragedy an inspection by a certification body deemed the dam “stable”. 

Several other schemes have also been linked to controversies. Cecilia Mattea of Transport and Environment, a Brussel-based NGO and Irma member, says Irma is the most reliable in a “jungle” of offerings. But warned: “It still remains too closely linked to internal documents provided by companies. In general, certification schemes cannot replace the environmental and social laws of a state.”

The International Council on Mining and Metals and other groups were criticised in September over their plans to launch a new industry-led audit program. A letter from 35 NGOs said the proposal “would entrench mining industry control” over standards.

“The end result will be a standard that lacks the transparency and rigour needed to provide credible information,” the letter read. “This would harm the credibility of the companies involved and may be considered ‘greenwashing’.”

Still, in the new Critical Raw Materials Act, an EU regulation aiming to revive mining across the bloc, the European Commission intends to partly rely on voluntary standards. If a mining company has scored positively, that could then help them obtain a green light for a strategic mining project. Under the plans, certifications will be used to help accelerate new licences in Europe for lithium, copper and rare earth mines.

Environmental groups argue that schemes should not be regarded as a ‘safe harbour’ for companies. “We hope that the final version of the European raw materials regulation will give less value to certifications, which can add information about a mining project, but not act as a sustainability label,” Mattea says.

Additional reporting: Manuel Rico


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