London Metal Exchange LME - Sustainability Strategy and LMEpassport Roll-Out
The London Metal Exchange announced plans to move forward with its sustainability strategy. The LME’s sustainability strategy hinges on providing metal market participants with the option for greater transparency and access in respect of sustainably produced metal and metal that itself plays a significant role in global decarbonization and the circular economy.
Matthew Chamberlain, London Metal Exchange (LME) Chief Executive, commented: “We are grateful for all the feedback we received as part of the discussion process. We are mindful of the diverse views of market participants – particularly in respect of our sustainable aluminum proposals. This disparity in views highlights that greater industry coalescence around standards, definitions and sustainability goals is the first step in overcoming the sustainability challenges facing our industry, and our strategy considers the building of such consensus as a primary focus.”
The initial focus for the LME’s plans in respect of sustainable production is aluminum, upon which much of the market feedback focused. While some respondents felt the LME should go further and introduce a separate low carbon aluminum contract, others were concerned about the impact this could have on the LME’s primary aluminum futures contract. While the LME understands the drivers for both of these positions, it continues to believe the market is not yet in a position to be able to adequately support a second contract, and changing the requirements of its existing contract would oppose the optionality upon which its strategy is premised.
Next Steps: LMEpassport
The LME’s planned launch of a digital credentials register, LMEpassport, received strong support – both from its own discussion paper feedback and that of the sustainability paper. The new system will enhance standard industry quality assurance documentation, and allow verified sustainability credentials to be disclosed on a voluntary basis and in accordance with a set of agreed sustainability categories. Starting with aluminum in 2021, LMEpassport will be rolled out gradually over three years across those of the LME’s physically settled metals requiring certificates of analysis (CoAs).
Based on feedback received in respect of the proposed types of sustainability-related disclosures and certifications that would be supported by LMEpassport for aluminum, the LME has provided some further guidance. The principles for inclusion will be based on market support, specificity and the provision of adequate audit or validation documentation.
In particular, the LME notes calls from the market for solutions allowing comparability between disclosures on two important topics: carbon footprint and recycled content. While the LMEpassport approach will facilitate disclosure under existing standards, its data model will capture both the quantitative data, but also the methodology used to calculate that data. This will then allow far easier comparison across metals brands.
“We received some extremely helpful feedback that we’ve taken on board in respect of the types of sustainability disclosures, certifications and validations we should be supporting initially in the roll-out of LMEpassport and by extension our online marketplace,” said Georgina Hallett, LME Chief Sustainability Officer. “Since we are committed to providing optionality in the first instance, we will not introduce any mandatory disclosure requirements; however we do recognize the demand for such disclosures and the potential value of such a step, and will continue to assess stakeholder views as we broaden the scope of our new platforms to include additional metals markets.”
The roll-out of LMEpassport will be a priority for the LME’s sustainable production strategy as it will provide the necessary centralized transparency source – the data from which will form the basis of future access to sustainable metals via the LME’s proposed online marketplace.
2021 will also see the launch of four new contracts – designed to provide pricing and access to metals that support the electric vehicle transition (lithium hydroxide) and the circular economy (US scrap aluminium and regional steel scrap for India and Taiwan). There was broad market support for these contracts and for the decision to delay their launch from 2020 given market conditions in light of the pandemic; however, some respondents were keen to see a greater focus on new contracts and efforts to support the circular economy. The LME will continue to engage with its metals committees and other stakeholders on this topic and remains ready to provide additional tools to support the recycling agenda.