Bettercoal: Tackling sustainability issues in coal purchasing

The energy transition has many facets. Not only is the structure of electricity generation shifting, but the procurement of fossil fuels is changing as well. In ever more places in the world, natural gas and coal are now being traded on commodity markets, somehow comparable to petroleum. It has not always been this way, especially with coal, which was previously obtained mainly from domestic mines. But this is changing now. In Germany for example, 2018 will mark the end of domestic extraction. Germany is already supplying a huge amount of its demand forcoal from other continents. This leads to new challenges with regard to sustainability issues.

The markets have become a great deal more liquid. Most of the coal on offer comes from mines in South Africa, Colombia, and Russia; their geological features allow coal to be extracted at significantly lower costs than in Western- European countries like Germany. However, there is a lack of knowledge concerning the conditions under which such mining takes place and allegations have been made that the mining in thesecountries has an negative impact on workers, the local people and the environment. Many of these countries do not have the detailed environmental impact assessments, socially acceptable resettlements, and rules for workers’ representation in decision-making that we take for granted in OECD-countries. Often the statements issued by mining companies contradict reports from environmental associations, human rights organizations, and trade unions.

So energy suppliers face a quandary: How can they maintain supply from commodity markets and ensure sustainable mining conditions at the same time? The “Bettercoal” industry initiative is one approach to cope with this challenge. The aim of Bettercoal is to use independent auditing to generate more knowledge about the environmental and labor standards in coal mining. Such auditing should also provide more information about the involvement of local populations and the rights of employees; these will be audited at selected mining locations.

Energy suppliers can use this information to understand how coal is extracted in these countries. Analyzing conditions at these mines should not only provide more information, but also have an indirect effect on improving the local environmental and labor conditions. Participants in the Bettercoal initiative include RWE, Dong Energy, EDF, E.ON, Fortum, GDF Suez, Vattenfall, and Gas Natural Fenosa. The Port of Rotterdam, where a large amount of coal ends up, has also been admitted to the group as an associated member. Last summer, Bettercoal developed its own Code. The Bettercoal Code demonstrates the ethical, social and environmental principles that organization members expect from their business partners throughout the coal supply chain. One example from the Code is that employees must be granted freedom of association and the right to organize. The Code follows international standards and principles such as the guidelines of the International Labour Organization, the Performance Standards of the International Finance Corporation and those of the Initiative for Responsible Mining Assurance. Local considerations are included in addition to international norms. Detailed consultations about such considerations took place in the mining countries of Colombia, Russia, South Africa and Indonesia before the Code was adopted, with local trade unions, human rights groups and environmental supporters contributing feedback during the process as well.

The first audits based on the Code have started in 2014. The results of these audits will be made available to Bettercoal members to allow companies to decide for themselves whether, and under what conditions, they will engage in future business with the operators of the audited mines.

This will also lead corporations to revise their own thinking: Rather than limiting their risk assessments to considerations such as credit ratings and legal integrity, companies can adopt additional criteria. This new challenge will chiefly affect the trading desks at energy suppliers. With the results of the trial assessment audits, Bettercoal has already explored ways to trigger new learning processes inside companies and among stakeholders. For example, the consultation process has laid bare the specific challenges that the implementation of such a standard entails; these vary according to the region of the actors and the respective steps in the value chain.

Membership in the Bettercoal initiative is open to coal users from anywhere in the world, which means that companies such as cement and steel manufacturers are welcome to join along with energy suppliers. The initiative will first concentrate on mining operations that supply the international markets, but the Code, its standards, and its experiences will be made available globally to all interested and affected parties.

The prognosis from the International Energy Agency shows that these questions will be no less important in the future: Despite the development of renewable energies, the agency predicts that demand for coal will rise by more than 50 percent in the next 25 years. This growth will mainly take place in countries that do not
belong to the Organisation for Economic Co-operation and Development (OECD). Ensuring sustainable mining conditions is an important task – one that also helps to safeguard the acceptance of coal in Europe and to tie a secure coal supply to the principles of sustainable development.