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The EITI and commodities trading transparency: where are we headed?

For the past 2 years RCS Global has been advising Trafigura on its journey to become the commodities trading industry leader on transparency. With developments in the trading industry transparency space accelerating towards the end of 2015, we would like to share our view of next steps.

Trafigura’s investment in transparency has been part of a broader commitment to securing its long-term social license to operate and improving its non-financial performance. The company was not just the first privately owned commodities trading company to formally become a Supporting Company of the Extractive Industries Transparency Initiative (EITI) in November 2014, a year later it also became the first company to voluntarily disclose its payments to several governments for oil, gas and petroleum products in line with EITI requirements in its annual responsibility report. Couple these steps with the fact that Trafigura has published its annual accounts publicly since 2013 – again, the only privately owned company in the sector to have done so – and a clear picture emerges of a company that is committed to better explaining its performance and impacts. The data released by the company in respect of payments to governments covered a total of US$4.3 billion made in 2013 to the national oil companies of Colombia, Ghana, Nigeria, Norway, Peru and Trinidad & Tobago, which are all EITI implementing countries.

 

While the commodities trading industry as a whole has a long way to go in opening up,, Trafigura’s example shows that steps in the right direction can make a real difference. On the back of Trafigura’s voluntary disclosures, the Natural Resource Governance Institute (NRGI) was not only able to identify Trafigura as the purchaser of Ghanaian oil, which generated 10% of the country’s total oil revenues in 2013, but inadvertently also confirmed that the numbers disclosed by Ghana EITI and the governments Public Interest and Accountability Committee matched with those of Trafigura. This is revenue transparency in practice.

 

At the 30th EITI board meeting, held in Bern, Switzerland in October, both public and closed meetings discussed commodities trading transparency and there is a clear consensus crystallising that the EITI is a suitable instrument to bring more transparency to the commodities trading sector in a relevant and robust manner. One key outcome of the EITI Board meeting was the establishment of a multi-stakeholder EITI working group, which currently includes, but is not limited to 16 representatives of well-known major oil companies with oil trading arms, pure commodities trading houses, including Trafigura and the Swiss Government, as well as relevant international and host country NGOs – and crucially: national oil companies.

 

The establishment of the EITI Working Group, something Trafigura and RCS Global lobbied for extensively in the run up to the meeting, and the interest it has attracted from oil majors and commodities trading houses is a game changer in the commodities trading transparency conversation. It is no longer a question of whether the EITI is the right initiative to..., it is simply about how it will do so most effectively. Likewise, for commodities trading companies it is no longer a question of whether they will have to disclose under the EITI, it is about when, where and to what degree. The EITI Working Group is a further development to the conversations and work plans that are already being put in place in up to 19 EITI implementing countries that are likely to see formal ..., beyond Iraq, which is already doing so.

 

Companies that have not put thought into how these developments will affect their business are well advised to seek technical advisory to bring them up to speed and help them shape imminent developments.

 

In line with the EITI’s agenda to become an even more impactful catalyst for change, key questions in the commodities trading transparency space include:

 

  1. How is EITI and other reporting currently undertaken across the multiple stakeholders that play a role in EITI implementation – how can it be aligned, improved and made more effective through harmonisation with impact focus.
  2. How can the commodities trading data that is disclosed through the EITI become more meaningful, impactful and easily digestible. This includes, but is not limited to data confidentiality and disaggregation, timeliness and relevance of data, data integrity and assurance, integration of data reporting into contextual and sustainability reporting.
  3. How can commodities trading transparency evolve with respect to the significant volume of transactions undertaken outside the scope of EITI reporting, which includes crucially important oil producers, such as Angola, Brazil, Venezuela, Russia, the majority of the Middle Eastern states and others.

 

Shaping developments in the commodities trading transparency has been a professionally rewarding journey that we have played a proud role in. Going into 2016, we are looking forward to working on the technical fine-print and helping our clients navigate this complex, fast-paced environment.

Dr. Nicholas Garrett, who leads RCS Global’s transparency advisory service, wrote this blog. You can contact Nicholas on nicholas@rcsglobal.com

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Comment by Eric Joyce on December 21, 2015 at 16:51

It's interesting and very encouraging to see Trafigura help lead way here. There are many unreasonable demands being placed upon the EITI at the moment - some of which amount to demands to extend the initiative to complex environmental criteria which are way outside its remit - but this move into trading is absolutely on the nail. Thanks for this excellent piece, Daniel. 

Comment by Ed Harris on December 21, 2015 at 12:01

Nice piece. As they said in their 2015 responsibility report, Trafigura believes these moves give it a competitive advantage, both in terms of social licence to operate, but also in terms of access to credit from a financial sector that is also under pressure to be more transparent and responsible.  

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