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As the race to mitigate climate change intensifies, governments around the globe are placing major focus on the auto industry. With passenger vehicles in the U.S. emitting 29% of the country’s total greenhouse gasses and other countries showing similar numbers, it’s clear that we need to shift away from gas-powered vehicles and toward electric vehicles (EVs). The U.S., U.K., and Canada are putting tough regulations in place to force greater EV adoption, pushing automakers in a tight spot when it comes to meeting sustainability goals. On top of making sure the sustainability numbers match up to requirements, there’s an overlooked risk associated with shifting to new supply chain from the very start: The social and governance impacts of EV supply chains.
Great expectations
We first need to understand just what automakers are up against by looking at the top three electric vehicle and emissions regulations they face in the next several years.
- Canada’s Electric Vehicle Availability Standard: Requires all new cars in Canada to be zero-emissions by 2035.
- U.K.’s Zero Emission Vehicle Mandate: 80% of new cars and 70% of new vans sold in Great Britain must be zero-emission by 2030, and all new cars and vans must be zero-emission by 2035.
- U.S. Mandate: Automakers will have to sell at least 50% EVs and plug-in hybrids by 2030.
Automakers are pushing back in efforts to stall or reduce the requirements of these regulations, but are also preparing for the inevitable shift to EVs by ramping up production. Part of that ramp-up requires expanding and reconfiguring supply chains, which is hard enough to do even when focusing solely on the numbers. The compliance risks that open up when revamping supply chains are significant, and there are many hurdles to overcome—including maintaining responsibility for social impacts.
The cobalt conundrum
Cobalt plays an essential role in the production of EV batteries. In combination with other materials like nickel, it improves performance, range and durability. It has been a major catalyst in battery development and will remain that way for the foreseeable future. According to the World Economic Forum, global demand for cobalt is expected to increase fourfold by 2030, presenting major challenges to companies trying to source it ethically. The Democratic Republic of Congo holds about 80% of the global supply, and 20-30% of that supply is produced by “artisanal miners”. The disingenuous term refers to individuals, including children, who survive extremely hazardous working conditions to mine the mineral. They are working with a highly toxic material with no protective equipment, and waste from the mines poisons the water sources nearby–leading to widespread illness and increased birth defects.
What’s more, the exploitation of these artisanal miners is often buried several layers down in the supply chain and difficult to pinpoint when third parties are less than interested in transparency.
The interests of large automakers and other industry giants have led to the proliferation of bribery and corruption, with local officials demanding bribes from miners who are already barely scraping by. There may be more than 3.5 million tons of cobalt in the DRC, and there’s no question it will be mined for all it’s worth. China heavily dominates cobalt extraction in the region, and has faced ongoing criticism for mining conditions that fall clearly under the umbrella of modern slavery. How can companies and their supply chains ensure they’re not contributing to the continued suffering of the Congolese people as they work to produce emission-free vehicles?
Achieving visibility and supply chain social alignment
As the EV revolution kicks into gear, environmental, social and governance (ESG) reporting rules are also mounting. Many companies are feeling pressure to find robust methods for measuring environmental impacts but often fail to consider the social impacts of creating an EV supply chain or its potential for increasing bribery and corruption.
Now that technology facilitates unprecedented collaboration, it’s no longer enough to take suppliers at their word when it comes to mineral sourcing. Consumers and investors are becoming more aware of intensifying regulations and the tools companies have at their disposal to meet them. Lack of visibility into your supply chain leads to lack of transparency in your company which in turn leads to a lack of stakeholder and consumer trust. This follow-on effect presents a greater risk every day. While regulations do exist surrounding conflict minerals, such as the EU Conflict Minerals Regulation (effective 2021) and the US Conflict Minerals Rule (set to be updated in 2024), they currently extend to tin, tantalum, tungsten and gold (3TGs). Despite the current narrow focus, companies should be prepared to apply the same standards to cobalt as demand continues to rise.
To keep harm from modern slavery, bribery and corruption out of your supply chain, you need to be able to interface with third parties and ensure they are aligned with your ESG goals on all three levels, not just emissions reporting. You need to know their social goals and governance positions when it comes to issues like modern slavery, corruption and bribery so you can mitigate legal or reputational risks should wrongdoing be uncovered.
Diversifying with risk assessment and due diligence
Dealing with cobalt-heavy supply chains is undoubtedly a risky business, but one way to mitigate the risk is to investigate emerging alternatives. For example, lithium ferrous phosphate (LFP) batteries are more cost-effective and longer lasting than their counterparts that use nickel and cobalt. Their development also coincides with the discovery of an immense deposit of lithium under California’s Salton Sea, the extraction of which would occur under domestic labor laws.
No matter the supplier or material concerned, supply chain transparency, risk assessment and due diligence are key to avoiding third parties who are contributing to humanitarian crises in the DRC and beyond. Ethixbase360’s Modern Slavery Supply Chain Risk Assessment Questionnaire assists organizations in identifying, managing and reporting on modern slavery, human rights, forced and child labor risks in their supply chains, offering a risk rating to identify a supplier risk and plan programs to respond to the risks identified.
The Ethixbase360 Enhanced Due Diligence solution is a powerhouse for high-risk third party screening, including companies sourcing risky raw materials from high-risk jurisdictions. It can reveal critical information on Ultimate Beneficial Ownership, watchlists, sanctions, ESG-related data and more to make screening third parties easy on your teams. Collaborative Due Diligence invites third parties to work with you to achieve alignment on compliance and ESG. We also offer questionnaires and training to bring third parties up to speed on crucial modern slavery and anti-corruption topics central to good governance.
As the transition to a clean energy future accelerates, we have a responsibility to insist that our bridge to clean energy is not built on modern slavery and environmental destruction. The best way to do that is to take a balanced approach to ESG, and Ethixbase360 is here to help your company do just that.
Contact us to request a demo or get further information on our platform’s capabilities today.
