Responsible sourcing is becoming a focal point for battery buyers, investors, regulators, and the advocacy community as demand for the product increases. Yet the complexity and multiplicity of Li-ion battery supply chains makes the process hugely challenging.
Potential non-compliance with upstream production standards
Sourcing and upstream production standards and market expectations have emerged in recent years driven by the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas. The Guidance emphasizes- serious human rights abuses,
- child labour specifically,
- and risks related to provenance from conflict-affected and high-risk countries.
- environmental impact,
- community relations,
- and occupational health and safety (OHS).
Based on information reported in the public domain8, RCS Global primary research and expert insight, and information obtained as part of engagements in mineral supply chain due diligence, we have mapped and codified the risks related to the six areas outlined above and ranked the potential likelihood of them being present in each battery metal supply chain.
Clearly product, brand, or supplier-specific investigations may reveal different risk levels. Furthermore, none of the supply chains highlighted below – with the exception of cobalt – have been fully investigated by any research organization or advisory firm; the more investigation happens, the more risks will likely emerge.
Yet this grid represents the first attempt to map the full spectrum of due diligence risks associated with the main inputs in a lithium-ion battery.
The challenge of separating ASM and LSM production
Artisanal and small scale mining (ASM) and industrial, large scale mining (LSM), especially in cobalt, often happen in the same areas. There are also continuing examples of blending between ASM and LSM mined materials in the upstream part of the trading chain, which makes ensuring responsible supply chains challenging. While many LSM companies actively do not buy, or use it, there is a continual risk that ASM material will enter or contaminate an LSM supply chain. The ideal scenario is not a boycott of ASM but the adoption of chain of custody and assurance programs that can both identify ASM and – where possible - prove such material meets the same rising standards being met by LSM. This would also allow industrial miners who did not use ASM material to be able to prove they were not doing so, while allowing others to assess ASM inputs against their own responsible sourcing standards. Several new programs are launching to respond to this upstream challenge with the CFSI approved Better Sourcing Program (BSP) having already passed proof of concept phase.
Likelihood of presence in supply chain
Risk ranking per metal
The risks in context
Human rights abuses associated with artisanal mining
Artisanal and Small-scale Mining (ASM) refers to mining by individuals, groups, families or cooperatives with minimal or no mechanization, often in the informal sector of the market9. It is estimated that there are around 100 million artisanal miners globally. The informal and largely ungoverned and unregulated nature of ASM poses myriad social risks, including forced labour, sexual violence, and ease of capture by corrupt elite interests or non-state groups. ASM is particularly prevalent in cobalt and cobalt occurs as a by-product of nickel. Thus, ASM production of cobalt and nickel is likely to reach market, while there are also reports of manganese deposits in the Democratic Republic of Congo (DRC) that are artisanally mined10.
Child labour in artisanal mines
Child labour risks exposed in the DRC’s cobalt sector over the past year have inflicted reputational damage on brands and have led companies to terminate business relationships with potentially affected suppliers. It has also focussed attention on an uncomfortable truth: that child labour is still prevalent in minerals mining, especially in Africa and India. Reports about child labour in nickel-rich areas have started emerging as well11 and manganese’s exposure to ASM could also lead to child labour.
Provenance from conflict-affected/high-risk countries and political insecurity
For downstream companies, the issue of provenance from high-risk countries is fundamentally an issue of assurance against minimum standards of production and trade and reputation. Companies are linked and responsible (either legally or via reputation/their own commitments) to the issues at source in a high-risk country even if they source from regions within those countries that may not be affected by instability. This may expose other risks listed here as well as perceived links to disreputable governments such as Zimbabwe (lithium), Afghanistan (lithium), Madagascar (cobalt), the DRC (cobalt), or Mozambique (graphite). For example, the resurgence of violent conflict in Mozambique’s graphite mining region may raise concerns12.
Environmental damage around industrial mines
The challenge of environmental damage spans across all battery metals supply chains and all geographies. It can incorporate water, air and soil pollution, waste management and longer-term issues such as reclamation. Examples include air pollution in India13 and China14 water contamination in the South American ‘lithium triangle’15 and in Guatemala16 and Indonesia17 due to , nickel mining. Illegal deforestation also often occurs to make room for nickel mines as is happening in the Philippines18. Environmental damage often serves as a flashpoint for community grievances and if un-addressed can lead to other serious impacts based on conflict including human rights abuses.
Another issue that has been flagged is the high carbon footprint of lithium mining and processing19. Environmental issues can be particularly damaging to Li-ion battery supply chains due to the perceived ‘green credentials’ of EVs. The World Bank’s recent report ‘The Growing Role of Minerals and Metals for a Low-Carbon Future’ underlines this point, calling for a debate on how to balance the potential low-carbon gains from lithium-ion with the potential socio-environmental impact of rising battery metal demands20.
Poor community relations and disrespect for human rights around industrial mines
Mining operations can violate indigenous peoples’ rights and/or traditions, as is occurring in the lithium-rich areas of Argentina, for instance. Forced evictions around cobalt mines in the DRC21 or local community protests over manganese mining in Burkina Faso22 are further examples. Poor community relationships can contribute to a loss of mining companies’ social license to operate, making it more costly or impossible for companies to guarantee the security of operations.
Poor occupational health and safety (OHS) in industrial mines
OHS problems feature prominently in many companies’ battery supply chains. Inadequate protective equipment or exposure to pollution can cause workers’ health problems and deadly accidents. Poor OHS conditions have been highlighted in graphite mining and processing in China, nickel transportation in the Philippines24, and manganese mining in Namibia25 . Additionally, strikes due to poor working conditions can have negative impacts on large miners’ bottom lines and supply commitments. Should those impacts be reported on, as they have in graphite, manganese and cobalt, they can cause substantial harm to the companies purchasing from those entities.
A global snapshot of risks in battery metals in the upstream
The ‘China processing risk’
But risk is not only present in the upstream. The pivotal role China plays as the fulcrum for virtually all lithium-ion battery production has significant implications for downstream industry compliance.
As the figures below indicate, China is the largest global importer of cobalt, nickel and manganese. It is also the world's largest importer of lithium whilst having large reserves of its own. Additionally, China is the world's largest producer of graphite.
There are a group of responsible sourcing risks associated with the minerals processing and industrial sector in China:
- Lack of corporate transparency
- Involvement of government in business
- Poor working conditions
- Poor environmental standards
Some Chinese mines have even been shut down due to growing scrutiny around environmental and labour practices. For example, in 2013, up to 55 graphite processors and miners in the province of Shandong – making up 20% of China’s graphite supply – were ordered by the local government to halt production on environmental ground26.
An improving risk environment
However, the China story is nuanced. Far from being completely regressive, China has also seen advances in responsible sourcing and production across several areas. For instance, the China Chamber of Commerce of Metals Minerals & Chemicals Importers & Exporters (CCCMC) launched the Chinese Due Diligence Guidelines for Responsible Mineral Supply Chains in 2015 and was instrumental in launching the Responsible Cobalt Initiative (RCI) in 2016.
From an RCS Global perspective, we have also seen a significant increase in engagement from Chinese producers and processors aiming to bring company practices in to line with global good practice standards. For example, RCS Global is currently advising the CCCMC on the development of responsible sourcing due diligence protocols.
The dangerous unknowns of battery metal supply chains, including recycling
Unpredictable actors entering the supply chain
As demand for battery metals increases, it is likely that there will be a growing number of new companies entering the market in the upstream and mid-stream. Already in lithium, most new supply is coming from smaller companies and non-mining companies.
Analysts fear that these comparatively smaller producers or traders either do not have the budgets to properly manage responsible sourcing challenges and compliance or simply do not have the will to respect regulation and good practice. This issue may be further exacerbated in areas where environmental codes and social conditions are not protective or inclusive.
Lack of unified producer assessment criteria
Another important factor is the ‘quality’ of mining companies dominating each of these metals. Internationally-listed and reputable mining companies may at first glance decrease risk. However, there are no widely agreed upon responsible sourcing standards or reporting frameworks for battery materials (RCS Global is currently developing the first responsible sourcing framework for the cobalt industry with the Cobalt Institute). Thus, producers must be assessed against supply chain-specific criteria that may reveal due diligence challenges even in larger mining companies.
Lack of fully investigated supply chains
At present - with the exception of cobalt – none of the above-mentioned battery metal supply chains have been fully investigated and some lack any tangible investigation at all. The last year has seen significant progress in cobalt with RCS Global among organizations who have effectively completed investigations the cobalt supply chain. However, nickel and manganese, for instance, have virtually no comprehensive traceability.
‘Hidden’ problems may also exist in countries with governance deficits and conflict potential
As explained in the section on upstream risks related to conflict-affected countries, sourcing countries for battery metals include several developing countries with governance deficits and conflict potential. Conflicts or hostile governments affecting mineral supply and natural resource governance can occur unsuspectedly in countries like Afghanistan (lithium), Zimbabwe (lithium), Madagascar (cobalt), Tanzania (graphite), or Mozambique (graphite).
The recycling challenge
Several producers of end products and battery components have started to examine ways to reduce their reliance on mining by increasingly sourcing from recycled material. In some areas, the recycling industry for lithium batteries is well established and closed loop cycles are a reality for metals such as nickel, cobalt and lithium. However, working conditions and environmental impacts related to certain metal and battery recycling is largely outside of public scrutiny and unknown. However, working conditions and environmental issues relating to battery recycling are largely unknown to the public. The lead acid battery recycling market is already under scrutiny for labour and environmental concerns and several analysts and campaigning organisation have begun to now look to the Li-ion battery as well. Further potential risks for recycling are the potential reliance on a small number of suppliers in the largely undeveloped recycling market and the absence of common industry standards and regulation.