When Jared Connors was assigned to managing sustainability efforts in the procurement division of a large, multinational manufacturer a decade or so ago, he came into work one day to find the nameplate on his cubicle had been replaced with one that read: “The Enemy.” Of course, it was meant light-heartedly, but on the other hand, there was a serious underlying message: sustainability was, and still is, often considered anathema to profitability.
The entire history of manufacturing, from the Bronze Age to the Nuclear Age, has seen producers of valuable items come into conflict with local — and latterly global — communities over how and where they source raw materials, and what they do with waste.
As consumer demand for electric vehicles increases, prompted in part by a desire to use less fossil fuels in order to be better stewards of our planet, that intractable problem remains. In fact, as it turns out, mass production of EVs brings with it some new or newly scaled-up challenges, particularly when it comes to sourcing raw materials.
In short, for automakers, the potential for human rights abuses in the materials supply chain grows substantially as suppliers stretch to meet demands.
A key risk the automotive industry faces is that cobalt, a material critical for EV chip production, is often associated with slave labor and other human rights violations, especially in the Democratic Republic of Congo.
“Cobalt has gotten more attention in the last five or ten years, with the expansion in technology, and manufacturers being interested in sustainability and what that means,” says Jamie Wallisch, regulatory and sustainability expert in environmental, social and governance (ESG) and responsible sourcing for Assent, a provider of software for supply chain sustainability management. “Now, cobalt is expanding into an array of different products, like alloys, magnets, medical devices, and electrical components. The use in electrical vehicles is huge, and the industry is implicated. People think they’re doing one good thing on the environmental side and forgetting about the social and governmental impacts.”
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So what’s the solution? “The wrong thing to do, as a company, is to just stick with it,” says Connors, who now works in ESG and responsible sourcing at Assent, alongside Wallisch. “Neither is it great to say: ‘This is terrible, we’re out of here.’ When companies work with suppliers, that’s when change actually happens.”
Connors gives the example of a trip he took on behalf of an electronics group that was concerned about excessive overtime in its tier-one suppliers in China and Southeast Asia. “We went there, and discovered a lot of it came from our demands. They’re not going to say no to massive orders. They want to please you,” he observes. “We needed better planning. And, as we investigated, we found a whole host of other activities that we could address.”
The result was the formation in 2004 of the Responsible Business Alliance by a group of leading electronics companies. “What we found was that it goes in both directions," Connors says. "The door swings both ways. Our influence on suppliers can change things. And, as we begin to educate people within countries that don’t necessarily have the same laws as the western world, you find out more about their true nature and what internal controls they can put on their activities.”
In the case of cobalt, EV manufacturers and other users really don’t have options, since 75% of the world’s cobalt comes from this problematic region. “You can’t shy away," says Wallisch. "You have to engage. That means understanding the problem and potential of you engaging with this region, and being transparent about that.”
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Ultimately, some suppliers are better than others, and many more have the potential to be better. In the DRC, for example, cobalt comes from two main types of source: small-scale and large-scale mines. The latter tend to be more formalized, with better policies and procedures in place, Wallisch says. She points out that 15 out of 19 large-scale mines are owned by Chinese companies, and the influence of foreign investment tends to create a formalized structure. By contrast, small-scale mines tend to be much more informal, run by loose affiliations between local government and cooperatives. “Those are more accessible for non-armed militant groups to come in and bring in child labor,” says Wallisch. “It’s easier for them to have that influence and have those riskier practices.”
However, she points out, these abuses, leading to multiple supply chain risks including human rights violations, can be embedded in any mine. “It’s not just a DRC problem. It’s not just a conflict minerals problem.” The best approach, she says, is to find a way of holding accountable everyone that could be associated with these minerals, but prioritizing whom you hold accountable first. “So if it’s more small-scale mines, that’s what you have to focus on first,” Wallisch advises. “And, if you’re engaged with EVs, for example, you have to have the assumption that some of your cobalt is coming from small-scale mines.” Gathering detailed information about your suppliers, and managing that data to help identify risks is critical, she says.
Connors, who is also on the advisory board of the Fair Cobalt Alliance, helped put together a trip that Wallisch took recently to the DRC to dig into the issues, supported by various industries. “It was a great way to show that they’re walking the talk, making those connections and getting into that depth in the supply chain that we’re educating our clients and suppliers on,” says Wallisch.
Wallisch wants companies to recognize that they truly have leverage. “Manufacturers do have an important part to play, even though it seems so high up and far removed,” she says. “It’s like the butterfly effect. You start out capturing information on suppliers and your supply chain. You should put that information in a public-facing report that clearly identifies those suppliers that are risky. Then, you get other companies involved.”
That could create a shift in the market. “That info will be passed to local organizations and governments, who can work with companies that oversee the mines, and make sure they act better," Wallisch says.
Like most change, she warns, this doesn’t happen in a day. But it's not only possible; in the current culture of holding manufacturers accountable for their entire supply chains, it’s becoming essential.
There are hopeful signs that attitudes towards supply chain sustainability and responsibility are shifting. Connors’ story, at least, had a happy ending. “After two years, they gave me my name plate back and said: ‘We see what you’re doing.’ Here was a procurement organization that didn’t believe in this, and then they realized it was a differentiator.”
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