An interesting but little covered milestone was reached in Japan this year. The country now boasts more electric charging points for cars than it does petrol stations.
In the U.S. and Europe the number of pumps still dwarf the sockets but this too is changing. We’re about to see an electric car boom, with Tesla leading the large-scale commercialisation of electric vehicles.
This is surely good news for fuel efficiency and sustainability but the real compliance ripple effect is beginning to give supply chain teams across the electricals and tech sector a headache.
Why is this? The answer is simple: cobalt.
Cobalt is the element found within lithium-ion batteries that allows them to generate more power over a longer time-period than normal batteries and it has already powered a consumer tech revolution over the last decade. It is the catalyst for the imminent commercialisation of electric cars, the reason your smartphone doesn’t need charging every half hour, and the reason you can read your kindle cable free during that long plane journey.
But cobalt raises several compliance challenges. it is overwhelmingly found in one country — the Democratic Republic of Congo (DRC). Around 60% of global supply of cobalt comes from the DRC.
Cobalt doesn’t currently fall under the SEC’s Dodd-Frank section 1502 covering conflict minerals and there is no specific compliance regulations attached to the sourcing of the mineral. But the lack of scrutiny by regulators seems likely to change in the near future as demand for cobalt and understanding of its sourcing increases.
Compliance pressure and the demand for information down the supply chain is already increasing. The OECD is leading a drive to expand supply chain transparency and due diligence to other commodities, including cobalt.
Several leading global companies including Apple are going down the same path. Last month the tech company said it would internally re-classify cobalt as a “conflict mineral.” Apple said it will treat its cobalt supply chains with the same internal scrutiny it gives to its sourcing of officially regulated “conflict minerals” such as gold, tantalum and tin. Other consumer tech makers are likely to do the same.
The challenge for downstream and midstream companies is the nature of the cobalt industry in the DRC. Years of prolonged conflict and economic mismanagement in the 1990s means that the DRC’s once strong industrial mining sector has given way to one which is largely chaotic and unregulated.
As the Washington Post reported last month, many cobalt mines are worked by hand with individual “artisanal” miners literally scraping the mineral out of the earth. Ensuring this cobalt has been mined responsibly and to appropriate labor standards (in particular with no child labour) to match the rising expectations of regulators and campaigners is a major headache for the companies that rely on the mineral.
But it’s not all doom and gloom. Through Dodd-Frank 1502 and especially through the OECD’s Due Diligence Guidance much of the groundwork for a cobalt compliance program has been done. The OECD’s guidelines are endorsed by the SEC, the European Commission, and the China Chamber of Commerce of Metals Minerals & Chemicals Importers & Exporters (CCCMC).
So if companies can set up due diligence programs that follow the OECD’s framework, it’s likely they’ll be future-proofed against compliance and regulatory risks.
Still, many companies underestimate the implementation requirements of the Guidance. The biggest error we see is that companies don’t understand the need to engage with their suppliers, even in the upstream, in order to effectively identify and mitigate risks.
Apple has acknowledged this and is pushing out due diligence across the supply chains. But many companies will find this a daunting prospect. It needn’t be.
In the same way that much of the regulatory groundwork has already been done, so the due diligence industry has matured as well. While the cobalt challenge is new, there are experts who have already built specialist due diligence expertise that can be leveraged to cobalt supply chains. These cobalt experts can steer companies through this compliance challenge.
Harrison Mitchell is the Director of Responsible Sourcing at RCS Global, one of the world’s leading responsible raw materials supply chain audit and advisory groups. He is principal author of the RCS briefing paper that highlights steps to take for cobalt compliance.