As part of our work to address child labor in the cobalt supply chain, I recently attended an OECD (Organisation for Economic Co-operation and Development) Forum on responsible mineral supply chains, to learn more about developing human rights regulations, supply-chain due diligence and civil society’s concerns.
The role of cobalt in today’s world is huge. If you have a mobile phone, you are carrying around a least 10g of cobalt every day. This number increases significantly if you drive an electric vehicle. This is because cobalt is a crucial component of lithium-ion batteries, which power almost all portable electrical devices, such as medical equipment, planes and all electric vehicles. As it becomes more and more urgent to move to a lower-carbon world, it is estimated that cobalt’s importance is likely to grow threefold in the next decade.
The Problem with Cobalt
However, there is a problem with cobalt. Sixty percent of it is mined in the Democratic Republic of Congo (DRC), a mineral-rich country plagued by widespread poverty, lack of infrastructure and education, and high levels of corruption and bribery. While cobalt is a by-product of copper and mostly mined by large, international miners, up to 30% of the country’s production is mined by artisanal and small-scale mining operations, which are unregulated, unreported and dangerous. Many of these mines use child labor, which is strictly prohibited by the United Nations (UN) and places children and their families at risk.
To address this issue, the OECD has provided some due diligence guidance, to try to make the mineral and cobalt mining process more responsible and sustainable. This guidance aims for greater transparency and auditing in the supply chain, to make sure that children and the environment are protected as much possible, while still allowing cobalt to be mined in the DRC by the same small artisanal miners.
The challenge is that the new guidance is hard to put into practice across cobalt supply chains, which span from the DRC to Asia. There are also many arguments about who should pay for the increased costs associated with more responsible mining, with many companies concerned that the brunt of the cost will fall on them, while in truth it is likely to be borne by the miners in the DRC. The OECD is also advocating for more extensive and regular auditing, which poses many logistical, administrative and financial challenges for companies. Some firms have as many as twelve tiers of suppliers to manage, so implementing these changes at all levels of their supply chains is an enormous task, one that many are keen to avoid, particularly as the current opacity hides bribery and corruption, among many other problematic issues.
A Technological Solution?
New technology may well help efforts towards the eradication of child labor and better mining practices. One of the key issues with implementing the OECD’s new guidelines is that it is difficult to ensure that the artisanal miners are recognized and are adhering to regulation. However, satellite mapping may now help to keep track of the mines, while blockchain technology may help to keep track of individual children, give them a presence in the supply chain, and help them attend school. These new developments would help start to build a foundation to improve activities on the ground, and ensure that companies are doing what they say they’re doing when it comes to their supply chains.
The financial risks to businesses are also starting to increase as regulation seeks to improve reporting and supply-chain transparency. For example, in France, the 2016 ‘loi de vigilance’ requires reporting measures, and entails the power to issue penalties of up to €10 million against companies which fail to publish vigilance plans on how they will avoid abusing human rights. Changes are also occurring in the wider European Union and US, and therefore, staying ahead of regulations and committing to implementing the OECD guidelines will be of significant financial importance for companies.
Businesses can help these aims by making a commitment to implement the OECD guidelines across all tiers of their supply chains, auditing regularly, and taking responsibility for their role in moving us towards a greener and less exploitative society. Not only are these new initiatives in keeping with evolving regulations, but practices that take environmental, social and governance (ESG) impacts into account are increasingly being required by consumers, who are taking to social media in droves to encourage companies to consider their wider impact.
Engagement and Training
As investors, you might think that we would want companies that are currently purchasing cobalt from artisanal and small-scale mining operations to stop immediately. It would be one of the easiest things a company could do, and some have already done this. However, the knock-on effects would mean that a valuable source of income would be taken away from people who most need it; after all, 80% of the DRC’s population lives in extreme poverty. Furthermore, making these small-scale miners illegal could lead to even more extreme mining, where locals try to sell to ‘cobalt cowboys’ for even less money than they’re due. So the answer isn’t as simple as walking away, but instead it is about recognizing and training the miners, investing in the local community with trusted partners, and pushing industry initiatives to do more.
There is a long way to go, but this is a start. By being good stewards of capital and investing over the longer term, we believe we can help push these aims along by engaging with companies, and by becoming part of initiatives like the Engagement on Responsible Sourcing of Cobalt, which is supported by the UN Principles for Responsible Investment. In this transition to a lower-carbon world, whether we are consumers, investors or business owners – or a combination of all three – there is a strong case that we can, and should, do something to help organizations, and ourselves, move towards a fairer planet for all.
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