Critical minerals are elements that are essential to the production and function of various technologies and systems, including those pivotal to the clean economy, such as batteries, renewable energy technologies, and electric vehicles. Their importance cannot be overstated; they are the building blocks for the sustainable technologies that will power the future, reduce carbon emissions, and help combat climate change. For instance, lithium, cobalt, and nickel play crucial roles in the manufacturing of batteries, enabling not just longer life spans but also higher efficiencies. Similarly, rare earth elements are vital for wind turbines and electric vehicle motors, enhancing performance and energy efficiency. The secure and sustainable supply of these minerals is, therefore, critical to advancing the clean energy transition and achieving environmental sustainability goals.
However, the supply chains of these critical minerals pose significant social responsibility challenges. Many of these minerals are mined in regions where regulations may be lax, leading to serious environmental degradation and human rights abuses, including labor violations and child labor. The extraction process can devastate local ecosystems, pollute water sources, and diminish air quality, affecting the health and livelihoods of local communities. Additionally, the concentration of mineral reserves in politically unstable regions can lead to conflicts and exploitation. Ensuring responsible sourcing practices becomes paramount, requiring stringent adherence to ethical standards and international human rights laws to mitigate these impacts and ensure that the transition to a clean economy does not come at the expense of vulnerable populations and environments.
Improving social responsibility in critical mineral supply chains faces several complex challenges, key among them being traceability and compliance with Environmental, Social, and Governance (ESG) values. Traceability in these supply chains is often hampered by the opaque and intricate nature of sourcing practices, making it difficult to verify the origins of minerals and ensure they are extracted and processed in a manner consistent with human rights and environmental standards. Compliance with ESG values requires a shift in industry mindset and practice, demanding rigorous due diligence, transparency, and investment in sustainable operations—steps that can be perceived as costly and burdensome by those prioritizing short-term profits.
The reliance on industry-led regulation and self-reporting further complicates these challenges. While such frameworks can provide flexibility and innovation in approaches to social responsibility, they can also lead to inconsistencies, underreporting, and, in some cases, outright avoidance of meaningful action. Without independent verification, self-reporting can mask non-compliance, making it difficult for stakeholders, including consumers and investors, to make informed decisions based on a company’s social and environmental performance.
To meet customer, shareholder, and legal requirements companies must find ways to overcome these challenges and align clean economy products with social responsibility values.
Traceability
The best approach to address the traceability challenge in critical mineral supply chains is Value Stream Mapping (VSM). This is a process that draws from strategic procurement, lean process improvement, and cost and value engineering tool kits to document each step in a supply chain process. When deployed correctly, VSM can map client supply chains to drive cost efficiency, improve delivered quality, spark product or service innovation, and to support ESG program implementation.
VSM, sometimes called value stream analysis or lean process mapping, is a strategic analytical tool used to understand the series of activities that are involved in delivering a valuable product or service to market. By dissecting the process into individual parts, companies can identify areas where they can add value, reduce costs, or impact social values and labor practices. This analysis becomes crucial when applied to complex supply chains, such as those of batteries, which involve multiple stages including raw material extraction, manufacture, assembly, and distribution.
For tracing battery supply chains, VSM can help stakeholders identify potential bottlenecks, dependencies, and opportunities for sustainability and ethical sourcing improvements. It aids in pinpointing each stage – from the mining of lithium, cobalt, nickel, and other critical minerals to the delivery of the final product to consumers. This visibility is vital for companies aiming to ensure ethical practices, reduce environmental impact, and comply with regulations.
Battery VSM Key Components:
A proven best practice like VSM is the optimal approach to trace global battery supply chains and lay the groundwork for social responsibility program implementation.
Compliance with ESG Values
The best practice for driving compliance is typically audits or certifications against international best practices by third party auditors. The International Organization for Standardization (ISO) is an independent, non-governmental international organization with a membership of 167 national standards bodies. Through its members, ISO brings together experts to share knowledge and develop voluntary, consensus-based, market-relevant International Standards that support innovation and provide solutions to global challenges. These standards cover a vast range of industries, including technology, food safety, agriculture, and healthcare, aiming to ensure the quality, safety, and efficiency of products, services, and systems.
To elevate social responsibility and enhance fair labor practices within their supply chains, companies can leverage ISO standards 26000 (Guidance on Social Responsibility) and ISO 45001 (Occupational Health and Safety Management Systems) through rigorous audits. ISO 26000 provides guidance on how businesses and organizations can operate in a socially responsible way, which is instrumental for identifying and addressing ethical issues in the supply chain, including labor practices and community impact. Meanwhile, ISO 45001 focuses on preventing work-related injuries and health issues, ensuring a safer working environment which is critical in manufacturing-intensive sectors like battery production.
By integrating these standards into their operational and auditing procedures, companies within the battery supply chain can ensure they are meeting or exceeding the current benchmarks for ethical practices and worker safety. Implementing these standards requires conducting regular, thorough, independent, third-party audits of every stage in the supply chain—from raw material extraction to final product assembly—to identify non-compliance and areas for improvement. For instance, in the battery supply chain, audits could inspect mining operations for adherence to environmental protections and worker safety, evaluate manufacturing processes for energy efficiency and pollution control, and assess assembly workplaces for health and safety measures.
The Challenges of Industry Led Regulation and Self Reporting
Interest in industry led standards and company led reporting is understandable, but these practices are not part of private sector best practices because they are not typically effective. They often serve to help “green wash” or “virtue wash” the companies in the supply chain, but they are not often the drivers of real change or good in the world. The cocoa industry is a good example of the failure of industry led social responsibility programs and corporate self-reporting.
In the cocoa industry, self-regulation and corporate self-reporting have largely failed to bring about the significant positive changes they promised, particularly in eradicating child labor and ensuring sustainable farming practices. Despite the adoption of voluntary measures and pledges by major industry players, progress has been minimal and challenges rampant. The “Empty Promises” report, published by the International Cocoa Initiative in 2019, highlights the grim reality that, even after two decades of commitments, the prevalence of child labor in cocoa production had not declined—and in some areas, had increased.
One of the primary reasons behind this failure is the emphasis on self-regulation and voluntary standards without sufficient independent verification or accountability mechanisms. Companies often relied on internal auditing processes, which lack the transparency and rigor required to effect real change. Too often the cocoa industry’s focus has been on mitigating international criticism and complying with market demands rather than addressing the root causes of the issues, such as poverty among cocoa farmers, inadequate access to education, and infrastructure issues.
The report emphasizes the need for more robust, enforceable regulations backed by governmental and international bodies to hold corporations accountable. It points out that without external pressure and clear-cut, enforceable standards, the incentive for companies to invest in deep, systemic changes is minimal. The reliance on corporate goodwill alone has proven insufficient in addressing the structural inequities and environmental challenges in the cocoa industry. This realization calls for a reconsideration of the role of self-regulation and suggests a move towards more integrated, comprehensive strategies that include stakeholder engagement, transparent reporting, independent auditing, and, importantly, regulatory oversight to ensure that the cocoa industry can move towards genuinely sustainable and ethical practices.
Our team believes that industry led regulation and corporate self-reporting in critical mineral supply chains is likely to yield to a similar result as it did in the cocoa industry: more focus on marketing and mitigating criticism of the industry than improving the lives of workers involved. We strongly recommend that stakeholders focus on independent audits to established international standards that can catalyze real change and give the public confidence in the social responsibility of these supply chains and the products they support.
Supply Chain Leverage
Leverage can be a difficult dynamic to gauge in global supply chains. However, gaining leverage over critical metals producers could be difficult for reasons including:
- Chinese companies may control up to 70% of the world’s Lithium production.
- Chinese companies through mines and refining capacity in China and investment in extraction operations in the Democratic Republic of Congo control nearly 80% of the world’s Cobalt production.
- Through investment in extraction and refining operations in Indonesia and China, Chinese companies control over half of global Nickel production.
When considering leverage to improve social responsibility including fair labor practices in the critical metals supply chains feeding current battery production, the question is about leverage with Chinese companies. Given the hold these companies have on critical metals production and the strategic nature with which China has established this control, it will be difficult to dictate terms to these producers.
Long Term Solutions
In addressing the challenges within the battery supply chains, particularly in building leverage with critical metals suppliers, an innovative solution lies in reducing dependency on their products through enhanced recycling of e-waste. Remarkably, 85% of e-waste currently ends up in landfills globally. This represents a significant loss of valuable resources. By focusing on recovering critical metals from this waste, not only can battery manufactures improve their leverage with suppliers by lessening the demand pressure on virgin materials, but they also take a substantial step towards environmental sustainability. This approach mitigates the harm caused by excessive mining and reduces the carbon footprint associated with the production of new metals.
The process of recycling e-waste to extract critical metals presents an opportunity to establish a more circular economy, where materials are reused and recycled, rather than discarded. This shift not only addresses the immediate need for material but also aligns with broader environmental goals, by reducing waste and conserving natural resources.
Battery Manufacturing Circular Supply Chain:
To build leverage with critical metals producers and advance socially responsible policies, companies should focus on developing circular battery supply chain operations.
The pursuit of a sustainable future underscores the pressing social responsibility challenges within critical metal supply chains. These challenges include the potential for harm to local communities and ecosystems through the extraction and processing of essential minerals for digital and clean energy technologies. Companies must confront these issues head-on as we advance toward a clean economy, recognizing the urgency to mitigate environmental damage, support worker and indigenous population rights, and ensure economic resilience. Achieving this requires a multifaceted approach. Key to this transformation is improving traceability in the entire supply chain, from extraction to final product, ensuring transparency and accountability. Adopting international standards with independent verification mechanisms can enforce compliance and ethical practices. Leveraging such strategies not only promotes social responsibility but also fosters a more circular economy by minimizing waste and encouraging the reuse and recycling of critical minerals, thereby contributing to a more sustainable and equitable future.