With the introduction of Modern Slavery legislation in Australia and with it a requirement to report publically on the risk of Modern Slavery in supply chains, a key modern slavery risk for energy companies lies within the cobalt used in batteries. The labour required to mine and supply cobalt is often characterised by modern slavery practices such as forced labour, and the worst forms of child labour.
Reliable energy storage for renewables energy producers is key, and batteries can be a reliable solution. South Australia is building a $1 billion solar farm and battery project and plans for several others to follow.1 These battery packs, like almost every other electronic devices on the market, use lithium-ion batteries.2 The key component contained within them, cobalt, makes the battery lighter, smaller, and more reliable than traditional lead-acid batteries. Such is the global demand that a 2.5 million tonne deficit is forecast for 2020.3 Some companies are going as far as securing a 10-year contract for cobalt supply in order to maintain reliable supply.5
Despite the market demand, cobalt operations are largely unregulated. Unlike gold, coltan and tin, cobalt is not covered under existing conflict mineral regulations such as the Securities and Exchange Commission's disclosure requirements, which require companies to establish a due diligence program for suppliers.
Approximately 60% of the world's cobalt is mined in the Democratic Republic of Congo (DRC), where a significant number of modern slavery instances, including human trafficking, coercion and exploitation, have been reported to be connected with the labour used in cobalt mining.5 Children as young as seven work in perilous conditions, particularly in informal or artisanal mines where cobalt is extracted from rocks by hand without protective equipment, for up to 12 hours a day. Many miners, both adults and children, later experience potentially fatal health effects from the prolonged exposure to cobalt dust. Violence from supervisors and mine collapses are common. Once mined, the cobalt passes "downstream" in the supply chain through traders, subcontractors, smelters and importers, before it reaches the manufacturer. The global and complex nature of this process means it is often several layers removed from the corporate purchaser and any modern slavery risks are obscured by the numerous and opaque supply chain links.
Supply chain management
Companies are accelerating their efforts to address the risks posed by cobalt mining. Some initiatives include:
- business-led creation of a body called the Responsible Cobalt Initiative which conducts due diligence along the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas;
- a pilot scheme using blockchain for the first time to track cobalt from its source being launched this year.7 Each sealed bag of cobalt from an artisanal mine is expected be given a digital tag that will be entered on a blockchain ledger along with details of the weight, date and time. A trader buying the bag would record those details on the same ledger and so on, until it arrives at the corporation with an unalterable record of every source. One of the risks of this system however is the possibility of 'clean' cobalt being mixed with unethically mined cobalt before it is bagged;
- introduction of software programs which monitor and certify all raw material suppliers including cobalt, in corporate procurement.8 Suppliers are required to comply with regular site inspections and also reporting requirements; and
- a greater emphasis is being placed on recycling cobalt from used smartphone batteries, or moving to invest in recycling technologies and research.9
What does this mean for Australian companies?
With the introduction of the Modern Slavery Act Bill 2018 in the Commonwealth Parliament, and the passing of the Modern Slavery Act 2018 in NSW, businesses will be required to report publically on where there is a risk of slavery in their operations and supply chain and the steps taken to eliminate that risk. For energy and technology companies, supply chain review will ultimately require consideration of the source of the cobalt used in batteries.
In contrast to the UK Modern Slavery Act 2015, the Australian Modern Slavery Act will require reporting entities to specifically address mandatory criteria, including:
- describe the risks of modern slavery practices in the operations and supply chains of the reporting entity and any entities that the reporting entity owns or controls;
- describe the actions taken by the reporting entity and any entity it owns or controls, to assess and address those risks, including due diligence and remediation processes
Businesses may expose themselves to a damaging reputational backlash if they are not alert to these risks and do not properly address them in their modern slavery statements. Under the NSW Law, there are penalties of up to $1.1million for misleading information contained in a modern slavery statement. Australian businesses publishing misleading reports that misdescribe their modern slavery risk may also contravene the Australian Consumer Law.
How to prepare for the Modern Slavery Act reporting requirements?
To prepare, businesses that have not already done so should consider the following steps:
Mapping supply chains and organisational structure on a global basis, including subsidiaries and related entities, to identify high-risk areas.
- Implementing software to enable on-going evaluation of performance against clearly defined targets.
- Assessing the human rights risk of potential subcontractors or suppliers through a questionnaire or vetting procedure before contracting. Considering information provided by suppliers in relation to cobalt and how the risk of modern slavery is being managed.
- Increasing engagement with suppliers to monitor the accuracy of any self-reporting, or negotiating for contractual warranties as to ongoing compliance before committing to long-term arrangements.
- Comparing the company's current practices with established international standards such as the Voluntary Principles on Security and Human Rights.
- Developing a plan for reporting and corrective action where human rights abuses are identified.
- Addressing which business functions will have the overall responsibility and accountability of such issues and training staff accordingly.
Commencing this process early is essential to ensure compliance with the reporting requirements. At least for energy storage, batteries are likely to be one of the highest risk elements of the supply chain.
Batteries can overcome many of the issues with reliable storage of renewable energy. However, their use comes with corresponding human rights challenges - challenges that Modern Slavery transparency laws will inevitably uncover.
1 The Guardian, South Australia to get $1bn solar farm and world's biggest battery (30 March 2017) https://www.theguardian.com/environment/2017/mar/30/south-australia-to-get-1bn-solar-farm-and-worlds-biggest-battery; Renew Economy, Musk says storage orders surge on success of Tesla big battery (8 February 2018) https://reneweconomy.com.au/musk-says-storage-orders-surge-on-success-of-tesla-big-battery-63587/.
2 Hermes Investment Management, Modern slavery: the true cost of cobalt mining (16 January 2018) < https://www.hermes-investment.com/ukw/blog/perspective/modern-slavery-true-cost-cobalt-mining/ >.
3 Mining Weekly, Zinc price on the up as supply tightens; cobalt forecast revised upwards as demand intensifies (26 September 2017) < http://www.miningweekly.com/article/zinc-price-on-the-up-as-supply-tightens-cobalt-forecast-revised-upwards-as-demand-intensifies-2017-09-26 >.
4 Financial Times, BMW on verge of multiyear lithium and cobalt deal (13 February 2018) < https://www.ft.com/content/95ed34f0-10da-11e8-940e-08320fc2a277 >.
5 Amnesty International, DEMOCRATIC REPUBLIC OF CONGO: "THIS IS WHAT WE DIE FOR": HUMAN RIGHTS ABUSES IN THE DEMOCRATIC REPUBLIC OF THE CONGO POWER THE GLOBAL TRADE IN COBALT (19 January 2016) < https://www.amnesty.org/en/documents/afr62/3183/2016/en/ >.
6 Business Insider Australia, This child being abused in a cobalt mine is why Apple is trying to fix the mining business (15 May 2017) < https://www.businessinsider.com.au/apple-cobalt-mine-child-labor-2017-5?r=UK&IR=T >.
7 Barbara Lewis, Blockchain to track Congo's cobalt from mine to mobile (2 February 2018) Reuters < https://www.reuters.com/article/us-mining-blockchain-cobalt/blockchain-to-track-congos-cobalt-from-mine-to-mobile-idUSKBN1FM0Y2 >.
8 Samsung SDI Co. Ltd, '2016 Progress Report on Responsible Supply Chain' (April 2017) < https://www.samsungsdi.com/upload/download/sustainable-management/Samsung_SDI_-_2016_Progress_Report_on_Responsible_Cobalt_Supply_Chain_V12.pdf >.
9 Bloomberg, Samsung SDI Turns to Used Phones for Cobalt as Prices Surge (12 February 2018) < https://www.bloomberg.com/news/articles/2018-02-12/samsung-sdi-turns-to-used-phones-for-cobalt-as-prices-surge >.
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