About the report
This report summarises the outcomes of the PRI-supported collaborative engagement on responsible cobalt sourcing which ran between 2018 and 2020 with companies in the electronics and automotive sector. A total of 46 institutional investors, representing approximately US$6.4trn in assets under management, engaged with 16 companies on their cobalt sourcing practices. The objective was to improve companies’ performance and impact in three focus areas:
- human rights risk assessment and comprehensive due diligence efforts;
- impact monitoring and corrective action, including on-the-ground remediation; and
- collaboration on systemic issues.
Investors assessed companies’ practices and progress in these areas at the beginning and the end of the engagement, and the results are presented in this document. This report also sets out recommendations for investors on responsible cobalt sourcing practices going forward.
Previous work on this topic includes a 2018 PRI report, Drilling down into the cobalt supply chain: how investors can promote responsible sourcing practices, that highlights the child labour and human rights risks associated with cobalt sourcing, outlines investor expectations and recommendations and provides a set of questions that investors can use in their engagement dialogue with companies. Investor expectations around cobalt sourcing were thereafter laid out in an investor statement that has been signed by 46 investors to date, representing US$3.8trn in assets under management.
Cobalt is critical to the transition towards a low-carbon economy and demand is expected to soar over the coming years, driven by the rise in electric vehicles and renewable energies such as solar, wind power and biogas. The World Bank estimates that under a 2-degree scenario, production of cobalt would need to be ramped up 460% by 2050 (from 2018 levels) to meet demand from energy storage technologies. It is therefore reasonable to assume that the scrutiny faced by companies relying on cobalt in their value chains and failing to adequately prevent and mitigate human rights and environmental risks is likely to continue and increase.
Investors have a key role to play in pushing for the adoption of more responsible cobalt sourcing practices. Just as for all businesses, institutional investors have a responsibility to respect human rights. This responsibility was formalised by the UN and the OECD in 2011. Expectations have been driven not only by growing visibility and urgency around many human rights issues, but also by a better understanding of investors’ role in shaping real-world outcomes, and of their responsibility to do so, across all their investment activities.
Beyond investors’ responsibility to respect human rights, which are laid out in a PRI report, social and environmental risks in the cobalt supply chain can expose companies and investors to material reputational, operational, legal and regulatory risks. These risks also include severe brand damage and impact to company share value; a negative impact on operations and production capacity; and potential strikes and disruptions.
To date, there is not any binding regulation around cobalt specifically. However, it is reasonable to assume that policy makers, particularly in the EU, will fill this gap, due to existing regulation on human rights due diligence in some jurisdictions, as well as increasing convergence around the United Nations Guiding Principles (UNGPs) and OECD standards.
More broadly, business models that do not consider the negative social impacts they have on workers and communities undermine not just individual rights but also the societal infrastructure on which the global economy relies for delivering long-term growth and prosperity – especially to diversified, universal owners.
Given this context, the PRI supported an engagement between 2018 and 2020 where investors assessed companies’ practices and progress regarding responsible cobalt sourcing at the beginning and the end of the engagement. In addition, the PRI incorporated results from the 2020 Corporate Human Rights Benchmark (CHRB) and from the Cobalt Due Diligence Ranking (2019 Mining the Disclosures Report).
List of engagement focus companies1:
Apple, BMW, Daimler, General Motors, HP, Infineon, Johnson Matthey, LG Chem, Microsoft, Panasonic, Renault, Samsung SDI, TDK, Tesla, Toyota Motor and Volkswagen.
The engagement, which saw 46 institutional investors engage with 16 companies in the electronics and automotive sectors, has seen some encouraging developments, which are laid out in this document.
However, there is still significant room for improvement, including the working conditions and compensation of miners in artisanal and small-scale mining (ASM),2 and due diligence and risk mitigation by companies sourcing or relying on cobalt for their products,3 including within the large-scale mining (LSM) supply chain.
The OECD highlights seven areas of concern, among which are the potential negative human rights implications related to the use of security personnel and to relocation.4 Further, stakeholders have observed a lack of meaningful change on the ground: child labour is still prevalent; mining activities expose communities to long-lasting harm due to toxic pollution,5 many communities have faced relocation on mining sites; and mining has disrupted water distribution.6 Studies investigating risks in ASM have found that elevated cobalt exposure are causing health impacts in local populations, especially in children.7
Since the first Amnesty report in 2016 on the human rights risks associated with cobalt sourcing,8 a wide range of stakeholders have been collaborating to improve traceability and accountability of actors in the cobalt and battery value chain. While there are still persistent challenges, it is important to acknowledge the progress made to date. The collaboration in 2018 between the Responsible Minerals Initiative (RMI) and the Responsible Cobalt Initiative (RCI)9 – a joint project to implement a cobalt refiner assessment program with clear supply chain due diligence standards10 - now sees more than 30 cobalt refiners taking part in the Responsible Minerals Assurance Process (RMAP) of the RMI and undergoing an independent third-party audit. Work and projects that aim to integrate ASM into the formal economy are also a welcome development. For example, the Better Mining partnership’s data monitoring project at ASM sites in the Democratic Republic of the Congo (DRC) aims to cover 12 sites across the country by 2023.11
The impacts of COVID-19
Throughout this engagement, the COVID-19 pandemic severely disrupted the cobalt supply chain, impacting businesses, workers, and the livelihoods of artisanal and small-scale miners (ASM). Whilst the COVID-19 crisis inevitably made businesses focus on crisis management, there were concerns that recent gains in terms of traceability and due diligence efforts may be lost. As a result, investors in this group geared their engagement dialogue with companies towards understanding how the latter addressed the challenges brought about by the pandemic and sought to ensure their practices aligned with the OECD and the Responsible Minerals Initiative’s recommendations.
All the companies that engaged but one have a supply chain policy or code related to social issues – a 25% increase since the start of the engagement. In addition, 81% of companies have made a public commitment to respect internationally proclaimed human rights.
Further, every company in the engagement has publicly acknowledged the importance of responsible cobalt sourcing. This acknowledgement has taken a variety of forms, such as public commitments, procurement policies and modern slavery statements.
In terms of progress per sector, the PRI has observed slower progress in companies in the automotive sector compared to their electronics counterparts. These findings are consistent with those of the CHRB that assessed the automotive sector for the first time in 2020. The average score for automotive companies was 12%, the lowest of any CHRB-benchmarked sector.12 These findings also tallied with those from the Responsible Sourcing Network’s 2019 Mining the Disclosures Report, where technology companies scored higher for cobalt due diligence than their automotive counterparts.
Human rights risk assessment and comprehensive due diligence efforts
We assessed: companies’ efforts on human rights risk assessments; due diligence; physical inspections and audits of supply chains; and stakeholder engagement as part of their risk assessments. Results across these areas were unequal.
The Cobalt Due Diligence Ranking (2019) – which assesses companies’ activities to identify, address and report on human rights risks in their cobalt supply chain – saw the technology and automotive sectors score 46.2% and 31.6% respectively on their cobalt due diligence. This shows there is still some room for improvement relating to companies’ management systems, risk identification, risk mitigation, audit and public reporting.
The PRI found that companies’ wider human rights risk assessments and due diligence efforts are more encouraging. An overwhelming majority of companies in the engagement now conduct due diligence related to human rights on new suppliers and risk assessments for existing suppliers – an increase of 36% since 2018.
The vast majority - 88% - of companies disclose that they monitor their suppliers through physical inspections and audits, but only 63% of companies disclosed the results of this monitoring. However, we saw improvements in this area: a 27% and 25% increase since the start of the engagement, respectively.
A weak spot for companies is stakeholder engagement, allowing companies to identify salient issues in the supply chain related to human rights. Whilst some have expressed their intention to expand their human rights risk assessments to include engagement with stakeholders, only one of the companies has made a public commitment to do so.
Impact monitoring and corrective action
There are still significant improvements which need to be made related to impact monitoring and corrective action.
Our scorecard found that less than a handful of companies proactively assess their human rights impacts as part of their core business processes.
Only a quarter of companies assessed have a formal grievance mechanism which explicitly covers human rights and guarantees confidentiality for internal and external stakeholders. Further, only one company has committed to remedy affected parties which have caused or contributed to human rights impacts.
Only one company has engaged with affected stakeholders in response to every serious allegation made against the company.
Only one company assessed publicly disclosed incidents and lessons learnt from those incidents.
As mentioned, the automotive companies engaged seem to be less advanced than their counterparts in the electronics sector around remedy and grievance mechanisms. The electronics companies in this engagement scored significantly higher than automotive companies in the 2020 CHRB on remedies and grievance mechanisms.13 Similarly, automotive companies scored poorly regarding responses to serious allegations. This is an indication that these companies need to improve their public responses to serious allegations, have appropriate policies to capture grievances and take action to remedy and improve existing mechanisms to ensure they are fit for purpose.
Collaboration on systemic issues
There has been a noticeable growth in multi-stakeholder and industry initiatives that attempt to build leverage and to affect change throughout the cobalt value chain.
Every company in this engagement is a member of at least one multi-stakeholder initiative related to the responsible sourcing of cobalt, including the Responsible Minerals Initiative, the Responsible Cobalt Initiative, the Global Battery Alliance and the Fair Cobalt Alliance. Some companies have gone further by participating in collaborative initiatives, such as blockchain technology pilot projects to improve the transparency of cobalt supply chains or projects aimed at the formalisation of ASM.
Recommendations for further engagement
Remain committed to engaging on core issues and challenges associated with cobalt sourcing
While this initiative focused on child labour and human rights risks in the cobalt supply chain, it is critical that investors are aware of the variety of risks associated with ASM and LSM, and that they insist on companies addressing these risks through strong due diligence, continually monitoring potential and actual adverse impacts, and addressing them when identified.
Investors must continue to emphasise that ASM is not an issue per se and encourage companies to act towards the formalisation of ASM – including exploring findings related to existing pilot projects and understanding whether they are scalable and replicable.14
With regards to pilot projects, investors should question companies as to how they measure and track the effectiveness of these programmes, as well as the partners they work with and how they incorporate lessons learnt into existing systems and mechanisms, whether these be around due diligence, traceability, supply chain mapping or supporting local communities. Further, investors should encourage companies to scale up pilot projects if they are successful. If unsuccessful, investors should question companies on what can be done to improve future projects.
Deepen and strengthen stakeholder engagement
Investors should ensure that they engage with a broad group of stakeholders including the OECD and multi-stakeholder initiatives to keep abreast of the developments in the cobalt space. This will help inform investors’ dialogue with companies and ensure that the engagement asks remain relevant. It will also ensure that companies are nudged in a direction that does not entail unintended negative repercussions for the socio-economic conditions and human rights of the communities on the ground.
Investors should engage with NGOs and local community representatives to get a clearer and more accurate picture of the situation and challenges on the ground. This can allow investors to verify or triangulate information self-reported by companies.
It is important that through these engagements, investors continue to signal to companies and to the broader range of stakeholders that they are committed to seeing improvements in human rights due diligence efforts, risk mitigation and the remedy of any negative impact.
By engaging as a group, investors can engage with stakeholders more efficiently by sharing tasks and responsibilities and avoiding duplication. This collective expertise can be particularly helpful when engaging with a company on a highly complex issue or with a company that operates in a challenging environment, as investors sometimes find it more difficult to access information in these situations.
Consider broadening the scope of the engagement
This initiative focused on engaging downstream companies on their cobalt sourcing practices,15 but investors should also consider dialogue with companies at other stages of the supply chain including smelters/refiners16 but also mining companies as there are considerable risks with large-scale mining as well – including risks of corruption and tax evasion as highlighted by a 2019 report from the OECD on cobalt and copper sourcing. Investors should also consider downstream companies in other sectors where cobalt is used (e.g. jet engines, a sector that has mostly fallen under the radar in terms of civil society, media and consumer scrutiny).
Some of the dialogues throughout this engagement saw investors and target companies discuss the potential adoption of a circular economy model around the recycling of lithium-ion batteries. The potential recycling and/or re-using of cobalt17 should be explored further.
Investors may want to consider engaging on a broader range of minerals that have been deemed critical to the transition to a low-carbon economy. The Business and Human Rights Resource Centre tracks allegations of human rights abuses by the biggest producers of six key minerals, including cobalt. Amnesty’s new report, Principles for Businesses and Governments in the Battery Value Chain, also contains recommendations for corporates and governments and can further inform or form the basis of investor dialogue with companies / governments.
How to continue this engagement
- Investors can continue engaging with companies on this issue or join this engagement in collaboration with other PRI signatories through the PRI Collaboration Platform.
- It is important that investors are ready to escalate issues where progress is not being made. While each investor will need to make their own assessment, the use of targeted shareholder resolutions and / or voting against board members or the company report and accounts is likely appropriate if companies fail to meet investor expectations.
- The PRI will continue to organise a yearly investor roundtable on the responsible sourcing of cobalt to bring together investors, companies, civil society and multi-stakeholder initiatives to discuss progress and persisting challenges.
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1 Samsung Electronics was part of the initial list of engagement focus companies but engagement was discontinued half-way through the initiative
2 Although human rights risks are more prevalent in ASM, halting sourcing by ASM is not a viable risk mitigation strategy – due to the unfavourable socio-economic outcomes for ASM miners – nor is it feasible due to the complex nature of cobalt supply chains. In response to this, we have seen an uptake in ASM formalisation, in which companies attempt to formalise, or develop standards for the ASM industry in line with human rights principles and environmental standards
4 Interconnected supply chains: a comprehensive look at due diligence challenges and opportunities sourcing cobalt and copper from the Democratic Republic of the Congo, OECD, 2019, https://mneguidelines.oecd.org/Interconnected-supply-chains-a-comprehensive-look-at-due-diligence-challenges-and-opportunities-sourcing-cobalt-and-copper-from-the-DRC.pdf
5 DRC: Alarming research shows long lasting harm from cobalt mine abuses, Amnesty International, https://www.amnesty.org/en/latest/news/2020/05/drc-alarming-research-harm-from-cobalt-mine-abuses/
6 Findings from Bon Pasteur Kolwezi Programme in 2020
7 Banza Lubaba Nkulu, C., Casas, L., Haufroid, V., De Putter, T., Saenen, N.D., Kayembe- Kitenge, T., Musa Obadia, P., Kyanika Wa Mukoma, D., Lunda Ilunga, J.-M., Nawrot, T.S., Luboya Numbi, O., Smolders, E., Nemery, B., 2018. Sustainability of artisanal mining of cobalt in DR Congo. Nat. Sustain. 1, 495–504. https://www.nature.com/articles/s41893-018-0139-4
8 This is what we die for: Human rights abuses in the Democratic Republic of the Congo power the global trade in cobalt, Amnesty International, 2016, https://www.amnesty.org/download/Documents/AFR6231832016ENGLISH.PDF
9 See below for more information on these initiatives
10 Based on the OECD Due Diligence Guidance for Responsible Mineral Supply Chains from Conflict-Affected and High-Risk Areas
12 Agricultural products, Apparel, Extractives and ICT manufacturing, https://www.worldbenchmarkingalliance.org/publication/chrb/rankings/type/ungp/
13 Electronics companies scored an average of 0.58 (out of 1) in the 2020 CHRB on remedies and grievance mechanisms, compared to 0.15 for automotive companies
14 See http://www3.weforum.org/docs/WEF_Making_Mining_Safe_2020.pdf
15 Under the OECD guidance for responsible mineral supply chains, downstream companies are asked to trace back at least down to smelter/refiner level
16 By engaging with and through the RMI or RCI
17 See recommendations here: https://www.pv-magazine.com/2020/02/01/the-weekend-read-ethical-strategies-for-cobalt-supply/ US and UK looking into battery recycling, and Japanese company Sumimoto on battery recycling here: https://www.newsecuritybeat.org/2020/06/cobalt-critical-renewable-energy-transition-minimize-social-environmental-cost/