New analysis reveals up to three quarters of the global lithium-ion battery supply chain is at risk of exposure to human rights abuses, such as forced and child labour, in violation of US, EU and UK laws.
Non-compliance with increasingly stringent regulations could place battery products at risk of being blocked or banned from import markets, with leading names already caught in the net in the US.
In addition, manufacturers incurring reputational damage become less attractive to ESG investors.
Lithium-ion (Li-ion) batteries are at the heart of the transition away from fossil fuels. Their responsible and transparent sourcing will be fundamental to delivering on net zero targets. However, fundamental supply chain changes are needed to eliminate widespread forced labour and child labour abuses.
Research by AI supply chain risk platform Infyos has identified companies accounting for 75% of the global battery market with supply chain connections facing allegations of severe human rights abuses.
This means that most major battery manufacturers and end batteries applications are exposed, including many of the world’s largest automotive, energy storage and electronics brands.
Rating allegations of abuse with accuracy
This new industry data is compiled from evidence on the Infyos AI supply chain risk platform using thousands of government datasets, NGO reports, news articles and social media sources.
The technology has been developed specifically for the battery industry. It automates the gathering, cleansing and classification of unstructured data to identify and assign confidence ratings to allegations of human rights abuses, and to do so with a degree of accuracy and speed not previously possible.
The AI-driven platform is working with some of the world’s largest renewable energy and automotive companies to combine open-source data with additional proprietary data sources.
The data supports positive action not just analytics, says Tony To, Co-founder & CTO at Infyos:
“Our platform is designed to provide users with insights into the complexities of the battery supply chain so they can take proactive measures to identify and mitigate risks. By leveraging AI in our technology we’ve created a system that delivers accurate data and provides users with simple actionable mitigations to collaborate with their suppliers to address risks and improve the sustainability of the industry.”
Five-year-olds mining cobalt materials
The widespread human rights abuses identified range from people being forced to work in lithium refining facilities under the threat of no or minimal pay, to five-year-old children mining cobalt materials out of the ground in hazardous conditions.
Severe human rights incidents are occurring globally, especially in resource-rich countries dealing with issues of corruption, such as the Democratic Republic of Congo and Madagascar.
However, most of the allegations of severe human rights abuses involve companies who are mining and refining raw materials in China that are destined to end up in batteries around the world.
One area in the spotlight is the Xinjiang Uyghur Autonomous Region (XUAR) in northwest China, where battery, automotive and solar industries have already been hit with public allegations of widespread forced labour. Journalists, government agencies and non-profit organisations have all raised concerns.
Complex supply chains with poor visibility
Electric vehicle and battery manufacturers have a complex supply chain, sometimes with over 10,000 suppliers across their network, from mines to chemical refineries and automotive manufacturers.
Human rights abuses frequently occur upstream in the supply chain, notably at the raw material mining and refining stages, making it difficult for companies purchasing batteries to identify risks.
The battery industry’s connections to these incidents stem from manufacturers sourcing components or materials from unethical companies in their supply chain network. In some cases, they may be entering into business relationships, including joint ventures or equity investments, that are hidden in complex and changing ownership structures, which conceal the reality of the unethical connections.
Firms are playing catch-up on traceability, explains Sarah Montgomery, CEO & Co-Founder, Infyos:
“The relative opaqueness of battery supply chains and the complexity of legal requirements means current approaches like ESG audits are out of date and don’t comply with new regulations.
“Most battery manufacturers and their customers, including automotive companies and grid-scale battery energy storage developers, still don’t have complete supply chain oversight.”
Non-compliance met with US import bans
In response, sourcing is coming under growing scrutiny, particularly in Europe, UK and the US, where failure to address the issues means companies could be in breach of current and future regulations.
This is damaging the battery industry’s clean credentials and hampering investment into the global battery market forecast to be worth nearly $500 billion in 2030.
With more legislation such as the EU Batteries Regulation and the US Uyghur Forced Labour Prevention Act (UFLPA) being phased in, action must be taken now so companies can still sell their products.
The risks to business are real, says Jeff Williamson, Head of Sustainability, at Infyos:
“Companies manufacturing or purchasing batteries are at risk of having their products blocked at the market, further delaying and increasing the costs of renewable energy projects or tarnishing their reputation.”
The UFLPA prohibits the import of goods made with forced labour in the Xinjiang region of China — and the penalties for non-compliance can be extreme. Earlier this year inspectors blocked vehicles they found to violate the regulations, impacting imports of several luxury automotive brands.
The US Senate Finance Committee Chair has gone so far as to accuse automotive manufacturers of “sticking their heads in the sand” over forced labour in their supply chains.
A subsequent report even recommended that the Department of Homeland Security and Customs and Border Protection take further measures to strength enforcement of a forced labour ban. Proposals included placing CATL — the world’s largest battery cell manufacturer — on a list of banned companies.
The clean energy transition and electrification are under pressure, suggests Sarah Montgomery:
“We have already seen how forced labour incidents in supply chains for the solar industry have blocked the largest suppliers from the US market. Lessons learnt in solar must be applied to the battery industry.”
Europe and UK raising stakes with legislation
Europe is following suit with its forced labour ban, while a proposal has also been submitted to increase the fines for non-compliance with the UK’s Modern Slavery Act to 4% of global annual turnover.
Battery-specific regulations within Europe are becoming more stringent too.
A slew of new EU batteries regulations coming into effect between 2024 and 2036 will require much more rigorous supply chain visibility and risk management — starting in 2025 with non-compliance, leading to products being blocked from the European market.
These pressing supply chain requirements, which many in the industry are struggling to meet, are foundational to the much-talked-about battery passports in 2027.
The UFLPA and EU Batteries Regulation are widely seen as the battery industry gold standard due to their strict requirements on due diligence and supply chain visibility, and many companies operating outside of the regions are voluntarily aiming to meet their requirements.
By addressing issues within their supply chain, companies not only continue to have a licence to operate and avoid costly fines but can also actively grow their business.
Pressure around human rights issues is also coming from investors, who are now mandating deeper supply chain risk management and visibility as a condition to minimise their own financial risk.
That said, while financial and regulatory pressures are increasing awareness of human rights issues in battery supply chains, more industry action is needed to address instances of abuse.
Industry-wide collaboration is key to enabling and accelerating progress towards 2050 net zero goals.
Tackling Tier N supply chain risk
Infyos is an AI-powered supply chain risk system designed to help make sure the energy transition is both fast and sustainable. Built by experts in Chinese supply chains, the technology supports the global renewable energy industry in its efforts to manage Tier N supply chain risks (in levels below Tier 1).
The AI-driven platform is used by some of the world’s largest renewable energy and automotive companies to identify and mitigate complex human rights, ESG and regulation risks across entire supply chains.
Infyos will be hosting a webinar on battery human rights risks on Thursday 3 October.
Further Reading:
- More about the Infyos platform; and the company’s webinar on battery human rights risks;
- More on market growth and trends in the IEA report on Batteries and Secure Energy Transitions;
- More about the EU Batteries Regulation; and US Uyghur Forced Labour Prevention Act (UFLPA);
- Also on SustMeme, Critical minerals investor to be first $1bn unicorn;
- Also on SustMeme, Fire risk call for regulation of e-bike batteries;
- Also on SustMeme, All-electric lithium to power North America EV drive;
- Also on SustMeme, Investors name and shame on human rights;
- Also on SustMeme, Guest Blog: Responsible sourcing a sustainable smartphone;
- Also on SustMeme, As EV waste looms, is Li-ion battery recycling ready to roar?
Check out the full archive of stories on the SustMeme Climate & Energy Channel, now available to Sponsor.
