Ama Seery, ESG Analyst on the Global Sustainable Equity Team, examines the explosive demand for cobalt – used to power the batteries of mobile devices – and the many risks associated with its supply.

Key takeaways

• Global demand for cobalt in batteries is surging, but there are many risks associated with its supply.
• Children working in cobalt mines in the Democratic Republic of Congo (DRC) – where most of the world’s cobalt is located – are denied an education and suffer serious health risks.
• To address the problem of child labour and other key risks, we have established a due diligence process to identify companies that follow ethical practices as it relates to cobalt mining.

If you have a mobile device, it is more than likely powered by a battery containing cobalt. As we transition to a low carbon economy, the demand for these batteries is expected to grow as they are used in more applications, from grid scale storage to electric vehicles. It is predicted that by 2025, annual global demand for cobalt in batteries will amount to 117,000 tons, an increase of almost 210% compared to 2017¹. While this could change in the future, cobalt is presently a key ingredient in the modern economy. However, there are many risks associated with its supply.

By a twist of geographic fate, most of the world’s cobalt is located in the Democratic Republic of Congo (DRC). Since the mid-1990s, the country has seen continued violence and conflict, which has led to a very poor human rights record. It is not uncommon to find children working in and around cobalt mines, extracting the mineral by hand (also known as artisanal mining). Not only are these children denied an education, but their health is also put at risk from exposure to dust and increased levels of cobalt in their bloodstream, which, at high doses, can be hazardous to human health.

With technological innovation playing an important role in achieving both environmental and social sustainability goals, many technology companies have either direct or indirect exposure to cobalt in their supply chains. Accordingly, we have established a due diligence process to assess companies’ practices related to cobalt mining.

Managing risk through engagement

In developing our due diligence process, we followed the United Nation’s Principles for Responsible Investment (PRI) recommendation to address the risks associated with cobalt by engaging with companies that have the mineral in their supply chain. This engagement often involves meeting with senior leadership to discuss actions the company could take to increase the transparency of cobalt within its supply chain.

As a basis for our engagement, we use the Organisation for Economic Co-operation and Development (OECD) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas. This document details a five-step framework for ensuring due diligence within a mineral supply chain:

1. Establish strong company management systems
2. Identify and assess risk in the supply chain
3. Design and implement a strategy to respond to identified risks
4. Carry out an independent third-party audit of supply chain due diligence at identified points in the supply chain
5. Report on supply chain due diligence

Our engagement process extends beyond the companies themselves. To gain insight into the challenges involved in implementing the five steps in the OECD’s guidance on mineral supply chains, for example, we consulted with a charity worker from the DRC. The individual discussed concerns related to the quality of auditing, such as the common practice of children being removed from mining sites when auditors approach. The primary concern highlighted, however, was the lack of an alternative for children working in the mines. While children under age 18 cannot legally work in the mines, the law is not widely observed for various economic and societal reasons.

Given these concerns, a key area of focus of our due diligence process is identifying companies that are working to address child labor issues by providing financial support to families and education services. For instance, we have found that some companies are partnering with charities that offer day care and schools and providing the means for families to send their children there without financial consequences.

Our due diligence process has found that some companies are working ahead of regulation. While there isn’t yet any binding regulation regarding cobalt, given the regulatory developments around conflict minerals, it is likely that policymakers will fill this regulatory gap. We believe that businesses that recognise a broad fiduciary duty to all stakeholders will be better positioned to reduce risk exposure over the long term.

¹ According to a June 2018 report published on Statista, an online portal for statistics.