Individual though the mining activities made the area

Individual Research Assignment

Tesla – Supply chain issues for electric cars and batteries

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Submitted by: Ankur Mishra (8354515)

 

Part I

Introduction to the issue and stakeholder analysis.

 

The
increasing demand and poor regulation has pushed the situations of mining
Nickle, Cobalt, Lithium and Graphite back to 1800s. These metals are the
primary constituents for Lithium Ion batteries, powering our everyday lives as
cellphones, laptops, iPads and now as cars. The sudden increase in demand has
led to insufficientlack of monitoring and regulation activities on the supply
chain for these elements.

As
the demand for electric cars increases, Tesla took the leaders role both in
technology as well as environment protection with its CEO Elon Musk standing
out and describing his venture as nothing less than an attempt to help avert a
climactic apocalypse. 2 The company has been under scrutiny for its supply
chain practices and therefore this situation requires to be addressed in a
comprehensive manner.

Stakeholder

Neighbors

Local
inhabitants of mining regions

–       
Due to
cobalt mining in DRC the residents around the mining areas were subjected to
deadly health hazards. 4
–       
Lithium
mining leads to water shortages in Chile and Argentina. 3
–       
People in
China aren’t being compensated even though the mining activities made the
area infertile and hazardous. 1

Biodiversity
and farmers

–       
Nickle
mining activities destroy natural wildlife in Australia, Canada, Russia and
Philippines. 6
–       
Damming
projects undertook in Chile effected major river flows and natural systems,
effecting water cycles etc.

Future
generations of workers and region

–       
High
concentration of cobalt has led to birth deformities in heavy cobalt mining
regions. Eg. Lubumbashi region DRC

Ethnic
Groups and local economy

–       
Workers
and indigenous groups make less than 1% from the whole resource they
generate. 3

 

Stakeholder

Regulator

UN’s
various organizations

–       
ILO to
administer labor rights at work and child labor prevention.
–       
UNICEF to
defend children rights, and to provide and safe environment and
opportunities.
–       
WHO to ensure
the safety of the air people breathe, the food they eat, the water they drink
and provide basic standards.

International
NGO’s

–       
Amnesty
International report ‘Human rights abuses in the Democratic Republic of the
Congo power the global trade in cobalt’. 7
–       
Sustainable
Development Strategies Group (SDSG) provide analysis of impact of mining in
various sectors. 8

Mining
regulating bodies

–       
In Chile SERNAGEOMIN
performs mine safety inspections
–       
The
International Council on Mining and Metals (ICMM)

Environment
regulators

–       
In Chile CONAMA
promulgates environmental requirements
–       
In china
Ministry of Environmental protection

Indigenous
rights regulators

–       
ILO –
Convention 169
–       
UNDRIP

Media
and Public

–       
Washington
Post did a series on stories which hyped up the atrocities caused in the
supply chains.

 

Part II

Applicable norms

 

There
are several norms which should be applied to this situation including – United
Nations Guiding Principles on Business and Human Rights (UNGP); United Nations
Declaration on the Rights of Indigenous Peoples(UNDRIP); OECD Due Diligence
Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and
High-Risk Areas etc.

 

 

 

The
following OECD guidelines for Model
Supply Chain Policy for a Responsible Global Supply Chain of Minerals from
Conflict-Affected and High-Risk Areas 9 have been breached:

1.     Regarding
serious abuses associated with the extraction, transport or trade of minerals:

While
sourcing from conflict-affected and high-risk areas, we will neither tolerate
nor by any means profit from, contribute to, assist with or facilitate the
commission by any party of:

i)
any forms of torture, cruel, inhuman and degrading treatment.

iii)
the worst forms of child labor (ILO Convention No. 182)

Tesla said its batteries have never included graphite from
the under scrutiny Chinese company BTR, but it declined to identify its
graphite source. 2

2.     Regarding
risk management of serious abuses:

We
will immediately suspend or discontinue engagement with upstream suppliers
where we identify a reasonable risk that they are sourcing from, or linked to,
any party committing serious abuses.

            Tesla buys its batteries from
Panasonic which in turn buys its cathode and anode components from Chinese
mining corps as well as from companies like CDM which have been accused for
such activities multiple times in the past. 1

11.   Regarding bribery and fraudulent
misrepresentation of the origin of minerals:

We
will not offer, promise, give or demand any bribes, and will resist the
solicitation of bribes to conceal or disguise the origin of minerals, to
misrepresent taxes, fees and royalties paid to governments for the purposes of
mineral extraction, trade, handling, transport and export.

            In regions of China many mining
contracts were secured by bribing the local official by companies down the
supply chain. 1

 

       14.
  Regarding
risk management of bribery and fraudulent misrepresentation of the origin of
minerals, money-laundering and payment of taxes, fees and royalties to
governments:

We
commit to improve and track performance. We will suspend or discontinue
engagement with upstream suppliers after failed attempts at mitigation.

            The companies mining or buying these
elements usually didn’t pay the fair price. Indigenous people of Atacama have
been paid less than 1% of the contracts they signed. 4

 

The
UNDRIPUNGP address the norms which aren’t directly applied to Tesla but to the
members down in their supply chain. The OECD Guidelines give an exhaustive and
most strict set of principles which are industry standard and especially
designed for such situations.

 

 

 

Part III

What is best practice on this issue?

 

The increased demand for the batteries
have put immense pressure on the mining of Co, Ni, Li, and graphite. These
metals aren’t considered to be under the precious metals act of Dodd Frank.

The production activity is majorly in
under developed countries like DRC, Chile etc where there is a serious lack of
local regulations as well as international monitoring. The supply chains for these
minerals are 7-8 layered. Maintaining good practices and regular due diligence
becomes a great challenge on such a complicated and spread out network. The
OECD provides with a very substantial guidelines framework as well as specific
case based solutions for practice.

Groups like SDSG (sustainable development
strategies group) are active in accessing on ground practices and their impact
and suggest active changes to mitigate such situations.

 

Tesla hasn’t been very forthcoming about
the details of their supply chain for these minerals.

“Tesla performs on-site visits and audits
to the best of our ability during the sourcing and vetting process for
suppliers,” the company said. “All of our contracts require suppliers to adhere
to our human rights policy and environmental and safety requirements.” 2

 

In January 2016, Amnesty released a report
ranking 29 companies on how well they were tracking their sources of
cobalt warning about human rights abuses linked to mining in Congo.

Following this all major battery consuming
companies came under public scrutiny.

 

–       
Apple became the first company to
publish the names of its cobalt suppliers.

–       
Apple says it is working to end
child labor in cobalt mines, and it has partnered with a number of NGOs to
focus on the DRC particularly.

–       
“We’re proud to report that 100 per
cent of our conflict minerals and cobalt smelter/refinery partners are now
participating in independent third-party audits to ensure their own business
practices are conducted responsibly.” 10

–       
Amnesty said among car makers, BMW
had made the most improvements.

–       
Renault said it had set up a
working group with its suppliers, which had already shared their systems of
controls, their supply-chain policies and details of audits.

–       
Umicore, a major supplier of
battery parts, hired PricewaterhouseCoopers, to judge whether it has adhered to
its standards for making sure its cobalt is sourced responsibly.

 

The Electronic Industry Citizenship
Coalition (EICC) and the Conflict-Free Sourcing Initiative (CFSI) launched of
the Responsible Raw Materials Initiative (RRMI) 12 to address the most
significant social and environmental impacts related to the extraction and
processing of raw materials used in the global supply chains of technology
companies in multiple industries of which every big electronics corporation
wants to be a part of.

 

 

 

 

 

 

Part IV

Draft shareholder resolution

 

Tesla
should adhere to the OECD guidelines more strictly and implement changes to its
supply chain structure and management to introduce better due diligence
involved all the levels ensuring better labor practices and mitigate the social
and environmental damage it is causing.

In order to achieve this,

We shareholders request the board members to implement
the OECD guidelines to help the company respect human rights and avoid
contributing to the various problems caused by the sourcing choices, including
the choice of suppliers. The company should develop along the Five Step
framework by OECD and augment on it on areas such as special rights for the
indigenous people. There is severe lack of emphasis on the social and
environmental due diligence cause down the supply chain. To tackle this, we
propose to publish an annual sustainability report as been done by Apple,
Samsung, BMW etc. clarifying all the supply chain members and regions.

In addition, the report should also include the
updates introduced to the operational and management practices as updates along
the OECD framework. Also, considering Tesla as the market leader and face for
the electric car technology we should take lead in this accord and setup better
standard for industry practice.

Also, we propose to employ a out of house firm to act
as an independent regulator to access and report annually on our supply chain
performances.

While we need to develop along the lines of OECD
guidelines we propose to increase the scope of involvement in mitigating the
problem as companies like Apple are trying to achieve. We should look to get
involved with the local governments and agencies to collaborate in the
development of areas to use the resources more efficiently as well as
sustainably in the long run.

We should look forward to making our supply chains
100% transparent but not just shift the blame down to some other corporation
and claim to be environmentally friendly. To achieve this we need to have
better coordination with the companies down our supply chain and monitor them
closely while helping them solve their problems.

Lastly, moving on from the monitoring roles we propose
strict penalties for the members of supply chain who don’t adhere to the
required guidelines and practices.

 

 

 

 

 

Part V

Draft supporting statement

 

In January 2017,
Washington post published a series of articles addressing the problems caused
from mining minerals required for Lithium ion battery. It indicated the
problems in the supply chain structure for these minerals and highlighted
issues of labor rights, child rights, social and environmental impacts. The
lack of international regulation and complexity of the supply chain has been
regarded as the main issue causing the problem. But the corporate strategies
clearly show a lack of due diligence on their side.

Companies like Apple and
Samsung after facing major backlash from public and news took on steps to
increase the transparency of their supply chains and start publishing an annual
sustainability report.

The requirement for these
minerals is much higher for Tesla and we need to take up a long term
sustainable plan to meet the demands as well as adhere to a higher standard.
Increasing due diligence for the supply chain not only removes the bad
practices and abuse of rights but also reduces risks in their mineral supply
chains because of circumstances of mineral extraction, trade or handling which
by their nature have higher risks of significant adverse impacts, such as
financing conflict or fueling, facilitating or exacerbating conditions of
conflict.

In current market
scenario where, public opinion dictates the market flows it is very crucial to
maintain public trust in the company. An independent report on this will
strengthen this and provide us with a clearer picture. The costs for this can
be easily seen as a very little premium we have to pay for the insurance of our
public image.

To further the economic
evaluation, lets look at the cobalt mining as a reference. According to the
USGS the annual increase in the cobalt production has been around 11% yearly
for the past 2 years, while the demand has more than tripled. Almost 50% of the
cobalt is produced from DRC and very short-sighted mining operations and supply
chain structures has caused the mining to be done in very inferior setups
decreasing the production amounts significantly. This has in turn resulted in
sharp increase in the prices as shown below.

If we invest in keeping
our supply chains healthy and sustainable the costs can be lowered down and the
mining activities can be done with higher efficiencies.

Similar case can be seen
for Lithium in the lithium triangle mining region.

The mining or Nickle and
graphite have led to huge environmental and social costs and the mining
corporations associated with nickle mining have been sued for environmental as
well as health reparation cases in Canada, Australia etc. This in turn can
hamper our production cycles and thus we need to mitigate this risk factor in
our supply chain and move on to better and more comprehensive approaches.

 

Further reports by UNGS
11 specify the events, trends and issues for each of these minerals
separately elaborating the use and production cycles of these minerals and the
future development of these resources. Its in clear alignment with the plan we
propose to pursue a sustainable and transparent supply chain operation.

 

 

 

 

 

 

 

 

References

 

1. https://www.washingtonpost.com/graphics/business/batteries/graphite-mining-pollution-in-china/?tid=a_inl

2. https://www.washingtonpost.com/business/economy/how-does-tesla-know-its-car-batteries-arent-tainted-the-company-wont-say/2016/12/30/fff78334-ce0d-11e6-a747-d03044780a02_story.html?utm_term=.d01ce339ac9e

3. https://www.washingtonpost.com/graphics/business/batteries/tossed-aside-in-the-lithium-rush/?wpisrc=al_alert-COMBO-economy%252Bnation

4. https://www.washingtonpost.com/graphics/business/batteries/congo-cobalt-mining-for-lithium-ion-battery/?tid=a_inl

5. https://www.washingtonpost.com/business/economy/companies-respond-to-questions-about-their-cobalt-supply-chains/2016/09/30/910f94de-7b51-11e6-bd86-b7bbd53d2b5d_story.html?tid=batteriesbottom&utm_term=.9c48668cefb1

6. https://www.theguardian.com/sustainable-business/2017/aug/24/nickel-mining-hidden-environmental-cost-electric-cars-batteries

7. https://www.amnesty.org/en/latest/news/2016/01/Child-labour-behind-smart-phone-and-electric-car-batteries/

8. http://www.sdsg.org/wp-content/uploads/2010/02/10-10-08-CHILE-REPORT.pdf

9. http://www.oecd.org/daf/inv/mne/OECD-Due-Diligence-Guidance-Minerals-Edition3.pdf

10. https://www.reuters.com/article/us-metals-cobalt-amnesty/apple-leads-way-in-tracing-cobalt-from-congo-microsoft-lags-amnesty-idUSKBN1DF045

11. https://minerals.usgs.gov/minerals/pubs/commodity/cobalt/mcs-2016-cobal.pdf

12. http://www.responsiblebusiness.org/news-and-events/news/rrmi-launch/

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