LONDON/UK (India CSR): Lithium-ion batteries are at the heart of the transition from fossil fuels, but 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 that companies accounting for 75% of the global battery market have connections to one or more companies in the supply chain facing allegations of severe human rights abuses. Most major battery manufacturers and end batteries applications are exposed including many of the world’s largest automotive, energy storage and electronics brands.
AI Technology and Data Compilation
This new industry data is compiled from evidence on Infyos’ AI supply chain risk platform using thousands of government datasets, NGO reports, news articles and social media sources. Infyos’ AI technology is developed specifically for the battery industry to automate the gathering, cleansing and classification of unstructured data to identify and assign confidence ratings to allegations of human rights abuses with accuracy and speed that previously was not possible.
Collaboration with Major Companies
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 to identify which companies a customer may be connected to across the supply chain and where there is exposure to or allegations of human rights abuses.
Proactive Risk Mitigation
Tony To, Co-founder & CTO, said: “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 despite the complexity of the battery industry and most importantly provides users with simple actionable mitigations to collaborate with their suppliers to address risks and improve the sustainability of the industry.”
Scope of Human Rights Abuses
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 with fragile and corrupt governments like the Democratic Republic of Congo and Madagascar.
Abuses in China and Xinjiang
However, most of the allegations of severe human rights abuses involve companies who are mining and refining raw materials in China that end up in batteries around the world, particularly in Xinjiang Uyghur Autonomous Region (XUAR) in northwest China where the battery, automotive and solar industry has already been hit with public allegations of widespread forced labour from journalists, government agencies and non-profit organisations.
Complex Supply Chains in the Industry
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 their supply chain risks.
Unethical Connections in the Supply Chain
The battery industry’s connections to these incidents stem from manufacturers sourcing components or materials from unethical companies in their supply chain network or entering business relationships, including joint ventures or equity investments hidden in complex and changing ownership structures, which conceals the reality of the unethical connections.
Current Audit Limitations
Sarah Montgomery, CEO & Co-Founder, Infyos, said: “The relative opaqueness of battery supply chains and the complexity of supply chain 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.”
Regulatory Scrutiny and Impact
Sourcing is coming under growing scrutiny, particularly in Europe 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 20301. With more legislation such as the EU Battery Regulation and the US’s Uyghur Forced Labour Prevention Act (UFLPA) being phased in, action must be taken now so companies can still sell their products.
Risks of Market Blockage
Jeff Williamson, Head of Sustainability, Infyos, said: “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 because of human rights risks.”
UFLPA Compliance and Penalties
The UFLPA prohibits the import of goods made with forced labour in the Xinjiang region of China. The penalties for non-compliance can be extreme: earlier this year inspectors blocked vehicles they found to violate the regulations. The US Senate Finance Committee Chair has accused automotive manufacturers of ‘sticking their heads in the sand’ over forced labour in their supply chains and a subsequent report recommended that the Department of Homeland Security and Customs and Border Protection take further measures to strength enforcement of the forced labour ban in automotive supply chains, including placing CATL – the world’s largest battery cell manufacturer – on a list of companies banned due to their connection to forced labour. Europe is following suit with its forced labour ban while a proposal has been submitted to increase the fines for non-compliance with the UK’s Modern Slavery Act to 4 per cent of global annual turnover.
Adapting Lessons from Solar Industry
Sarah Montgomery, CEO & Co-Founder, Infyos, said: “We have already seen how forced labour incidents in supply chains for the solar industry have blocked the largest solar suppliers from the US market and slowed down the transition to clean energy: as the battery industry faces the paradigm shift to electrification, the lessons learnt in solar must be applied to the battery industry if the energy transition is to stay on track.”
Emerging Battery Regulations in Europe
Battery-specific regulations within Europe are becoming more stringent too. New EU Battery Regulations coming into effect between 2024 and 2036 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 comply with, are foundational to the much-talked-about battery passports in 2027. The UFLPA and EU Battery 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.
Investor Pressure and Industry Action
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: Research from PwC found that 89 per cent of institutional investors are considering or have already rejected investments in firms with ESG shortcomings. Additional human rights pressure is coming from investors, who are now mandating deeper supply chain risk management and visibility as a condition of lending or investment to minimise their own financial risk. While financial and regulatory pressures are increasing awareness of human rights abuses in battery supply chains, more industry action to address human rights abuses is needed to drive battery applications forward and ensure 2050 net-zero emissions targets don’t face total failure.
