Cobalt: saying ‘no’ to child labour
5 minute read
If you have a mobile device, it is more than likely that it will be powered with a battery containing cobalt. As we transition to a low carbon economy, the demand for batteries is expected to grow as they are used in more applications from grid scale storage to electric vehicles. According to statista.com, by 2025, it is predicted that annual global demand for cobalt in batteries will amount to 117,000 tons, an increase of almost 210% compared to 2017. While this could change in the future, at the current time, cobalt is currently a key ingredient in the modern economy. However, there are many risks associated with its supply.
By a twist of geographic fate, the majority 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, in particular extracting the mineral by hand (also known as artisanal mining). Children are denied an education, and their health is put at risk by 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 of the companies we invest in have either direct, or indirect, exposure to cobalt in their supply chains. Accordingly, we have identified cobalt as a key risk for our strategy and an area for engagement.
Our approach,as per the UN’s Principles for Responsible Investment (PRI) recommendations, is to address the risk by engaging with companies that have cobalt in their supply chain. We used the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas as a basis for engagement. 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 independent third party audit of supply chain due diligence at identified points in the supply chain
5. Report on supply chain due diligence
We also consulted with a charity worker from the DRC to gain insight into the challenges involved in implementing the five steps. They mentioned concerns relating to the quality of the auditing, in particular, children being removed from sites when auditors approach. The key concern highlighted, however, was the lack of an alternative for the children working in the mines. While children under 18 cannot legally work in the mines, the law is not widely observed for several economic and societal reasons. Their recommendation was for companies to partner with charities providing day care and schools, and to provide the means for families to send their children there without financial consequences.
Microsoft’s productivity and business software and carbon neutral cloud platform are used in many different ways for the benefit of the environment and society. The power of computing underpins all technological innovation and Microsoft’s mission is to empower every person and every organisation on the planet to achieve more. With its partners, Microsoft has developed solutions spanning education, healthcare, water, buildings, infrastructure, and transportation, to provide essential services to society and help modernise cities in sustainable ways that minimise negative environmental impacts.
Microsoft has been a long-term holding in the SRI strategy and, as one of the world’s largest technology companies, it has a material influence on the demand for cobalt. When we first started engaging with Microsoft on this topic, the company had not traced the cobalt used in its supply chain to the original mines. Therefore, we were unable to implement the five-step framework for cobalt.
Towards the end of 2018 we held a meeting with Microsoft’s Senior Director, Responsible Sourcing and Certifications, in which we discussed changes Microsoft had made to its supply chain and the publication of a new report, Devices Sustainability at Microsoft for 2018. We were pleased to see that Microsoft has made efforts to increase the transparency of cobalt within the company’s supply chain by improving the traceability and supply chain due diligence in line with the OECD’s guidance.
Additionally, Microsoft supports Pact, a non-governmental organisation (NGO) that helps companies to address child labour in mineral supply chains. By providing financial support to families and education services, there was a 77-97% reduction in the number of children working at mines in the Manono and Kolwezi regions of the DRC. This programme received international recognition. Microsoft is still on a journey regarding cobalt, and we will continue to engage with the company regarding its progress.
Importantly, Microsoft’s actions also make good business sense. By taking responsibility in improving standards further down its supply chain it is reducing the risk of supply disruptions and brand damage. The company is also working ahead of regulation. While there isn’t yet any binding regulation around cobalt, given the regulatory developments around conflict minerals, it is likely that policymakers, particularly in the European Union, will fill this regulatory gap.
From an investment perspective, we believe that businesses which recognise a broad fiduciary duty to all stakeholders will prove to be better long-term investments.