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, according to research released on Sept. 16 from Infyos.
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 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 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 labor from government agencies and non-profit organizations.
"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supply chains and the complexity of supply chain legal requirements means current approaches like ESG audits are out of date and don’t comply with new regulations,” said Sarah Montgomery, CEO, Infyos, in a statement.
“Most battery manufacturers and their customers, including automotive companies and grid-scale battery energy storage developers, still don’t have complete supply chain oversight.”
Extended Supply Chain
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, the report noted.
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, that conceals the reality of the unethical connections, the report says.
Sourcing is coming under growing scrutiny, particularly in Europe and the US, where legislation such as the EU Battery Regulation and the US’s Uyghur Forced Labour Prevention Act (UFLPA) is being phased in.
The UFLPA prohibits the import of goods made with forced labor 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 labor 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 labor 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 labor.
Europe is following suit with its forced labor ban while a proposal has been submitted to increase the fines for non-compliance with the UK’s Modern Slavery Act to 4% of global annual turnover.
“We have already seen how forced labor 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," said Montgomery.
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.
