How investors can promote responsible cobalt sourcing practices

But while they are often considered to be greener than their lead-acid counterparts, the major electronics and automotive companies that use them can expose themselves to serious risks.

That’s because not only is the cobalt used in the batteries that power these devices obtained via a lengthy and complex supply chain, but cobalt mining has a high human toll. While it is not a conflict mineral, as it is produced in the relatively peaceful southern province of Katanga, the DRC is a high-risk area, where up to 20% of the country’s cobalt is extracted by artisanal miners. Serious, systemic human rights violations are commonplace, including child labour, exposure to health hazards from high levels of toxic metals, and lack of the most basic safety equipment inside and around the mines. The growing demand for the mineral is also fuelling an increase in price that could have disruptive effects on local communities.

Why should investors pay attention to cobalt?

The investment community increasingly recognises that it has a key role to play in pushing for the adoption of more responsible cobalt sourcing practices. In addition, under the OECD Guidelines for Multinational Enterprises, institutional investors are expected to behave responsibly and determine their exposure to human rights risk within their portfolios and conduct due diligence to prevent or address adverse impacts.

Democratic Republic of the Congo

Cobalt is most often sourced from the Democratic Republic of the Congo (DRC), which is home to more than half of the world’s cobalt resource. Demand for the mineral is expected to continue growing in coming years.

Human rights violations and child labour in the cobalt supply chain could expose companies and investors to material reputational, operational and regulatory risks. This includes severe brand damage and impact to company share value; a negative impact on operations and production capacity; and potential strikes and disruptions. And while there isn’t any binding regulation around cobalt yet, given the regulatory developments around conflict minerals, it is likely that policymakers, particularly in the EU, will fill this regulatory gap.

Human rights violations in the cobalt supply chain could lead to severe brand damage, negative impact on operations, and strikes and disruptions

About this project

Following the release of Amnesty International’s report, This is what we die for, 23 institutional investors started engaging with 13 companies from the electronics and automotive sectors on their cobalt sourcing practices.

The companies’ responses to engagement varied greatly. Some of the more advanced ones had started to treat cobalt as a conflict mineral and begun to carry out the same due diligence efforts they did with tin, tantalum, tungsten and gold (the 3TGs). Although their processes were still in their infancy, it showed a willingness to tackle the issue. Other companies provided disappointing responses to the investors’ request for information, claiming to rely on cobalt not sourced from the DRC. Given the amount of cobalt used in the companies’ products, not only were these claims very unlikely, but they also failed to provide proof to back them up.

The groups of investors therefore decided to create a set of questions which would allow for a like-for-like comparison of progress between companies. The PRI agreed to undertake research and hold dialogues with the relevant stakeholders to flesh out the original asks of the group to companies.

The investor expectations and recommendations in this brief are the outcome of this research and can be used by investors engaging companies on their cobalt sourcing practices. Although this brief mainly focuses on child labour risks in the cobalt supply chain, it aims to encourage companies and entities along the supply chain to build strong due diligence and risk assessment mechanisms so they have the right systems in place to gradually focus on every material human rights risk area.

Investor expectations and engagement

Investor expectations towards companies with regards to the responsible sourcing of cobalt centre on three main areas:

human rights risk assessments and comprehensive due diligence efforts;
provision of remedy;
participation in collective initiatives.

Investors are also concerned that companies have stopped or have considered stopping sourcing from artisanal and small-scale mines (ASM) permanently as doing so may have negative effects on the livelihood of local communities.