Sustainability | ~ 5 min read
Raw material sourcing raises red flags
Demand is growing for metals and minerals needed for the energy transition and to meet the insatiable appetite for technology products. But concerns are rising over how raw materials are sourced and the security of supply chains.
The United Nations estimates that, in the last 60 years, over 40% of internal geographical conflicts globally have been tied to exploitation of natural resources, giving rise to the term “conflict minerals”. Securing the sustainable supply of metals and minerals is becoming essential as global demand rises faster than ever.1
Conflict minerals are raw materials sourced in locations where their mining and trading is impacted by local conflicts.2 These materials include, tantalum, tin and tungsten (a group known as 3TG) and gold. Their extraction is often financially beneficial to armed groups and can harm local communities in politically unstable areas such as the Democratic Republic of Congo (DRC). Conflict minerals are linked to some of the worst human rights violations, including child labour, forced labour and displacement of communities.
These types of minerals are essential to everyday products including mobile phones, cars and medical equipment. Securing supply chains is critical but complex and if not managed properly conflict minerals can end up in electronic products.
Cleaning up supply chains
Investors can play a role in addressing these issues, particularly in supporting sustainable supply chains to reduce exposure to financial and reputational risks. Furthermore, to mitigate these risks the EU and US have separate compliance requirements to increase supply chain traceability of conflict minerals. Both regions also encourage companies’ use of the OECD Due Diligence Guidance.3
The EU Conflict Minerals Regulation came into force in 2021, aiming to ensure that EU-based importers of 3TG are subject to extensive due diligence obligations, with a responsible sourcing standard in all conflict and high-risk areas. The US Dodd Frank Act Section 1502 of 2010 requires more comprehensive reporting on smelters’ origin. However, this applies only to companies where 3TG are considered essential for a product and is limited to the DRC and surrounding territories.
Engaging with miners
We consider investor engagement in the metals and mining sector as a priority to aid understanding of how companies approach mineral sourcing throughout the supply chain. Our recommendations include:
- Implementing specific due diligence programmes
- Partnering with suppliers in high-risk areas
- Promoting responsible mining practices
- Introducing enhanced product certification and traceability standards
- Undertaking periodic human rights audits.
Ideally this is complemented by efficiency measures such as circularity initiatives (repair, recycling and recapturing minerals from end-of-life products) to reduce pressure on mineral supplies. We believe this brings a full circle approach to resilient and sustainable supply chains which are increasingly integral to investment decisions.
