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Infyos finds 75% of the world’s battery supply chain at risk of violating US and EU laws on forced labor

Research by AI-powered 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.

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.

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.

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.

Cobalt mine

Cobalt mine. Source: Infyos


Severe human rights incidents are occurring globally, especially in resource-rich countries with fragile and corrupt governments 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 journalists, government agencies and non-profit organizations.

Electric vehicle and battery manufacturers have a complex supply chain, sometimes with more than 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 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.

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.

—Sarah Montgomery, CEO & Co-Founder, Infyos

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 2030. With more legislation such as the EU Battery Regulation and the US’ Uyghur Forced Labor Prevention Act (UFLPA) being phased in, action must be taken now so companies can still sell their products.

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 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 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.

—Sarah Montgomery, CEO & Co-Founder, Infyos

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.

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% 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, according to Infyos.

Comments

Dmanisil

Cool post!

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