As part of a sufficient Compliance Management System, companies must establish a traceability system in their supply chains where the origin of products and services plays a key role.
This requires procurement to consistently capture the “made in” information and further “know your supplier” / “know your business partner” information. 3TG mineral and metal importers, for example, must indicate and document the name of the supplier, the country of origin and the volume and date of extraction of the minerals. If the minerals or metals originate from a conflict area, additional information is required such as the mine of origin, the locations where minerals are consolidated, traded or processed as well as all taxes or other payments made in relation to the minerals.
For products for which there are reasonable grounds to suspect that they were produced with child labour, the duty to establish a traceability system requires that companies describe the product and list the name and address of the supplier as well as of all production sites or service providers of all components of the product along the entire supply chain.
Last but not least, companies must identify and evaluate risks based on their supply chain and tracing system and adopt a broader CMS plan to reduce the identified risks to the extent possible. Again, international OECD guidance can help to identify appropriate mitigation measures.
How to strategically manage the transformation
In line with similar US public policy the EU with its proposed Critical Raw Materials Act is creating a critical raw materials ‘club’ for all interested countries to ensure access to a secure and sustainable supply of critical raw materials enabling countries to meet climate and digital transformation objectives.
This geostrategic positioning is based on the insight that the decarbonization of economies drives growing global demand for minerals and metals. For instance, EU demand for rare earth metals is expected to increase six-fold by 2030 and seven-fold by 2050. For lithium, EU demand is expected to increase 12-fold by 2030 and 21-fold by 2050.
Today, European countries heavily rely on imports, often from a single third country, and recent crises have underlined strategic dependencies and high vulnerability based on potential supply disruptions from countries or continents (e.g. China and Africa). The ultimate goal of EU policy is to diversify supply chains and e.g. increase to at least 10% extraction, 40% processing and 15% recycling in Europe and decrease concentration risk to no more than 65% dependency on one country.
Summary
Companies are well advised to think about their supply chains strategically. Improved transparency regarding dependencies, risks and opportunities will allow them to better maneuver the green and digital transformation ahead. While they amend their supply chain due diligence processes, they can also take the opportunity to identify other adverse impacts on their supply chains more generally. There are many difficulties to identify and mitigate value chain risks linked to human rights or environmental impacts but given the growing demand and the dependency on certain regions in the world, both a too cautious “hands-off”- as well as a risky “close-your-eyes”-strategy will not succeed.
This blog post is part of our Age of Greenwashing series. Read more about greenwashing below.