10 May 2024

Pandora's box of regulatory risks

The proliferation of ESG legislation in supply chains reflects a global shift towards more sustainable and ethical business practices. Governments worldwide are enacting laws that require companies to ensure their supply chains adhere to environmental, social, and governance standards. This includes measures to prevent child labour, human trafficking, and modern slavery, as well as mandates for transparency in sourcing critical materials and maintaining biodiversity. These regulations are evolving from a set of voluntary guidelines into a rigorously regulated sector, compelling companies to implement robust compliance monitoring and reporting mechanisms to meet these growing legal requirements.

Adele Rouleau

ESG & Critical Minerals Lead

ESG in battery supply chains

The landscape of battery and electric vehicle (EV) supply chains is undergoing significant transformation, driven largely by the growing prominence of Environmental, Social, and Governance (ESG) issues. One of the most notable changes is the shift from voluntary ESG standards to stringent legal requirements. This shift is particularly evident in regulations targeting corruption, child labour, and comprehensive supply chain due diligence laws. Major corporations are now mandated to monitor human rights risks across their entire supply chains, a complex task given the vast number of tier one suppliers involved, especially in the automotive sector.

As EV supply chains globalise, companies face the challenge of integrating various jurisdiction-specific laws and frameworks into their operations. This includes due diligence on different minerals and compliance with an array of international conventions. Navigating the extensive and varied pages of laws and policies has become a critical aspect of supply chain management.

ESG risks are pervasive in the battery supply chain, and recent cases have highlighted the importance of substantiating sustainability claims. For example, an Australian mining company faced accusations of greenwashing, underscoring the need for companies to provide evidence to support their sustainability assertions to avoid misleading stakeholders.

In Europe, the implications of ESG regulations are particularly profound. The European Union’s Corporate Sustainability Due Diligence Directive (CS3D), which incorporates United Nations and OECD guidelines, is a significant step towards embedding human rights and environmental risk management into law. This marks a crucial transition from voluntary compliance to legally binding requirements, signalling a new era of corporate accountability.

The responsibility for addressing ESG risks is increasingly seen as a shared one between buyers and suppliers, advocating for collaborative efforts rather than simply transferring compliance burdens down the supply chain. This approach fosters a more sustainable and transparent business environment. Additionally, recent legislative developments, such as the U.S. bill on critical material transparency, highlight the global trend towards more rigorous ESG standards. These developments underscore the growing importance of transparent and sustainable business practices in the evolving landscape of battery and EV supply chains.

Let SFA work in partnership with you to help achieve your ESG targets and raise the bar to push higher and further than your competitors. With over a decade of tracking the battery metals markets, discover how we can help you with our Battery Metals and Materials value chain consulting and market report insights.