Scale up of cobalt production needs ESG commitments to match

The long-term trend of increased electric vehicle (EV) sales creates opportunities for the whole lithium ion battery supply chain. Benchmark Mineral Intelligence forecast a 13% compound annual growth rate in demand for cobalt for the next ten years.  Increased demand is being reflected in cobalt prices which are now at their highest levels in three years.

With the tagline “cash, coal, cars and trees”, the COP26 climate summit in Glasgow in November strengthened national and international action to decarbonise our global economy, with a particular focus on transport. At the same time, a critical part of COP26 discussions stressed the importance of ensuring a green and just transition. This requires supporting the sustainable scaling-up of these industries and calls for responsible sourcing and transparency across supply chains.

Consistent growth in the demand for cobalt necessitates a rapid development in the infrastructure for raw material extraction and processing. Consequently, there is a greater need for transparent and verifiable ESG reporting. The first step in transparency is engagement. If you are producing in the cobalt space, you can be part of enhancing its sustainability by engaging with Benchmark’s Cobalt ESG survey, which will feed into Benchmark’s industry assessment in the first independent ESG Cobalt Report for the EV industry, as it stands today.

The Congo’s dominance

The Democratic Republic of Congo (DRC) is the largest source among the world’s top cobalt-producing countries, accounting for around 70% of global production. As Henry Sanderson, Executive Editor at Benchmark highlights, “when we talk about cobalt we have to talk about the DRC”.

Amnesty International’s 2016 Report on Child Labour in the cobalt mining industry in the DRC altered the strategy of stakeholders, namely that of automotive companies.  The initial reaction was to move away from the DRC as companies feared sourcing cobalt and copper from there. The potential economic and social devastation this shift away could cause in livelihoods has since been better understood. Increasingly, the sector is focused on improving working conditions and supporting communities. However, an understanding of the ongoing ESG issues, such as water contamination, wider impacts on human health, and impact of mining on critically endangered flora and fauna are pertinent. These are all issues that must be confronted in both the cobalt mining industry, and the mining industry more broadly.

Different ESG concerns

It is important when assessing ESG that we avoid the mistake of seeing the cobalt industry as a single entity. There are differences in ESG materiality concerns when it comes to operating regions and operators (large-scale and artisanal miners). As cobalt prices rise, so too does the rate of artisanal mined cobalt. The need to better regulate and safeguard those in the artisanal sector has led to the Entreprise Générale du Cobalt (EGC), establishing the responsible sourcing standard. It was brought out this year to support the establishment and maintenance of safe and strictly controlled artisanal mining zones in the DRC. However, it is yet to be seen what impact this will have on the ground.

Despite this focus on cobalt from the DRC, it is important not to overlook other countries supplying or looking to scale up mining: Russia, Australia, Philippines, Cuba, Madagascar, Papua New Guinea. They all have known cobalt reserves, and there will be national and local unique risks that should be engaged with as part of ESG conversations so as to stay ahead of regulation.

Fundamental to improving ESG in the cobalt industry is engaging all stakeholders in discussions regarding all risks in the industry: those that have gained much attention to date, as well as others that will require more focus. The complexities of these issues and supply chains require honest, multi-stakeholder consultations.

Please get in contact with Benchmark’s ESG division at [email protected] to learn more about our cobalt industry survey and independent assessment.