Supply Chain Traceability: Looking Beyond Greenhouse Gases
Responsible mineral supply chains will revolutionize commodities, protect the climate, and advance environmental justice.
Investigative journalism led by Dionne Searcy and Eric Lipton unmasked the human rights violations and ecosystem damage hidden in supply chains. They focused on the cobalt used in electric vehicle batteries, which they deemed the “blood diamond of the energy transition.” The truth is cobalt is only one of many examples of a critical mineral with critical context. Lithium, bauxite, copper, iron, and nickel are essential to build the electrified future required to avoid the worst consequences of climate change. Yet, each of these supply chains has an environmental and social footprint that goes unmeasured and often undetected.
Giving corporations and consumers the power to demand responsibly and equitably sourced materials starts with allowing them to understand where commodities come from, and what conditions look like on the ground in those locations. In particular, bringing transparency and traceability to the supply chains of critical minerals is fundamental to making sure that climate action doesn’t come with the collateral damage of community and ecosystem destruction.
An Ancient Solution Is Causing Modern Problems
The ancient Sumerians found it useful to structure trade around commodities — that is, undifferentiated goods — at least 6,000 years ago. Despite having characteristics dependent on their path to the market, most commodities, including critical minerals, are traded the same way as they were thousands of years ago. The goods that change hands at the London Metals Exchange under standard contracts might all look similar, but they are extracted from different mines, by people with different labor rights, using different technologies, and thus impact the environment and local communities in significantly different ways.
It is very rare to find products that can be traced all the way back to the mine, making it almost impossible for interested parties to have visibility and make informed choices. For example, 80 percent of companies in the United States are unable to declare that their products are conflict-free. If the data does not follow the goods, sustainability impacts will be ignored.
Mining is the cradle for commodities that have sustained human development and is now crucial for the energy transition, which will be highly mineral intensive to scale production of EVs, solar panels, wind turbines, and more. However, mining is also often associated with negative sustainability impacts. For example, the tailings dam collapse accident at the Ajka alumina plant in Hungary released more than one million cubic meters of highly alkaline red sludge, leaving many people in nearby villages with chemical burns on their skin. Most recently, the Brumadinho and Mariana mining disasters in Brazil killed more than 270 people and threatened the livelihoods of those depending on natural resources in the area. Additionally, child labor used for the production of cobalt in the Democratic Republic of Congo is constantly denounced by NGOs, where children as young as 6 years old working all day earn less than $2 per day.
The fact that most of the commodities are treated undifferentiated, without taking such sustainability impacts into consideration, prevents the market from showing strong demand signals for responsible products. The observed systematic issues related to mineral commodities will persist until clear product-level information is able to travel with the goods from mine to market. Addressing the root cause of this problem requires transparency.
Transparency is not impossible, and some progress has been made since the Dodd-Frank Reform of 2010 for some minerals. The path ahead is still long, but leading companies in some markets are already proving that tracing minerals back to their source is feasible. For example, Swiss watchmaker Breitling recently launched the Super Chronomat 38 Origins, its first watch where all precious materials can be traced back to their source. This is not a one-off, by 2025 all its watches will be made this way. In 2021, Breitling and RMI collaborated to release an industry-first product carbon footprint of Breitling’s best-selling Navitimer B01 Chronograph 46, detailed in the company’s 2021 Sustainability Mission Report.
Steps Toward a Paradigm Shift
Effective action to address sustainability impacts requires connecting and strengthening tools that promote traceability and get us to commodity differentiation. As we outline in the report Supply Chain Traceability: Looking Beyond Greenhouse Gases, five key actions are needed to catalyze the paradigm shift toward commodity differentiation at scale:
- Strengthen and use product-level standards
- Deploy tracking and auditing technology at a scale to enable seamless traceability
- Aggregate demand with buyers’ alliances
- Rally investors with investors’ alliances
- Tighten regulations and leverage public procurement
Each of these shifts is oriented toward the common goal of mine-to-market traceability of all the relevant supply chain impacts. This requires one overarching principle related to tracking how the information travels with goods throughout the mineral supply chain — known as chain of custody. There is a difference between damages that can be offset, for example greenhouse gas emissions, and damages that are not fungible (e.g., they cannot be compensated elsewhere, as child labor). When accounting for nonfungible damages along mineral supply chains, models that track proportions of certified inputs and outputs are needed to make sure that the right incentives reach the right segments of supply chains.
A holistic system tracking responsible attributes is necessary to ensure that the race to reduce global greenhouse gas emissions does not result in a new wave of human rights violations and ecosystem damage. If the global ecosystem is investing in the energy transition to positively impact the world, key stakeholders need to ensure that it is done in the right way.
The Way Forward
Although mine-to-market traceability is still a challenge for most companies, leaders are showing that traceability can be achieved. RMI is here to provide insights and guide companies forward. Changing the status quo of mineral traceability at scale will require the involvement of a wide range of stakeholders. It will require integrating existing sustainability performance standards, strengthening chain of custody requirements, and deploying advanced tracking tools. RMI intends to define the roadmap describing the way forward commodity by commodity, starting from steel and aluminum, with timelines and steps toward standardizing product performance. The transition to differentiated commodities will require extra investments, but it is the only way forward for the energy transition not to turn a blind eye toward responsible attributes and guarantee a just future for all.