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The Welsford Report – October 2018

03 Oct 2018, by Elliott Welsford in News

Lithium-ion Battery Production – Not Child’s Play!

This report was authored by Elliott Welsford, ESG & Ethics Team Leader for Ayres Punchard.


Foreword by Chris Welsford

The Black Country Museum at Tipton in the West Midlands is an absolutely fascinating place to visit. It’s what’s known as living history, with houses, shops, factories, artisanal workshops and even a mine. It brings to life what was an amazingly creative and industrious period in the history of the United Kingdom. It also highlights a troubling reality. The industrial revolution was built on very challenging economic circumstances where a large proportion of the population lived in poverty and children as young as four years old were forced to work. When children were nine years old they could be expected to work in the mines too. Now, it is possible to take a boat ride into the lime mines where these children worked hewing out the rock to be ground down into the raw materials for cement.

These days we send our children to school and although we see the positives of sending our children out to work, such activity is mostly restricted to paper rounds and weekend shop work. One of our children managed to get himself a job as a kitchen porter at the tender age of thirteen. He was sacked when the restaurant owner discovered his age. Our son was indignant at the unfairness!

When reviewing client portfolios this year and discussing the potential sustainability issues that affect our investment strategy, the one overriding concern expressed to me by clients is that of possible child labour in the supply chains of investee companies producing goods and services that we all rely on during the course of our everyday lives. This is partly because it’s been in the news and we’re all ethical consumers now but more so, it’s because I ask the question as part of our fact finding, investment risk and objectives setting process. Ethics are important to people when they shop and they are just as important when they invest. It’s just strange how few investment professionals understand this.

Earlier in the year we published a revealing report on the issues surrounding palm oil production, child labour being a particularly troubling concern. We now turn to lithium-ion battery production and investigate a similar set of issues that build an even greater paradox for investors trying to do the right thing for climate change. However, many investors find that the technological demands for raw materials create ethical issues that are difficult to accept as a result of alleged human rights abuses – specifically child labour and slavery.

We have taken the view that the United Nations Sustainable Development Goals (SDGs) are very clear in their requirements of companies and governments to investigate and understand their supply chains. In particular, signatories to the UN Global Compact, that relates to the SDGs, are required to make sure their supply chains do not use child or slave labour in their production processes. This may seem challenging, onerous and could push up the cost of the end product to consumers, who are increasingly demanding cheaper and cheaper products, especially electronic goods such as mobile phones and other battery powered technology including cameras, mobile computers and tablets and of course electric vehicles.

Electric vehicles have a very high profile, climate change driven agenda and are driven by many people with highly ethical motives. Ironically, this could come at a very high price in terms of human suffering. Cobalt, Coltan (not specifically addressed in this report), Nickel and Lithium are used in the production of the batteries used to power all of these mobile devices including electric vehicles. Whilst much of the raw materials needed to produce these batteries come from large scale mining operations that are regulated and professionally run, a not insignificant amount (up to 20{a1d5745a86653f095ed3386d3dbf7deff8ff78eb8b3be67133b744f07a6e4072}) is obtained through what is known as artisanal mining, which is often unregulated and cheap. Artisanal mines can be found in otherwise abandoned mine workings deemed unprofitable by the big mining conglomerates or they can be small scale shafts dug into, or near to, a large scale mining operation.

Tragically, artisanal mines are dug and worked in by indigenous people trying desperately to make a meagre living to literally survive, often in war torn conditions or areas dominated by criminal gangs and or violent militia, in some of the poorest parts of the world such as Africa. Many of these artisanal mines are in the Democratic Republic of Congo (DRC) which is far from Democratic, being a dictatorship and providing it’s population with no form of social security. The people who mine for cobalt artisanally are exploited and desperate. The children who work these mines, sometime as young as four, are doing so because there appears no alternative and their families need the money to survive.

Whilst this is a complex and challenging situation, we know this is not acceptable and agree with the United Nations that everyone involved (and that’s all of us) need to invest in solutions that mean these people do not have to put their children to work in this way. In the global economy, that means corporations have to take a lead in the countries that they are operating in. Addressing supply chain issues should not only mean excluding materials sourced and produced unethically. It should mean addressing the root causes of these problems and investing in solutions that ultimately make such practices unnecessary.

Although no companies are specifically referred to in the main body of this report, the NGO reports we refer to, do cite many large multinational global conglomerates with vast reserves and resources that they should in our view be employing in areas affected by their commercial activities and that includes their supply chains.

Amnesty International, who’s excellent and challenging research has been drawn upon to produce this investment related report, have shown that it is possible to identify supply chain issues and focus on specific companies and locations that fall short in applying the UN SDGs. It is not good enough for companies such as Microsoft, with a net worth of $380bn, to simply ignore their supply chain obligations, claiming the supply chain to be too complex and difficult to tackle. It is also not good enough that investors, including fund managers and institutional pension funds support them in this risible view. Ultimately one child death in the supply chain is one too many. A corporate tolerance for child labour is incompatible with modern good business ethics and practice and it is unsustainable.

Women wash mineral ore in Lake Malo, Kapata on the outskirts of Kolwezi, DRC | © Amnesty International and Afrewatch 2015

Introduction

Lithium-ion (Li-ion) batteries power much of our modern world; they are found inside most smartphones, laptops and electric vehicles. However, the sustainability of these batteries is less than solid. The supply chains for the materials used in the manufacture of Li-ion batteries have been identified as problematic, particularly in the case of cobalt, but also in the cases of lithium and nickel.

The most serious concern that has been identified has been in relation to cobalt extraction, with human rights abuses in the Democratic Republic of the Congo (DRC), as outlined in two reports by Amnesty International in 2016 and 2017, along with other reports by NGOs and News Organisations. The two Amnesty International reports identified the use of cobalt from artisanal mines in the DRC by large technology and electric car companies. Artisanal miners are those using basic tools to mine minerals by hand, from either tunnels or the discarded tailings of industrial mines.

In addition to this, there has also been concern expressed over the environmental and health impacts of mining cobalt, lithium and nickel. Cobalt mining – Artisanal and Small Scale Mining (ASM) and Large Scale Mining (LSM) operations – has been linked to serious environmental risks and health issues, causing respiratory and skin conditions. Lithium mining has been shown to be linked to water pollution and depletion in South America, along with the degradation of agricultural land, whilst nickel extraction has been linked to birth deformations, respiratory disorders and pollution.

The task for those involved in ethical investment must be to ask what engagement is being undertaken by fund managers and institutional investors to ensure the elimination of these unsustainable and unethical practices.

Cobalt

Several studies have demonstrated the negative health effects caused by cobalt. According to one study, exposure to large amounts of cobalt can lead to damaging respiratory and skin conditions. The study states that the “inhalation of Co dust may cause adverse respiratory effects” such as Hard Metal lung Disease and notes that extensive, repeated or prolonged exposure can lead to Occupational Contact Dermatitis. In ‘This Is What We Die For’, Amnesty International found that most artisanal cobalt miners in the southern DRC “did not have the most basic protective equipment, such as gloves, or even work clothes such as overalls” and none had facemasks. This is despite the fact that it is advised that those working with cobalt should wear “impervious clothing, gloves, face shields … and other appropriate protective clothing”. Amnesty also found that, in contrary to guidance issued by regulatory bodies in other countries, underground mines were not well ventilated, resulting in miners complaining that “the build-up of dust in the tunnels frequently affected them.” The report also found that workers complained of physical pain resulting from “carrying heavy loads and the physically demanding nature of the work” and “frequent urinary tract infections … attributed to working in dirty water all day.” These health effects are relevant to both those living in areas where cobalt is mined, and the miners themselves.

In addition to these health issues associated with cobalt itself, there is also a risk of fatal accidents underground. Miners are at risk of tunnel collapses, underground fires, pit collapses, falls and suffocation. Amnesty found that accidents are exceedingly common, with one mine owner stating that in the surrounding area there were 5-6 accidents a month.

There are also environmental impacts associated with cobalt extraction. One study notes that the “mining activities … induce changes in land cover, with fragmentation of the landscape, … regression of the vegetation cover, and deforestation”. The authors state that “the tropical forest (woodland miombo) is replaced by barren soils and few patches of herbaceaous [sic] vegetation” and “natural vegetation is degraded and replaced by heaps of overburden material.” This environmental degradation in turn increases the dissemination of metals and “results in high human exposure”.

The two reports by Amnesty International focused on the human rights abuses associated with cobalt mining in the DRC. In ‘This is What We Die For’, Amnesty identified that the poor working conditions in the DRC are an issue of human rights. Miners work long hours, digging by hand without even the most basic tools. Amnesty investigated the issue of child labour and found children were working extensively in the artisanal mining of cobalt, both in the mining and in the washing and sorting of ore. Most of the children interviewed for the report worked for up to 12 hours a day in the mines, though a 14 year old named Paul said he often would “spend 24 hours down in the tunnels. I arrived in the morning and would leave the following morning.” The children said that they worked for between one and two dollars a day and “worked in the open, in high temperatures, or in the rain”. They “complained of being frequently ill” and of being beaten and physically abused by security guards employed by LSM companies. The children claimed that they were forced to work as “their parents had no formal employment and could not afford school fees.

A 2016 report by SOMO, ‘Cobalt Blues’, made note of the impact of LSM operations on the local populations and environment. The report drew attention to the loss of vegetation and pollution caused by LSM operations and the lack of adequate consultations with local communities and the forced relocation of these local communities. SOMO mention that LSM in the DRC is “leading to the destruction of vegetation” and “poses substantial risks to forests and forest carbon stocks.

Pollution caused by the mining takes the form of water pollution, air pollution and noise pollution. Water pollution is caused by the “discharge of contaminated wastewater” into the rivers used extensively by the local populace. SOMO state that the polluted water is “unfit for use by villagers in the surrounding area” and note that “Fishing, irrigating farmland, washing and drinking have begun to impose a health risk.” This is due to high concentrations of lead, along with other minerals, in the water. Despite this, “villagers continue to consume the water because there is no other water source available.” Air pollution takes the form of “hazardous fumes, [and] dust” from passing vehicles, with local people breathing in the diesel fumes and dust that “contains significant amounts of heavy metals and radioactive materials.” The people living in one residential area “complain about the dust entering their houses, the noise of trucks and machines that continue all day long; ground vibrations; and smoke escaping from the furnaces day and night.” SOMO also take note of the fact that, due to the close proximity of residential areas to the mines and plants, “entire communities suffer exposure to pollutants”.

The report also looks to the issue of public consultations on mining operators, where, in most cases, “mining companies … failed to consult communities” and, in the few that did take place, the companies “did not provide information to the communities on the possible impacts of the mines.

In order to allow for the construction of the mines, local communities have been forcibly relocated without adequate compensation. Communities have been moved “without being given new land” and have been “sent to areas with poor soil … without basic infrastructure or access to drinking water.” The deforestation caused by mining destroys the livelihoods of these communities, who depend on the forest for food, wood and non-timber forest products, which “form an important part of people’s diets, yet are becoming increasingly scarce due to deforestation in and around mining concessions.

Where some mining companies had attempted remediation in the way of providing drinking wells, SOMO found that “wells were either in a state of disrepair, or provided water of insufficient quality for human consumption.” Additionally, SOMO state that “If no long-term solutions are found, communities will be worse off as a result of short-term remedies to address water pollution.

Cobalt mining of all forms has clear environmental and health risks associated, along with the potential for serious human rights issues. As a result, it is a clear responsibility of companies producing or selling products containing cobalt to conduct proper supply due diligence and ensure that these environmental and social risks are mitigated and, where necessary, remediated. This is in line with the UN Guiding Principles on Business and Human Rights, the OECD Due Diligence Guidance, the UN Sustainable Development Goals and the principles of the UN Global Compact.

Lithium

The extraction of lithium in the lithium triangle (a small area, split between Northern Chile, Northern Argentina and Southern Bolivia, containing much of the world’s lithium reserves) has been linked to negative environmental impacts, most notably the depletion of water. A Friends of the Earth report discusses the issues associated with lithium extraction, noting that the process has “significant environmental and social impacts,” listing water pollution, water depletion, the release of toxic chemicals into the environment, degradation of soil and air contamination. Toxic chemicals are used for the processing of lithium but are released into the environment “through leaching, spills or air emissions [which] can harm communities, ecosystems and food production.” The report states that “access to water is key for the local communities and their livelihoods, as well as for the local flora and fauna”, yet lithium extraction “consumes, contaminates and diverts scarce water resources away from local communities”. According to the authors, “The extraction of lithium has caused water-related conflicts with different communities” and many locals claim that the extraction has “contaminated streams used for humans, livestock and crop irrigation.

Lithium extraction pools, Chile | Kate Davies and Liam Young/Unknown Fields, August 2015

The authors of a 2018 study into lithium recovery and the environmental impact of lithium mining and processing write that “the evaporitic process consumes a large excess of water in one of the driest areas of the world”. The study mentions that “If lithium mining would affect the hydric balance in the region, this would in turn affect local flora and fauna” in an area that is considered a “biodiversity hotspot, with high levels of endemic species, unusual ecological and evolutionary phenomena, and global rarity”. According to the authors, “There is unfortunately no doubt that the evaporitic process produces large volumes of waste”, and “while it is important to acknowledge that this waste is non-toxic, its volume will certainly call for waste management actions in years to come.

Nickel

The extraction and processing of nickel has also been associated with a number of environmental and health issues. Nickel mining, smelting and processing have been shown to pollute the environment, producing air emissions, toxic effluents and solid waste.

A 2015 study, focusing on the environmental impacts of typhoons and LSM in the Philippines (one of the largest exporters of nickel), highlights the issue of mine tailings spillage, taking note of several instances where heavy rainfall or typhoons have caused spillage on agricultural land or into the sea (or other bodies of water). These incidents are especially serious when you take into account the situation of the local population who are reliant on the land and water for subsistence aquaculture and agriculture. The author noted that “Any form of environmental degradation that disrupts access to natural resources will thrust the poor from subsistence into destitution.” LSM in the Philippines is highly problematic due to the fact that the Philippines “is ranked as the third most vulnerable country in the world to natural hazards and climate change”. This means that the country is frequently affected by typhoons and heavy rainfall events, which “can exacerbate the potential for environmental harm inherent in large-scale mining and these risks are getting progressively worse with climate change.” Additionally, the author states that “It is doubtful that technology can minimize these risks”.

Several forms of pollution have been linked to the nickel industry, including the aforementioned tailing spills. However, air pollution in the form of sulphur oxides, particulates, greenhouse gases and nickel compound dusts. The emission of these substances into the atmosphere is a serious issue, with one paper stating that they “led to significant and relatively widespread environmental contamination, in particular the generation of acid rain from SO2 emissions.

The health effects associated with exposure to and the inhalation of nickel compound dusts are adverse, including cancer and “respiratory problems in humans”. One study notes that “airborne nickel and some nickel compounds … are recognized as human carcinogens”, whilst another states that the inhalation of “high levels of nickel compounds found during the processing and refining of sulfidic nickel ores has resulted in higher chances of development of lung and nose cancer.” The National Toxicology Program lists nickel compounds as “known human carcinogens” and lists nickel metal as “reasonably anticipated to be carcinogenic.” Another paper makes not of the respiratory issues associated with nickel, stating that “Chronic effects of nickel exposure by inhalation are reported among nickel refinery and plating workers to include rhinitis, sinusitis, nasal septum perforations, and asthma.” In addition to these health issues, an article in ‘The Guardian’ highlights the fact that some “residents of nearby communities and mine workers have reported elevated rates of deformities and respiratory problems associated with exposure to pollution generated by nickel mining and smelting.

The nickel industry is also responsible for various instances and forms of water pollution. One of the environmental effects caused by mining in the Philippines, acid mine drainage, has been said to have “significant, far reaching, and adverse impacts on surface water quality”, raising the amount of several heavy metals in the water to “levels acutely toxic to aquatic life.” Other effects include water siltation, which results in the degradation of fish habitats, and the “diminution of groundwater resources.

Nickel mining also has a huge impact on deforestation and the degradation of other plant life, with a study focused on the land-use change due to the nickel industry stating that it has resulted in the “removal of native vegetation and [causing] its destruction by the deposition of mine waste.” This causes “habitat reduction and fragmentation … and endemic species often suffer from extensive decreases in their habitats.” This is worsened by the fact that nickel mining areas are often located in “biodiversity-rich regions”. Deforestation also leads to “runoff and flooding during the rainy season.”

The extraction of nickel is also associated with a huge energy requirement and the output of large amounts of greenhouse gases. According to one paper, Nickel has one of the highest (of the metals assessed) energy requirements, global warming potentials, solid waste burdens and acidification potentials. A further study found that nickel processing was “one of the least energy efficient processes among these metals”.

Conclusion

This report has looked at the issues surrounding Li-ion batteries in relation to the UN Guiding Principles on Business and Human Rights (UN Guiding Principles), the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD Guidance), UN Global Compact Principles and the UN Sustainable Development Goals (UN SDGs).

The key issues we have identified in this report are those relating to human rights and the environment, in particular the ethical implications surrounding the mining industry. It is clear that these industries are not acting, as a whole, in an ethical manner. Any funds that include companies using Li-ion batteries in their products must be made aware of these issues, if they are not already. Fund managers must engage with these companies to push for a more ethical approach, based on the clear set of principles laid out by the numerous intergovernmental organisations and international NGOs that we have mentioned, and drawn evidence from, in this report.

By blindly investing in Li-ion batteries—or other products containing lithium, nickel and cobalt—without first considering the ethical implications, investors should be aware that they are implicated, and directly profiting from, human rights abuses and environmental destruction.


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Linked websites were accessed before the 1st October 2018, any additional sources are available on request. Enquiries and questions relating to this report should be sent to: chriswelsford@ayrespunchard.co.uk

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