Tesla asked to report on human rights amid cobalt deal with Glencore
Electric vehicle behemoth Tesla Inc. is facing renewed
pressure to disclose its methods for tracking potential human rights issues in
its supply chain following a recently reported cobalt supply deal with Glencore
PLC.
The world's most valuable automaker as of July 2 plans to
source cobalt from Glencore for lithium-ion batteries produced at its plant in
Shanghai and a planned Gigafactory in Berlin, a deal that may involve up to
6,000 tonnes per year, according to multiple media reports. Such a transaction
would further establish the Democratic Republic of Congo, which produces more
than 60% of the world's cobalt, as a source of the battery metal despite
concerns from human rights advocates about mining practices in the region. At
the highest concern is small-scale informal or "artisanal" mining of
cobalt in the DRC, a practice done by hand and known to carry the potential for
child laborers.
Tesla was sued in December 2019 in the U.S. District Court
for the District of Columbia along with Alphabet Inc., Apple Inc., Dell
Technologies Inc. and Microsoft Corp. for "knowingly benefiting" from
children mining at sites owned by Glencore and other mining companies, a claim
Glencore has vehemently denied. The defendants in the suit have committed
themselves to the responsible and ethical sourcing of minerals and have
policies against the use of child labor. Plaintiffs in the case filed an
amended complaint June 26 targeting Tesla's recent deal with Glencore and
stating they will seek details of the arrangement in discovery.
A shareholder proposal scheduled for a vote at Tesla's 2020
annual general meeting, which was scheduled for July 7 but has been
indefinitely postponed due to the coronavirus pandemic, requests input on
whether the automaker should prepare a report on its processes for
"embedding respect for human rights" within its operations and
business relationships. The New York arm of Sisters of the Good Shepherd, which
owns seven shares of Tesla common stock, offered the resolution, citing the
lawsuit, concerns about cobalt supplies and questions about work conditions at
Tesla factories. A similar resolution the group offered at the General Motors
Co. annual meeting in mid-June received 31% support.
Mary Beth Gallagher, executive director of Investor
Advocates for Social Justice, which represents the Sisters, told S&P Global
Market Intelligence there is a "real need" for Tesla and other auto
manufacturers to make stronger commitments to human rights because failures can
result in new business risks. Regarding the recent Glencore deal, Gallagher
said acquiring more cobalt from the company "seems to be inconsistent with
their messaging around reducing their use of cobalt, and what we want to see is
stronger implementation of human rights."
"It seems like they're just increasing their cobalt
use," Gallagher said, adding that it is unclear how the company will
alleviate concerns about the potential for increased risk related to human
rights issues.
Tesla has issued reports on its efforts around
environmental, social and governance issues. The company's 2019 Impact Report
addressed the concerns surrounding its cobalt supplies, asserting that its
practices are in line with the OECD Guidelines on Responsible Sourcing from
Conflict Affected and High Risk Areas and made transparent through the Responsible
Minerals Initiative, an industry-led minerals tracing program intended to
improve ethical sourcing of raw materials.
The risks associated with DRC-sourced cobalt have been clear
to industries reliant on the metal for lithium-ion batteries. However, despite
an effort by some companies including Tesla to reduce how much cobalt is needed
to produce new batteries, analysts believe that there will still be a need to
get materials from the region in the short term. As a result, ESG performance
will likely be considered when companies set up new supply deals.
Daiwa Capital Markets said in a June 16 note reviewing the
Tesla-Glencore deal that Glencore's membership in the Responsible Minerals
Initiative demonstrated a "strict adherence to high ESG standard."
Mark Newman, a senior research analyst at Sanford C. Bernstein & Co., LLC,
said in a July 1 interview that a substantial reason companies have begun work
on cobalt-free or cobalt-light batteries is the "somewhat shady
history" of the metal and difficulty confirming the absence of ethically
tainted material in the supply chain.
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