Cleaning Up Cobalt: Who Is Responsible?
Risky and unethical practices continue to plague the cobalt mines of the Democratic Republic of the Congo. Companies are running from the problem – do they have a responsibility to solve it?
First Cobalt Corp has recently decided to forego operations in the Democratic Republic of the Congo (DRC) to refocus their efforts in Canada [1]. While the decision results from an assessment of cobalt mining potential in Canada, I would assert that concerns about the DRC supply chain are a greater contributor to their strategy [2]. In my estimation, First Cobalt is sacrificing long-term business performance due short-term supply chain concerns that could be resolved with a more strategic approach.
Before discussing the strategy of First Cobalt specifically, it is important to explore cobalt’s increasing demand and the DRC cobalt mining environment. The focus on transportation as a leading cause of global greenhouse emissions, accounting for 14% of global greenhouse emissions in 2010, has pushed the transportation sector towards electric vehicles as an alternative to traditional vehicles [3]. When you couple the climate change implications of electric vehicles with the moderate success of certain electric automakers, it is unsurprising that there are projected increases in demand for critical components utilized in electric car production. One such material is cobalt, a mineral that is used in electric car batteries, whose demand is projected to increase significantly in the coming years as electric car manufacturing scales [4].
One of the difficulties associated with meeting this demand, however, is that “more than 50% of the world’s cobalt supply originates in the Democratic Republic of the Congo [5].” While that fact in it of itself does not cause supply issues, the nature of cobalt mining in the DRC does. A significant percentage (~20%) of the cobalt mining in the DRC is done by artisanal miners working in tandem with corporations [6]. And again, while artisanal miners in a vacuum do not present issues, the makeup of the labor force and practices employed by these miners do. There are multiple examples of poor working conditions, insufficient tooling, and child labor exploitation in the DRC cobalt mines [7] [8]. These supply chain issues when combined with the general political instability prevalent in DRC are leading to supply generation difficulties for the cobalt mining companies.
Given the projected demand for cobalt and the supply chain difficulties in the DRC, many companies, including First Cobalt Corp, have chosen to explore alternative sources of cobalt. First Cobalt Corp specifically decided against an investment in DRC mining operations, instead focusing on a city in Canada that historically had rich cobalt reserves [9]. In the near term, First Cobalt is focusing on gauging the cobalt levels, projecting the volume of cobalt available for mining, and beginning their mining operations [10]. Long-term, First Cobalt Corp believes a focus on Canada will not only be able to satisfy increasing cobalt demand but helps avoid many of the aforementioned DRC supply chain issues [11].
While the relocation strategy may pay off for First Cobalt Corp, I would argue there are addendums to this strategy that can satisfy not only long-term business profitability but help solve the systemic issues in the DRC.
First, I do agree First Cobalt Corp should look to execute on the Cobalt, Canada plant in the near and medium term. Operational efficiencies will be easier to come by in the Canadian factory and should provide sufficient resources to fund the business given price trends for cobalt.
Secondly, First Cobalt Corp should rededicate themselves as a company to their initial mining project in the DRC. I firmly believe that the increase in electric vehicles as a response to climate change will necessitate a greater amount of supply than the Canadian plant will be able to provide. As a result, First Cobalt Corp will be more well-positioned in a cobalt-heavy environment by tapping into the richest global source of cobalt.
And finally, and perhaps most importantly, as a part of their re-dedication effort to the DRC, First Cobalt Corp should look to lead the revolution to eliminate unsafe supply chain practices in the DRC. There are many major corporations First Cobalt Corp could partner with in this effort – many with significant financial and political capital to expend towards resolving the rampant issues currently plaguing the DRC [12]. While the road may be arduous and difficult to navigate, there are pivotal moments in every company’s history that define their future market potential. I view this as one of those moments for First Cobalt Corp. By doing the right thing, First Cobalt Corp has the ability to capitalize on both a business and societal level.
There are fundamental questions that arise from this thesis, however. First, what responsibility do corporations have to enact societal justice when it runs counter to their preferred strategy? And secondly, if a company’s motivation to enact societal change is also tied to their future economic benefit, does that call the strategy into question?
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References:
[1] “First Cobalt Exits Congo to Focus on Canada,” press release, September 18, 2017, on First Cobalt Corp website, https://firstcobalt.com/2017/first-cobalt-exits-congo-focus-canada, accessed November 2017.
[2] Collins, Terry; Tibken, Shara, “Report: Tech giants can do more to keep kids from cobalt mines,” CNET, November 14th, 2017, https://www.cnet.com/news/tech-companies-apple-dell-amnesty-international-cobalt-mining/, accessed November 2017.
[3] Environmental Protection Agency, Global Greenhouse Gas Emissions Data, pg. 1, https://www.epa.gov/ghgemissions/global-greenhouse-gas-emissions-data, accessed November 2017.
[4] Smee, Jess, “Cobalt mining conditions cast shadow over electric transport dreams,” Deutsche Welle, November 14th, 2017, http://www.dw.com/en/cobalt-mining-conditions-cast-shadow-over-electric-transport-dreams/a-41370039, accessed November 2017.
[5] Amnesty International, “Time to recharge: Corporate action and inaction to tackle abuses in the cobalt supply chain,” pg. 4, Amnesty International, November 15th, 2017, https://www.amnesty.org/en/documents/afr62/7395/2017/en/, accessed November 2017.
[6] Ibid.
[7] Ibid.
[8] “Electric Vehicles Demand & Ethical Concerns of Congo Present Opportunity for Cobalt Companies Focused on North America,” press release, November 9th, 2017, PR Newswire, http://www.prnewswire.co.uk/news-releases/electric-vehicles-demand–ethical-concerns-of-congo-present-opportunity-for-cobalt-companies-focused-on-656355773.html, accessed November 2017.
[9] Bochove, Danielle, “The Canadian ghost town that Tesla is bringing back to life,” Bloomberg, October 31st, 2017, https://www.bloomberg.com/news/features/2017-10-31/the-canadian-ghost-town-that-tesla-is-bringing-back-to-life, accessed November 2017.
[10] First Cobalt Corp, “Investor Presentation,” https://firstcobalt.com/pdf/First-Cobalt-Presentation.pdf, accessed November 2017.
[11] Ibid.
[12] Collins, Katie, “Apple, Samsung and Sony under fire over child miners in Africa,” CNET, January 19th, 2016, https://www.cnet.com/news/apple-samsung-and-sony-under-fire-over-child-miners-in-africa, accessed November 2017.
Main Image Source: http://csglobe.com/wp-content/uploads/2016/02/Apple-and-Microsoft-Using-Batteries-Made-With-Cobalt-Mined-By-7-Year-Old-Children-In-The-DRC.jpg
1. Should downstream consumers of cobalt, and not just the mining/refining companies, be held accountable for exploitative practices in the cobalt mining industry?
2. Quite a few CPG companies hold themselves accountable to a triple-bottomline, at least on paper. What would dictate a migration towards such responsible reporting practices in the mining industry in general?
This essay did an excellent job of asking a tough question: how accountable are companies for ensuring safe supply chain practices. One aspect of this piece that drew my attention was the idea of partnering with major corporations to help resolve issues in the DRC. My opinion is that First Cobalt Corp should partner with its competitors in the industry to set strict standards in their supply chain. By creating a set of guidelines, it will create a fair playing field whereby all competitors have a broader range of choices in selecting countries to invest in, and it ensures the safety of local workers and inhabitants. I don’t believe that one company alone can make the sufficient amount of change, but a large coalition could place the adequate amount of pressure to enact change.
Tim, this is a very thought-provoking piece and one that reveals an issue that goes largely unnoticed in the excitement and press surrounding the shift to “green” electronic vehicles. To your questions, unfortunately I do not think corporations have an obligation to do what is socially right unless we as consumers force them to do so. It is incumbent on consumers to understand the sourcing behind their products and purchasing decisions, for better or worse. Fortunately, we live in an era of increasing transparency around these issues, so I am hopeful we will hold auto OEMs and suppliers, and ultimately mining companies like First Cobalt, responsible when we purchase the electronic vehicles of the future.
I believe that the company at the end of the supply chain has the responsibility to internalize the costs of their business activities. To the extent that governments have failed to do this so far, it really has become a social issue where companies cast the deciding vote. Unfortunately, there is not very much impetus in the consumer market to force this sort of change.
Really, this issue is the reason that I choose to write my article on Tesla, given that they are positioning near the front of field in the use of these resources that are so difficult and dirty to mine- I truly believe there is an intersection between their responsibility and the responsibility of the cobalt miner, insofar as Tesla continues to espouse a “green” solution to our world’s problems- much as Toyota currently aides in operations throughout their supply chain in order to minimize costs, Tesla has a similar responsibility to minimize ecological costs along their supply chain.
While I agree with Shooter that private corporations are not incentivized to make the changes required to develop responsible supply chain practices (they just source somewhere else), governments may be able to drive the change required. For a country like the DRC, I imagine the investment of mining companies in their natural resources is critical to the country’s economy and growth. If mining companies continue to pull out of the country, then the government could be forced by its constituents to raise industry standards and develop new regulations. While this may be an optimistic view for the chaotic DRC political situation, if investment in the country is halted industry-wide it could result in more sustainable supply chain practices.
Tim, you discuss that cobalt demand will increase as a result of proliferation of EVs, but demand is expected to increase to a much greater extent than you let on in your post above. Cobalt is a critical input for lithium-ion batteries, which have many uses in addition to EVs, including, but not limited to, renewable energy storage. Although new battery and storage technologies are being developed, demand lithium-ion batteries will continue to grow, potentially at an increasing rate. While some cobalt miners are “running from the problem” of unethical mining practices, cobalt is a finite metal. If firms stop mining in the DRC, supply will decrease in Canada and prices will rise, impacting prices on various consumer items from cell phones to power.
If industry issues become widely known among consumers, this may lead to incentive for miners in the DRC to clean up their acts, as Shooter discusses, but it may also create an interesting paradox for mining companies that will be able to command higher prices for “clean” cobalt.
Another HBS ’19 student considered the issue of child labor and cobalt mines (https://d3.harvard.edu/platform-rctom/submission/is-child-labour-the-only-way-forward-for-tesla/). Thank you both for bringing these issues forward. While only 6.5% of today’s cobalt production originates in North America (http://www.mining.com/web/elon-musks-worst-nightmare-child-labor-cobalt-supply/), I enjoy your proposal of moving operations to Canada. Hopefully this shift in global operations rebalances the pressures on child labor in the DRC.
Interesting article, as per the other comments, (and I suppose to the point you are making) this was not something I was aware of either. Unlike Diamonds and Oil Cobalt is a relatively “hard-to-notice” raw material, making consumer pressure on mining companies almost non existent. Its common uses are in batteries, alloys, ceramics and pigments – so typically make up a small proportion of any single product. Coupled with manufacturing operations in Africa (out of the sight of many consumers) means that labor, sustainability, corruption and environmental issues are far easier to hide from the consumer and are only brought to light by non-profits and governments. Hopefully this can change as we (as consumers) all become more aware of the role we play in keeping companies “honest” and accountable for the impact they have on the environment and society.