Episode 5: Regulating for responsibility

with Heike Henn 15 August 2022 | Podcast
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Welcome to the final stop in our podcast series on the responsible sourcing of minerals. In our concluding episode, we explore the role of regulators in responsible sourcing. Our guest joins us from the German Federal Ministry for Economic Cooperation and Development, BMZ: Heike Henn is Director for Climate, Energy and Environment.

Åsa Borssén:
What goes into your car? As new minerals are rapidly making their way into our everyday life, we’re increasingly concerned about the footprint of the materials that underpin our modern lifestyles. The fungibility of natural resources has helped some business players hide behind the complexity of global supply chains. To shed light on one of the most obscure commodities, join me as I pull back the curtain on the supply chain of cobalt – from deep underground, all the way to your driveway. I’m your host Åsa Borssén, and this is Highgrade.

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Åsa Borssén:
Welcome to Highgrade and this podcast series on the responsible sourcing of minerals. Over the last four episodes, we have looked at the main production steps in the supply chain of cobalt – a metal necessary for high-performing batteries, and as such key to support the transition to a future free of fossil fuels. Today in our final stop, we explore the role of regulators in responsible sourcing. As the public grows increasingly concerned about the human and environmental cost of the products they buy: how should policymakers respond? My guest today joins me from the German Federal Ministry for Economic Cooperation and Development, BMZ: Heike Henn is Director for Climate, Energy and Environment.

Heike, welcome and thank you for joining The Natural Resources Podcast. Germany is mostly a consumer rather than a producer of minerals and metals. Why is responsible sourcing important for Germany?

Heike Henn:
Yeah, that’s really a key question. And this is signified by our role as a one of the leading producers of technology and an export nation. And this makes us one off also the world’s largest consumers of raw materials. And we definitely know that the demand will increase while we aim to decarbonize our economy, and the energy transition, and the mobility transition really needs a lot of raw materials. And I must also say that public interest and awareness on Origin of Goods, working conditions is getting more attention from the German public. We are also working on the circular economy to ensure an efficient use of raw materials. But we know from studies and if we just look at the figures right now, that this will take time. And the demand is increasing. And we depend on the import of primary raw materials and me representing BMZ, The Ministry for Economic Cooperation and Development, we are therefore very aware that the lion’s share of the raw materials is mined in developing countries in the Global South. And therefore, addressing the challenges of responsible sourcing is really key not only to the German economy, but also to us at BMZ.

Åsa Borssén:
And what does responsible sourcing actually mean to you?

Heike Henn:
Responsible sourcing means to know more about where the raw materials come from, who is participating? What is the standard of labour, the working conditions, the safety of workers, environmental impacts of the mining? And to have transparency to all these criteria. And also to be able to identify from which sources because this is sometimes mixed and not transparent.

Åsa Borssén:
And you mentioned that consumers are becoming more and more aware of this. Is it a small group of consumers that are aware of this or is it a more general feeling that we need to take responsibility for our consumption?

“There's a growing consensus on the need for regulations.”

- Heike Henn

Heike Henn:
It’s definitely a growing number. And it’s growing, specifically, the awareness in the younger generation, but also in the general public. I mean, since I was still at school, I started being quite conscious. And this is 40 years ago – sorry to give the number – but and if I compare the times that I now have everyday conversation about these issues, about the products everybody is using, it’s evident that it’s a growing number.

Åsa Borssén:
From mining to then end-products, there are numerous links in the supply chain. And each step carries risks and opportunities. What would you say is the role of regulations in responsible mineral supply chains?

Heike Henn:
Yeah, thank you for this question. The role of regulations is a hot topic in conversations, definitely. And for some years now, we have this public debate on raw material consumption and the negative consequences and also some heated discussions if we need more regulations or not. But from my perspective, there’s definitely a growing consensus on the need for regulations and a growing acceptance. Also in the private sector, even I would say many companies nowadays call for regulations, because they want a level playing field, but also some security on what to plan for, and clarity on the way ahead. And this is certainly true for our debate in Germany. But I mentioned before, we are an export nation, and therefore, also the global perspective for private companies and the debate is important and regulations for all countries.

Åsa Borssén:
I want to move on now and look a little bit on the issues and what is happening on the ground and in the supply chains. Take cobalt, for example. What are the typical ESG – so, environmental, social, and governance – problems in the supply chain,

Heike Henn:
There are quite a number of problems. While cobalt is really an essential mineral used for lithium-ion batteries, and batteries that we use in everyday life, I mean we are using them right now while we speak. But also in electric cars and like in other instances, we see a huge growth in cobalt. So talking about the ESG problems is really important. And we know that 70% of world’s cobalt is produced in the Democratic Republic of Congo, that I know also from personal experience, and there we see that most of the cobalt is produced by large-scale mining. But a significant share also comes from artisanal and small-scale mining. At least over the past 10 years it was around 10% in the DRC attributed to artisanal and small-scale mining. And this is good in the sense that many people find employment in the mining sector. But also, the sector specifically faces due-diligence risk in the supply chain with huge environmental damages, social issues, and also deficiencies in occupational health and safety and corruption. And talking about the DRC, certainly also it plays a role in the conflict economy.

One area that we are specifically looking at is child labour and severe human rights violation. In 2021, it was found in 30% of the small-scale cobalt mines, surveyed in a study done by the Federal Institute for Geoscience and Natural Resources in Germany. And certainly, also the health and safety risks in these small mines, I mean, I had the chance or opportunity to visit some of them in the DRC, it’s particularly risky for workers in the artisanal setting. There’s a lack of protective equipment, the mines are collapsing. So there are really a number of risk attached and ESG problems that we need to address.

Åsa Borssén:
Is it possible to say where the cobalt is coming from, if it’s from ASM or if it’s from LSM?

Heike Henn:
It’s spot on and a tricky question because the local supply chain, of specifically the small scale, cobalt mines and processing and refineries, these are really complex and very difficult to trace. And we can see that national governments are taking action to strengthen the oversight of the sector and also in the DRC, we see progress with the recently established state enterprise. Entreprise Générale du Cobalt. It’s tasked with purchasing, processing, and selling the ASM produced cobalt. This will bring progress, from our perspective, for a demand of at least minimum standards. But crucial due diligence and supply chains are refineries, as choke points between the upstream and the downstream supply chain. Because it’s really evident that the material is mixed with industrially mined ore and the share of artisanal material is not indicated separately. And therefore, tracing cobalt to its origin is, and I guess will be, extremely difficult.

Åsa Borssén:
As you say, it’s a very difficult task. It takes a lot from the companies to do these types of due diligence. Presumably making sure that companies only source responsible raw materials will come with a cost. Should this additional cost be passed on to consumers?

Heike Henn:
You’re absolutely right. Higher standards come with a cost. The deficiency I mentioned, we need more better protective gear, using more advanced technical equipment. And currently, upstream actors in producing countries carry the major burden of the additional costs. From my perspective, we need to find ways to distribute additional cost for certified minerals fairly along the whole supply chain. But having said that, still, from my perspective, the biggest part should be shared between the end producers and the consumers.

Åsa Borssén:
Do you think that the German public would accept that?

Heike Henn:
Yes, I mean, we try to approach this difficult question from the angle of putting concrete numbers to what additional costs could mean, for example, a look at the cost of electric car, responsible sourcing of raw materials will add a low percentage well below 10% of the end price.

Åsa Borssén:
So, you don’t see that it will slow down the transition from fossil fuels to electric vehicles.

Heike Henn:
No.

Åsa Borssén:
That’s perfect. We love short answers.

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Åsa Borssén:
You are listening to a Highgrade podcast series on responsible sourcing. From mine to final product, we dive deep into the supply chain of cobalt. A metal tarnished by the footprint of its production.

As we reach the end of the series, today, we are considering the role of policymakers. I’m talking with Heike Henn, Director at the German Ministry for Economic Cooperation and Development.

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Åsa Borssén:
I want to move on and look at the approaches of German Development Cooperation to solve these issues. And let’s consider policy in practice. For example, how does the German Development Cooperation encourage responsible sourcing and production?

Heike Henn:
Yeah, I would like to follow up on the point on regulation that you were asking me before, because a very important milestone, and we are very proud of it as well, is the German supply chain due diligence law, which BMZ has strongly pushed for, and which came into life in 2021. And this is really a part of our approach of a smart mix of regulations and also voluntary initiatives from different actors in the field. Because we think we need both mandatory regulation and voluntary initiatives. We need bilateral and multilateral institutions to get engaged and also definitely a multi stakeholder initiatives. And in this sense, we as development cooperation, we engage in bilateral and regional projects. We want to enable resource-rich countries to maximise the benefits also from their resource wealth, because our perspective is always also the development perspective. Yes, we are interested in what we do as an export nation but we want to see development gains for the, for example, for the Democratic Republic of Congo. And therefore, in the DRC, for example, we try to support the DRC in improving the oversight functions in the mining sector. And in other instances, we are also cooperating with the help of the GIZ, for example, with the artisanal and small-scale mining cooperatives in the DRC, to facilitate their access to global supply chains, and also having more transparency for those cooperatives that we are working with when they enter the supply chain.

Then I must say, also being the commissioner for climate policy and climate finance, that climate action is for us, also an important part of responsible supply chains. And therefore, talking about multilateral instruments, we are cooperating with the World Bank, for example, and the Climate Smart Mining facility.

And my last point I would like to highlight is also the gender perspective. Because we have not only child labour, but also the gender equality in mines, but also along the supply chain, is a key priority for us. We want to strengthen the position of women and girls in supply chains and extractive communities. We try to forge also multi-stakeholder partnerships with women rights and mining, and support the design and implementation of the gender strategy, for example, in the Colombian Ministry of Mines and Energy. So, this is also, I think, an important angle that we try to support.

“We support our partner countries to establish responsible mining practices on the ground where it matters most.”

- Heike Henn

Åsa Borssén:
Ultimately, it is the manufacturing sector that needs the raw materials for their products. So how do you work with the German industry?

Heike Henn:
Yeah, we try to work with different avenues. I mean, pushing for the regulation and the law was not an easy conversation with the German industry. But we also try to support the industry and not only to push it with the regulation and provide different formats for guidance on due diligence and capacity development. For example, with the German UN Global Compact Network, we have initiated a couple of so-called sector dialogues between companies, but also civil society and other relevant stakeholders on human rights challenges. Because we also have the experience that if we get the different actors together, and have the discussion on very concrete supply chains, that makes the discussion more concrete but also easier and the positions of the different stakeholders and the necessary solutions we have to find will be easier in this multi-stakeholder partnerships. Another example is the European Partnership for Responsible Minerals. It supports a responsible production and sourcing of minerals through pilot projects, for example, and also quite practical tools for companies to implement the due diligence requirements. And just the last example I would like to highlight is also on the European level, the Network for Corporate sustainability and Responsibility, CSR Europe. With this network, we have established networks in the DRC, in South Africa in the mining sectors.

Åsa Borssén:
There are some other economic sectors that have confronted the challenges of responsible sourcing for quite some time. Think of Fairtrade coffee, for example. What can the extractives industry learn from these experiences?

Heike Henn:
Yeah, the initiatives for Fairtrade coffee or textiles have really come a long way. I’m not into coffee, but they exist for tea as well. And there’s an increasing consumer demand for fair products in these sectors. And we have been also very actively engaged in this field and specifically, in the area of textiles in the last couple of years. We have promoted some initiatives and have quite some experience there. Also, again, with multi-stakeholder approaches, and I think this is one of the lessons learned. But to be honest, the sector of the extractives is a bit more complicated, but the finished product that is in itself a combination of a couple of raw materials, and maybe has other sustainability challenges as well. And from the consumer’s perspective, it’s really difficult or rather impossible, to keep an overview of the origin of all the raw materials. For coffee, I look at the shelf and I see the country of a region I find a certain label. But after the very considerate questions, you asked me about cobalt and supply chains, I guess that the listeners already have an idea how complex the mineral supply chains really are. And that transparency and traceability remain really key challenges. And therefore, we think we have to approach it really, from the consumer and having more labels, so on and so forth, but also support our partner countries in implementing the regulations and initiatives that then will establish responsible mining practices on the ground where it matters most.

Åsa Borssén:
Heike, thank you so much for joining us today.

Heike Henn:
Thank you so much, Åsa, it has been a pleasure.

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Åsa Borssén:
And thank you for joining our Natural Resources Podcast series on responsible sourcing of minerals. I would also like to extend my appreciation to all my guests over this five-episode journey. Starting at an artisanal mine in DRC, and through the logistic operations of commodity traders, the making of batteries, and the electric vehicles the power – and finally, as discussed today, the fundamental role of policymaking.

Manufacturing powerhouses such as Germany often rely on the import of raw materials. Responses from regulators now need to combine both security of supply with an increasing expectation from end consumer for cleaner, greener, and more humane supply chains.

All episodes in this series are available at your preferred podcast platform. And remember that you can also access our podcasts – and videos – at www.highgrade.media.

And that is all from me for now. I will be back with new and exciting material very soon. Until then, so long!