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“A sustainable business cannot be built on child poverty”

Interview with Georg Kell and Daniel Göhler

Volkswagen is on its way to becoming the leading supplier of electric vehicles. One of its biggest challenges is ensuring clean supply chains for battery raw materials. In this interview, Georg Kell, spokesman for the independent Sustainability Council, and Daniel Göhler, Head of Sustainability Strategy at Volkswagen Procurement, discuss human rights, environmental protection and opportunities for developing countries.

Germany and the EU are planning to introduce statutory regulations for supply chains. Have companies like Volkswagen failed in taking action themselves?

Göhler: We support any legally binding framework that holds Volkswagen and the entire industry to account. But crucially, we have not been waiting for legislation with such obligations. We and our customers have long been taking action here. Volkswagen has for years been developing sustainable supplier relationships. For example, since 2019, all those in a direct business relationship with us are required to undergo a sustainability rating procedure. This places criteria such as environmental and social standards on an equal footing with costs and quality. However, I acknowledge that direct suppliers are just the tip of the iceberg. The road to transparent supply chains is long and arduous. We are making good progress but are not yet there.

Where are the problems?

Göhler: For example, in battery raw materials such as cobalt, nickel, graphite and lithium. These materials can pass through long supply chains with as many as nine tiers. It is then difficult to keep track of which companies are involved and how the work is being performed locally. Since 2020, we require full transparency all the way to the mine for any new contracts for battery raw materials. We are now expanding this approach even further by introducing a standardised raw material management system that not only covers the battery raw materials lithium, cobalt, nickel and graphite, but also conflict minerals such as tantalum as well as other raw materials such as copper and leather.

Kell: The new management system provides a solid basis for bringing transparency to the Group’s widespread supplier network of more than 65,000 business partner locations. But requiring a company like Volkswagen to be aware of the conditions in which cobalt or lithium are mined is not enough. Companies also need to help improve living conditions in mining regions. A sustainable business cannot be built on child poverty or environmental pollution.

“All supply chains must be transparent in five, ten years at the latest.”

Georg Kell Spokesman for the independent Sustainability Council

What needs to be done?

Kell: One good example is the “Cobalt for Development” initiative in the Democratic Republic of the Congo. Volkswagen is working with others there to inform miners about health and safety risks and to develop sustainable practices for mining cobalt. The project also supports training opportunities and alternative means of earning a living. These measures are being well supported by the Sustainability Council. Volkswagen’s size makes it capable and duty-bound to help in countries such as the DRC.

Göhler: What’s important is not to plan such projects from our desks in Germany. Help is possible only by getting an accurate picture of the situation on the ground. That has been the case in the Congo, and could be the case in the future in Chile, where large quantities of lithium are being mined for batteries. Last year, we went with a small team to the Atacama Desert on a fact-finding mission and to talk with the local Atacameños. The situation there is not easy. The next step will be to build trust for talks with different partners there and to work together to find solutions to protect people’s livelihoods, especially those of the indigenous people. We are currently working on the next specific steps.

“Cobalt for Development“ is being implemented by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) and financed by international companies. “Volkswagen’s size makes it capable and duty-bound to help in countries such as the Democratic Republic of the Congo,” says Georg Kell. Photo: GIZ

One of the biggest problems in cobalt mining is child labour. What are you doing to make the supply chain more transparent?

Göhler: Child labour is something we categorically reject – in no way do we want to profit from it. What’s therefore needed are checks being performed within transparent supply chains. This is precisely what we are working on with our direct suppliers. We also conduct checks on our sub-suppliers using an independent service provider to track cobalt supply chains. We are in the process of developing social and environmental standards for mines, which include occupational health and safety and a minimum workers’ age that mines must verify via access controls. We will be regularly reporting on progress to give outsiders a picture of what’s happening.

“Our goal is to improve conditions at suppliers. This is generally not achievable simply by terminating business relationships in the event of a violation.”

Daniel Göhler Head of Sustainability Strategy at Volkswagen Procurement

How far can artificial intelligence help to identify risks?

Kell: Big Data is becoming increasingly important for supply chain transparency. For example, AI can be used to evaluate online postings in a specific language and receive daily status reports on impending violations of human rights and environmental standards. Artificial intelligence helps to establish effective early warning systems but is no substitute for taking real action on the ground.

Göhler: AI helps to filter out and prioritise the mass of information. For the Volkswagen Passenger Car, Audi and Porsche brands, we are running a pilot project with the “Prewave” company to examine how we can make even better use of large amounts of data. To identify problems, we are comparing our analyses with information from our suppliers. The best technology is however only part of the solution – having quality data is essential.

What sanctions do suppliers face for violating human rights or environmental standards?

Göhler: Last year, we terminated 17 contracts for sustainability violations and barred these 17 companies from securing new contracts. Such sanctions are our most powerful weapon – but are a last resort. Our goal is to improve conditions at suppliers. This is generally not achievable simply by terminating business relationships in the event of a violation. Action plans with clear timelines and responsibilities are, therefore, much more common than contract terminations.

Kell: Terminating a contract is the easy option – but doesn’t make things better. Extreme cases need to be sanctioned, but it is far more effective to address the problems with the suppliers. This applies to human rights, working conditions and environmental protection. Contracts need to be drawn up in such a way that it is in the companies’ own interest to make improvements – and that social and environmental progress become mutually reinforcing.

In Salzgitter, Volkswagen Group Components are operating a pilot plant that recycles end-of-life e-car batteries.

Can we achieve completely clean supply chains or do we have to accept there will always be problems when extracting raw materials?

Kell: Mining has never been a clean business. We have to be realistic about this. But I still expect Volkswagen to have ambitious goals: all supply chains must be transparent in five, ten years at the latest. A circular economy is giving hope. By recycling a lot of battery materials such as lithium, nickel or cobalt will drastically reduce the need for new raw materials. Volkswagen is on the right track with its battery recycling pilot plant in Salzgitter. Up to 95 percent of valuable battery materials can be recycled here. This has got to be a strategic priority.

Supply chain law
With its proposed supply chain law, the German government wants to make companies responsible for ensuring that their suppliers comply with human rights and environmental standards. Among other things, companies will then need to set up complaint mechanisms and report on their activities. The law will apply to companies with more than 3,000 employees from 2023 and to companies with more than 1,000 employees from 2024. The EU Parliament is also preparing a European supply chain law, in which many MEPs want rules that are stricter and apply to more companies than the German law.

Raw materials management system

In January, the Volkswagen Group officially launched a new raw materials management system that will establish uniform sustainability standards for the mining and processing of 16 particularly risky materials. The system is to be used for the battery raw materials lithium, cobalt, nickel and graphite, as well as for the conflict minerals tin, tungsten, tantalum and gold, and for aluminium, copper, leather, mica, platinum group metals, steel, natural rubber and rare-earth elements. The goal is for increased transparency along the supply chains. This will be achieved, for example, through certified audits and the use of blockchain technology, as well as specifically developing measures to minimise risks. Pilot projects are also being planned to improve local living conditions in the mining regions. Group brands such as Volkswagen Passenger Cars, Audi, Porsche, Scania and MAN are taking responsibility for the supply chains of various raw materials and developing binding rules for the Group.

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