6 Unregulated Materials That Cause Ethical Sourcing Risks In Your Supply Chain
We are all familiar with the concept of ethical sourcing. From programs like “fair trade” to messages stating a product has not been tested on animals, consumers are becoming more aware of human rights abuses, animal cruelty, and environmental damage.
As much as consumers may try to buy “transparent'' goods, and as much as organizations take conscious buying habits into considerations when sourcing, there are still many issues left unaddressed mostly due to lack of regulations and awareness.
While compliance requirements exist for conflicts minerals and governments have enacted measures to curb modern-day slavery and child labor, many materials are still associated with illegal practices and violations. Interestingly, the six unregulated materials we talk about today are in increasing demand, leading some suppliers to cut even more corners to meet their contractual obligations. All these issues present an unacceptable level of risks that ultimately create damaging disruptions in the supply chain and may badly hurt a brand’s reputation.
As we move toward consuming (and needing) less fossil fuel, we increase the demand for alternative energy solutions. The case of batteries for electric vehicles is quite significant: to satisfy the demand from electric vehicles alone, cobalt supply would need to grow at least 3% annually.
Cobalt supply is highly concentrated in Africa, specifically in the Democratic Republic of Congo, which is still the site of armed conflict and militia hostile interventions.
The DRC is already the main topic of conflict minerals regulations, which so far focus on the 3TG (tungsten, tantalum, tin, and gold). If mining any of those four minerals may be linked to illegal funding of armed factions in East Congo where militias still fight, evidence has shown cobalt sourced from the region could be tainted too.
Mica is a mineral with highly stable physical, electrical, and chemical properties; it doesn’t react to acids, solvents, oils, or water. These properties make it a material of choice in industries like electronics, paints and coatings, construction, and cosmetics to name a few.
Working conditions in legal mines may leave much to be desired, but at the least, they are subject to inspections and certain certification requirements.
However, the risk of illegally mined mica present in the supply chain is very high. Many mica mines in India are illegal where workers are operating in dangerous conditions (often life-threatening), abuse is common, and child labor is practically the norm. A few other countries are also suspected of harbor illegal mica mining: Madagascar, Malaysia, Pakistan, Sri Lanka, and South Africa.
The Case Of Rare Earth Minerals
Fifteen rare earth minerals possess outstanding optical, magnetic, and catalytic properties and are used in a wide variety of industries from energy storage to electronics, lighting, wind turbines, and more.
Rare earth compounds and metals are mostly imported from China, which in turn heavily depends on Myanmar for medium and heavy minerals supply.
Chinese customs data reveal that imports from Myanmar rose by 23% YOY in 2020. Unfortunately, shortly after the military coup in February, a militia linked to the junta took control of an area where illegal mining is surging.
Another concern for rare earth minerals sourcing can be that extraction requires taking over large amounts of land, destroying biodiversity and agricultural resources. Not to mention the issue of pollution generated by waste and toxins released into the air, water, and soil.
Ethically Sourcing Colored Gems
Diamonds may be a girl’s best friend, but colored gems have gained in popularity. From costume jewelry to spiritual practices and energy healing, new markets constantly open for gemstones, along with new distribution channels.
One of the main problems that can affect supply chains is that the market is very fragmented and tracing the true origin of stones is quite difficult. Dealers may source from countries known for their penchant for smuggling and corruption; origin disclosure may be voluntarily inaccurate to fetch higher prices; small-scale miners and artisans do not necessarily keep good records. In the end, lack of supply chain visibility and the absence of regulated standards make it difficult for procurement professionals – wholesalers and retailers alike - to conduct due diligence.
Ethics In The Timber Supply Chain
Despite legislation prohibiting illegal timber trade in western countries (Europe and the US notably), the timber supply chain is far from being 100% sustainable. Timber trade spans across complex networks which offer several entry points for illegally logged material that gets mixed with perfectly legit consignments. Illegal logging accounts for 15-30% of all wood traded globally.
When all goes well, standard management standards ensure inventories of standing trees are kept up to date, a practice that allows some visibility and acts as a safeguard against wild deforestation. Certification exists to bring more accountability and sustainability, but the chain of custody remains fragile: over-harvesting, incomplete financial records, and a mix of certified and non-certified timber present a risk of losing supply chain integrity.
The Palm Oil Effect
For many companies, palm oil is the best discovery since sliced bread. In some ways, it may be. It advantageously replaces animal fat, it is a very stable oil, it requires fewer pesticides than most vegetable oil crops, and it yields more in less time.
The problem with palm oil is it has created a not-so-healthy modern gold rush leading to heavy deforestation of rainforest (known to house many endangered species and store CO2). A report by Rainforest Action Network suggests that 98% of the rainforest will be destroyed by 2022.
Nearly all palm oil is produced in and exported from Malaysia and Indonesia, where deforestation is rampant. Palm oil is a product we find in many items that have a place in the kitchen or in the bathroom, often labeled under obscure names or simply identified as vegetable oil.
In many cases, especially in Indonesia, forests are on peatland, a massive ally in carbon storage. And besides the loss of biodiversity induced by cutting down or burning trees, indigenous populations may be displaced, the soil is polluted and heavily eroded, and water is contaminated. Finally, due to high levels of poverty, farmworkers often request the help of their family for no wages (wife and children) to meet yield requirements.
Fortunately, there are some cases where progress is being made, such as in Ecuador through the work of the Third Millenium Alliance.
How To Ensure Ethical Sourcing For Unregulated Materials?
When formal regulations exist, it is somewhat easier to assess critical risk in the supply chain. It doesn’t mean work is not necessary, but frameworks and guidelines help point where to dig and what information will bear the most value.
In the case of unregulated materials, ethical sourcing becomes more of a challenge. Where do you start? How do you implement a risk mitigation process? How do you measure results and progress?
There are some third party programs in place that can offer guidance and/or responsible sourcing certificates based on organizations’ and suppliers’ voluntary commitment:
- The OECD guidelines on conflict minerals can be applied to other minerals and gemstones with little to no modifications
- Palm oil growers can apply for responsible production certification through the Roundtable on Sustainable Palm Oil (RSPO)
- ESG frameworks are also an effective way to identify risk factors with certain industries
Ultimately, to prevent any trace of unethical and unsustainable practices to taint products and/or materials in your supply chain, you must turn to data.
Source Intelligence’s platform is designed to automatically collect, validate, and centralize data and deliver a risk map based on various criteria such as:
- Country and geopolitical environment
- Regions’ historical data
- By-product dependency
- Known environmental impacts
- Supplier profiling
By tracing materials to their points of origin, we help you ensure you are sourcing from legal, upstanding suppliers. We also offer you the capability to engage and educate your suppliers so they, in turn, feel more accountable and understand risks at their own level.
Waiting for countries to pass stronger regulations is a huge risk to take. The collective demand for more transparency in supply chains can too easily turn into a general boycott of brands with costly reputational damages.
Make sure you implement the best tools to source from the right places. Request a demo of our ethical and sustainable sourcing programs.