Challenge
Although over the past few years Indonesia has cemented its position as a leading supplier of battery-grade nickel, the understanding of the risks of its extraction and manufacturing from an environmental, social and governance (ESG) perspective had remained underdeveloped.
Since 2021, one of the major nickel processors and nickel sulphate manufacturers in Indonesia, along with the mine it sources from, had been subject of national media and NGO reporting on the ESG risks of nickel extraction and manufacturing in the country.
For RCS Global’s automotive clients that source Indonesian nickel, understanding and addressing such risks is essential. Along with ethical concerns, transparency and strong ESG credentials throughout critical battery supply chains are key requirements for automotive OEMs, as they must conduct due diligence of suppliers in accordance with regulations such as the EU Battery Regulation, German Supply Chain Due Diligence Law, and multiple other legislations on responsible sourcing and mining covering comprehensive ESG criteria.
Solution
In the pre-audit phase, which kick-started in late 2021, the project was launched with a formal notification to the supplier on behalf of RCS Global automotive clients containing information on the audit process and client requirements. RCS engaged to understand their company set-up, management systems and governance structure, identified key logistical data points such as site locations, and the list of local stakeholders that needed to be interviewed as part of the audit process.
In the audit phase, our auditor team travelled to Indonesia to spend a week onsite with representatives from the auditees, their management teams, workforce and local communities. The initial findings indicated areas of improvement on topics such as the OECD 5-Step Due Diligence Management System, Labour and Working Conditions, Health and Safety and Environment. Local stakeholders and workers were also interviewed to ensure that all the audit findings were triangulated – i.e. supported by multiple points of evidence.
In the post-audit phase, RCS worked with the management teams of the auditees to communicate the findings and share the corrective action recommendations to close the identified gaps.
RCS has monitored the progress of the sites to improve on the corrective actions on an ongoing basis to regularly update the automotive sector clients.
Impact
For all clients, this audit was the first effort to map the risks in the Indonesian Nickel supply chain – thereby it has enabled their understanding of this emerging market, and empowered them to utilise the intelligence gathered from the audit to make strategic decisions on long-term sourcing and strengthening of existing and new supplier relationships. Our clients also have an obligation to report on their responsible sourcing and mining activities annually – and the audit results have fed into such annual reporting.
Importantly, the auditees have been placed on a track of continuous improvement that RCS is measuring via the corrective action plan implementation – whereby the main focus from RCS and its clients are to ensure that suppliers gradually improve over time rather than engage in a tick box exercise.
Upon the findings of RCS’s rigorous assessment and the recommended corrective action plans, the suppliers are committed to ensuring they not only meet clients’ compliance requirements but continuously make tangible progress in good practices.
