May 2020. In the latest of our industry partner Q&As, RCS Global co-founder Harrison Mitchell spoke with Terry Lee, Senior Manager for Sustainability Strategy at LG Chem – one of the world’s largest Li-Ion battery producers, to discuss the importance of responsible sourcing in the battery supply chain. 

 

HM: Korea, like every country, has been hugely impacted by the COVID-19 pandemic but the economy and industry does now seem to be re-opening. How has the current situation affected LG Chem?

TL: Our first priority has been the safety and wellbeing of our workers. We are a major employer in Korea and we have ensured that all of our workers have been supported through this period. In line with government guidance, we are now re-opening our manufacturing operations and are in constant contact with our suppliers and customers to ensure supply chains can be re-opened safely and efficiently. Also, like our partners, we remain fully committed to our responsible sourcing approach to battery production.

 

LG Chem is one of the world’s leading li-ion battery producers, can you tell us about the current and projected status of the business and your key markets? 

LG Chem produces over a billion battery cells each year. And as the electric vehicle market has expanded we have established a market leadership position in EV battery cells. In terms of cell capacity, we are number one in the world with a capacity of 51GWh as of 2018.

We have battery manufacturing plants in the US, South Korea, China, and Poland enabling us to supply to customers globally. We currently supply to a range of auto brands including GM, Renault, Ford, and Volvo. To date, we have delivered cells for more than 210,000 EVs but there is still huge room for growth in a market which will expand massively through the next decade.

 

Can you give us a sense of the battery supply chain you operate in and the core materials that go in to your batteries?

EV battery composition evolves, but current composition includes 8-2-2 and 6-1-1 with cobalt, nickel and lithium as the main ingredients.

 

What does responsible sourcing mean to your business and what are the specific challenges facing a company at your position in the supply chain? 

From an ethical and business perspective, responsible sourcing is crucial to our operations. We not only believe responsible sourcing is the right thing to do, we also know it is good for our business. Products or material inputs that may have been exposed to environmental and social risks during production are not acceptable to the market and it is our duty to give our customers the level of assurance they need to meet their own responsible sourcing standards. That’s why, throughout the LG Chem battery business, we align our sourcing practices with the OECD Guidance for Responsible Mineral Supply Chains.

We are also acutely aware of the challenges further up the battery supply chain, especially in cobalt. Human rights impacts, corruption, and environmental damage remain persistent challenges.

For us, the imperative is to ensure we implement robust due diligence and risk assessments on all of our suppliers. Where risks or incidents are flagged, we work with suppliers to remedy the issue through corrective action plans. But if an issue persists, then we will stop sourcing from that specific supplier.

We also support the OECD’s drive for greater transparency in material supply chains, that’s why in cobalt we are already meeting industry best practice standards and publishing a full list of our cobalt suppliers.

 

Have you seen a change in the dynamics of your suppliers and client relations in the context of responsible sourcing over recent years, has the issue become more prevalent? 

Over recent years there has certainly been an increased focus on responsible sourcing in parallel with the growth of the EV sector. Our auto customers, rightly, want to be able to prove that their vehicles are not only sustainable products once they roll off the production line but that they have been sustainably produced as well. We acknowledge this and fully support it.

 

RCS Global has been working in partnership with LG Chem for over a year now, how has that collaboration evolved and enhanced your ability to strengthen your position in responsible sourcing? 

 The collaboration with RCS Global has been hugely valuable both at the operational and strategic level. The most obvious outcome of our collaboration has been through the mapping and auditing work RCS Global are carrying out. We are now developing a much wider and more complete picture of our battery metal suppliers and the issues and risks that we may face. RCS Global is enabling us to pre-empt these risks while also working with current suppliers to improve their own practices.

But we are also seeing real value at the strategic level. RCS Global has unparalleled experience in establishing and strengthening responsible supply chains and, in many cases, the company’s leadership team have been directly involved in the creation of the responsible sourcing standards the industry now complies with. We have been able to work side-by-side with the team on developing our due diligence program, calling on their experience and technical expertise to further enhance our approach.

The other crucial advantage in working with RCS Global is their position within the sector. They are uniquely networked within the battery industry and have the ability to identify, assess, and influence actors at each stage of the supply chain. Also, the fact that they work directly both with auto brands in the downstream, and miners further up the supply chain means that they can provide us with a constant feedback loop on the evolving dynamics of responsible practice in battery supply chains. For a company like LG Chem where we want to grow with our customers and provide innovative solutions, this feedback is absolutely critical.

 

What insight has RCS Global’s mapping and audit practice provided your business? How has it allowed you to understand and mitigate risk in your supply chain?

When we began work with RCS Global we had a basic knowledge of the suppliers in our supply chain. But in collaboration with RCS Global, we’ve been able to implement a much more robust and systematic approach to mapping and assessing our suppliers.

In cobalt, RCS has now investigated our entire supply chain, mapping each supplier through to mine site. Each supplier has also now been audited, with corrective action plans put in place where needed. But whereas previously, this may have been the end of the process, RCS Global have put in place ongoing assessments and audits, meaning that we can track our suppliers and assess their corrective actions. This enables us to be a driver of continual improvement not just within our own operations but throughout our supply chain. This is exactly what our downstream customers and groups such as the OECD want to see.

 

You are involved in several innovation projects within responsible sourcing, can you tell us a little about that?

Human led due diligence and assurance through supply chain mapping and auditing will likely always be needed. But there is definitely room to leverage data and tech to improve responsible sourcing. We are at the forefront of innovation in this space, working in partnership with RCS Global.

LG Chem are currently a founding partner in the Responsible Sourcing Blockchain Network (RSBN). Ensuring minerals which have been responsibly produced at mine site can retain strict material provenance right through to end user is one of the fundamental challenges in mineral supply chains – blockchain holds the potential to be a game-changer in meeting this challenge.

The RSBN blockchain creates an immutable audit trail on the blockchain which will underpin and evidence responsible practice at each stage of the material supply chain as a batch of material passes from mine, to smelter, to refiner and on to OEM

Over the last six months we have been trialing the blockchain in our cobalt supply chain along with one of our upstream suppliers, and Ford, one of our key lithium-ion battery customers.

Traditionally, miners, smelters and consumer brands rely on third-party audits to establish compliance with generally accepted industry standards. Blockchain can potentially streamline this process, offering a network of participants validated against best practice standards in responsible sourcing. Immutable supply chain data can then be seen by all permissioned network participants in real time. Blockchain can also be used to help network participants address their compliance requirements.

Early results from the pilot are encouraging and we will be using the blockchain commercially in our Volvo supply chain from spring next year while also continuing to look at expanding the network.

 

How do you think the responsible sourcing landscape – especially in the battery market – will evolve over the next five years? What requirements will OEMs be pushing in the future?

The key trend will be more and better collaboration. Supply chains are often complex, but that complexity can be managed when suppliers and customers collaborate on action and information sharing. The good news is that there is growing appetite amongst all actors within the battery market to do this. From the supply side, miners, smelters and refiners, and traders understand and are reacting to the fact that the market is demanding transparency and good practice. Equally from the demand side, OEMs are not blindly pushing for improvements from suppliers but are actively engaging in the process and working with suppliers to improve responsible sourcing.

At LG Chem we sit in the middle of the supply chain and, through our contribution to groups such as the Responsible Minerals Initiative (RMI), which we joined in October, we very much back this collaborative approach. Through our work with initiatives such as the RSBN we are also driving collaboration in a very practical sense.