Due Diligence Compliance Report Cobalt Procurement 2016
Umicore, Business Group Energy & Surface Technologies
Date of Report
Jonas De Schaepmeester
Compliance Report’s scope
The scope of the Compliance Report includes the cobalt material processing activities by Umicore’s business units ‘Cobalt and Specialty Materials’ and ‘Rechargeable Battery Materials’ (including Umicore’s minority joint ventures) in the reporting year 2016.
Section 1: Establish strong company management systems
Umicore has established a company management systems to perform due diligence on its cobalt purchasing activities, in line with the Umicore Sustainable Procurement Framework for Cobalt.
Has the Actor created a company policy regarding due diligence for supply chains of cobalt?
Comments and Demonstration of Compliance
‘The Umicore Way’ describes Umicore’s mission and the core values that determine how Umicore conducts its business. It is at the heart of Umicore’s culture. Additionally, Umicore established a supply chain policy, available as Umicore’s Sustainable Procurement Charter. This charter applies the principles stated in ‘The Umicore Way’ to the suppliers of Umicore and illustrates how they are implemented in the procurement activities of Umicore. Umicore developed this charter in order to reflect its commitment to sustainable development in all areas of procurement – be it raw materials, energy, other goods or services. The document outlines Umicore’s commitment to its suppliers in terms of their own conduct and practices.
Having in mind the specific risks in the supply chain of cobalt, Umicore complemented the principles of the Sustainable Procurement Charter with a dedicated cobalt due diligence framework, being Umicore’s “Sustainable Procurement Framework for Cobalt” (“the Framework”). This Framework reflects Umicore’s intentions to avoid that the cobalt in its supply chain and subsequently that of its customers is related to unsustainable business practices. The Framework defines Umicore’s responsibility for conducting risk-based due diligence, screening and monitoring of all suppliers and governance structures in place.
The Framework is inspired by the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD, 2013).
Relevant documents are:
- The Umicore Way
- Code of Conduct
- Umicore’s Sustainable Procurement Charter
- Umicore’s Sustainable Procurement Framework for Cobalt (Framework Description)
Has the Actor set up an internal management structure to support supply chain due diligence?
Comments and Demonstration of Compliance
The Umicore Sustainable Procurement Framework for Cobalt has been set up to define and organize the governance, due diligence practices and risk assessment for the cobalt supply chain as per the adopted policy.
For the practical implementation of the Framework, a decision tree procedure was created. The overall description of this decision tree process can be found in the Framework Description. An internal procedure guideline had been developed, explaining and documenting in detail all steps that have to be taken in the decision tree.
Umicore’s Supply Chain Sustainability Manager oversees and administers the application of the Framework and the screening for risks in the affected cobalt sourcing and trading regions and the cobalt industry. A dedicated cobalt sourcing committee, referred to as the “Approval Committee”, ensures that the principles and guidelines of the Framework are adhered to. This Approval Committee has the responsibility to take decisions on Umicore’s cobalt supply chain in line with the Framework. The Approval Committee includes the Executive Vice-President of Umicore’s business group “Energy & Surface Technologies”, the Senior Vice-President of Environment, Health and Safety, the Vice-President Strategic Projects and Supply and the Supply Chain Sustainability Manager. The Committee has meetings on an ad hoc basis and at least twice per year.
The governance structure and due diligence and risk assessment principles as stated in the Framework have been implemented within Umicore for the reporting year 2016.
Section 2: Identify and assess risks in the Cobalt Supply Chain
Umicore has established processes and controls to identify and assess risks in the cobalt supply chain and management systems to respond to the identified risk for the reporting year 2016.
Step 1 - Supply Chain Traceability: Has the Actor established an internal system of controls in order to ensure transparency over its cobalt supply chain?
Umicore has a lot-receipts process in place during which specific documents are obtained and during which transactional details are recorded when receiving raw materials.
This procurement data provides information on the source of the raw materials and allows Umicore’s to consolidate the incoming cobalt material into a “materiality overview” that provides an overview of cobalt quantities procured in 2016.
Additionally, Umicore is able to identify the mines from which the procured cobalt material originates through chain of custody documentation and an additional origin confirmation from suppliers that source from several mining locations.
Umicore maps its entire internal raw material flow, production processes and product flows for all cobalt products. As a result, Umicore has an overview per end product outlining which raw materials, and additionally which suppliers, are part of each material flow in the reporting year 2016.
Step 2 - Suppliers Research: Does the Actor perform research on its suppliers to identify risks in line with Umicore’s “Sustainable Procurement Framework for Cobalt”?
As a preliminary step in the selection of a new supplier, Umicore performs a high-level check on the background of the potential business partner and only further pursues a business relationship if no indications of unsustainable business practices (such as inhumane treatment, forced and child labor, bribery, corruption, artisanal mining) have been notified. Upon the beginning of a business relationship with a new supplier, the due diligence and risk assessment procedures set out in the Framework are initiated by Umicore.
Umicore establishes a background check for all suppliers of cobalt raw materials based on its market and supplier knowledge and a desktop research. The background check that is performed includes several topics:
- Identification and screening of the supplier’s mother company (structure, policies, sustainability reporting…)
- Information of the mining site (general description, technology, certificates, local initiatives…)
- Information and screening of the shareholders
- Information gathered by Umicore’s supply team during plant and mine visits (environmental performance, technology, markets, cobalt volumes…)
- Media screening of human rights violations, sustainability & social issues, corruption of the mother company and mine
Umicore’s Information Documentation department carries out daily media monitoring for relevant topics related to cobalt sourcing and Umicore’s suppliers. Information gathered during this research is used to update these background checks. The background checks are reassessed annually (except for non-critical suppliers, i.e. suppliers of recycling feed or non-recurrent purchases).
Step 3 - Risk Identification and Assessment: Does the Actor perform risk identification and assessment as described in Umicore’s “Sustainable Procurement Framework for Cobalt” by applying the following steps?
- Red Flag Check
- Materiality Testing
- Plant Visits
- Orange Flag Check
- Risk Mapping
Umicore identifies, assesses and documents risks in its supply chain of cobalt by applying several steps, integrated in the decision tree as outlined below.
Red Flag Check
Umicore performs a red flag check on its suppliers based on the collected information in the background check and a market and desktop research. The Framework procedure provides dedicated questions and screening guidelines to facilitate this red flag screening. The red flags that are screened for are the following:
- any form of torture, cruel, inhuman and degrading treatment or punishment;
- any form of forced or compulsory labor;
- any form of child labor;
- any form of bribery and corruption;
- hand-picking and/or artisanal mining (as primary source);
- supplier is not willing to accept the principles stated in the Umicore Charter or cannot demonstrate the adherence to the principles.
For new suppliers of cobalt raw materials, the red flag check occurs as the first step in the decision tree. For existing suppliers, the red flag checks are reassessed when new issues are alerted based on the continuous screening, and after plant visits, with at least one update per year.
During the reporting year 2016, Umicore performed the red flag checks on its suppliers, as set out in the Framework. During the reporting year 2016, four indications for red flags were identified in Umicore’s supply chain. For each, the situation was evaluated and discussed by the Approval Committee. The identified risks were related to indications for inhumane treatment (1), artisanal mining (1) and corruption or fraud by shareholders (2). Based on a thorough analysis of each of these cases, none was considered as having sufficient evidence for a red flag.
In the materiality testing, the contribution of each supplier to Umicore’s total cobalt supply is calculated. In this analysis, the cobalt purchases for all Umicore entities involved in cobalt transformation are collected and analyzed. Based on this exercise, a first risk estimation is performed. All suppliers of cobalt that contribute more than 1% to the total yearly cobalt supply of Umicore (referred to as “material suppliers”) are assessed in the following steps of the decision tree. In addition, it is assured that the sum of the cobalt coming from material suppliers exceeds 95% of Umicore’s total yearly cobalt supply.
The combination of Umicore’s worldwide sourcing activity as well as the recycling of cobalt, offers a differentiated sourcing portfolio, lowering the sustainability risks and dependency on specific regions. For 2016, the cobalt from recycling sources accounts for 7.8% of total cobalt volumes.
For suppliers that have been assessed as immaterial, the due diligence and risk assessment procedures stop at this stage of the decision tree.
As an essential part of the Framework, site visits are performed to monitor and evaluate the practices of all suppliers that are contributing more than 1% of the total cobalt supply (“material suppliers”) (except for non-recurrent suppliers and recyclers). During the plant visits, a sustainable procurement checklist is filled out. The checklists and visit reports are used as input for the risk mapping that occurs further in the decision tree and for the update of the suppliers background check. The frequency of the plant visits depends on the country risk of the supplier. Suppliers in countries with a high or medium/high country risk score are to be visited at minimum every two years. Suppliers in low/medium or low risk countries have to be visited every five years.
During the reporting year 2016, plant visits were executed in line with the required frequency as indicated in the Framework guidelines.
Orange Flag Check
As a next step, an orange flag screening is performed for material suppliers. The orange flag check is completed based on the collected information through visit reports and desktop research. For a new supplier, the orange flag check is performed once the visit checklist is filled out. For existing suppliers, these orange flag checks are reassessed when new issues are alerted based on the continuously screening and after plant visits, but at minimum once per year. The orange flags that are screened for are the following:
- Hand-picking and/or artisanal mining (as a secondary source);
- Supplier does not have minimum required legal permits and certificates;
- Supplier does not have procedures in place to minimize environmental impacts;
- Supplier does not have procedures in place to ensure a healthy and safe working environment.
In 2016, Umicore performed the orange flag checks in line with its Framework. During the reporting year 2016, one indication for an orange flag was identified in Umicore’s supply chain. For this indication, the situation was evaluated and discussed by the Approval Committee. Eventually, the mitigation steps taken by the related supplier were considered to have been effective. This identified risk was related to an environmental incident.
A risk mapping is performed for all material suppliers, taking into account an assessment of the supplier’s risk and impact. Based on the outcome of the risk mapping (Low, Low/Medium, Medium/High, High) the next steps in the decision tree are defined as follows.
Suppliers that score Low in this risk mapping, and that have no indications for orange or red flags, need no further actions in order to be approved as Umicore’s supplier.
For those suppliers that score Low/Medium to High Risk, an iterative risk mapping process starts: after the first risk mapping, the supplier is requested to fill out a self-assessment questionnaire specifically focusing on those criteria that were identified to be of high risk. The results of this self-assessment questionnaire are then evaluated in a second risk mapping. Suppliers that score Low in this second risk mapping, and that have no indications of orange or red flags, need no further actions in order to be approved as Umicore’s supplier. If Umicore indicates that the available information is still not sufficient to understand the supplier risks, the supplier is asked to provide additional information and documents that Umicore will evaluate and incorporate in the third and final risk mapping. For suppliers that score Low or Low/Medium in this risk mapping, that have no orange or red flags, and no high risk-score for key indicators in the final risk assessment, need no further actions in order to be approved as an Umicore supplier.
For those suppliers that score Medium/High or High in this final risk mapping, but have no indications or evidence related to the orange and red flags, Umicore carries out an additional review of the specific risks of concern before a decision is made. This review procedure includes a limited review during the next plant visit by Umicore’s purchasing and sustainability team with a focus on those key criteria where the supplier received a Medium/High or High risk score.
For those suppliers where evidence of red flag(s) was identified, Umicore stops the relationship, irrespective of the score this supplier has received in the risk assessment.
For existing suppliers, the risk assessment is re-evaluated ad hoc (if indications that a supplier’s performance has changed appear) or every 3 years at latest.
During the reporting year 2016, required steps were taken and identified risks were signalled and reported to the Approval Committee during which these risks were discussed in due time.
Step 4 - Risk Mitigation: Does the Actor perform risk mitigation actions as described in Umicore’s “Sustainable Procurement Framework for Cobalt”?
Based on the outcome of the risk mapping (Low, Low/Medium, Medium/High, High) Umicore executes an appropriate follow-up and, if required, mitigation plan as is described above (step 3).
The evolution of the mitigation plan is closely followed and eventually checked during the next visits and/or (targeted) supplier reviews.
The Approval Committee discusses the identified risks and has the responsibility to propose the appropriate follow-up measures to be undertaken by a supplier.
Section 3: Arrange for an independent third-party audit of supply chain due diligence
Umicore has arranged for an independent third-party audit of the Umicore Sustainable Framework for Cobalt for the reporting year 2016.
Comments and Demonstration of Compliance
Umicore proactively engaged the services of the assurance provider PwC Bedrijfsrevisoren bcvba/PwC Reviseurs d’Entreprises sccrl and their independent reasonable assurance report in respect of compliance with the Sustainable Procurement Framework for Cobalt is provided to Umicore1 and available to its customers and stakeholders on request.
Section 4: Report on supply chain due diligence
Umicore will publicly report on the implementation and adherence to the supply chain due diligence processes and controls set out in the Sustainable Procurement Framework for Cobalt during the reporting year 2016.
Umicore will report on its supply chain due diligence for cobalt via this Compliance Report, which will be online available via the company’s Annual Report of 2016. Relevant policies are publicly available, including The Umicore Way, Sustainable Procurement Charter, Code of Conduct and the Sustainable Procurement Framework for Cobalt.
Additionally, the reasonable assurance report of PwC Bedrijfsrevisoren bcvba/PwC Reviseurs d’Entreprises sccrl will be available to Umicore’s customers and stakeholders on request.
Did the actor perform the due diligence practices in compliance with Umicore’s “Sustainable Procurement Framework for Cobalt”?
Umicore implemented effective management systems, procedures, processes and practices regarding its cobalt sourcing activities in line with the principles stated in the Sustainable Procurement Framework for Cobalt for the reporting year 2016. The Framework is inspired by the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD, 2013). By performing due diligence practices on its cobalt supply chain, receiving third-party assurance, and publicly reporting, Umicore intends to adhere to the five steps for risk-based due diligence of this OECD Due Diligence Guidance.
Umicore acknowledges that its work is never done and is committed to continuous improvement. The corrective actions identified in the Cobalt Due Diligence Compliance Report 2015 have been implemented and monitored in the course of 2016.
Other report comments
If users of this report wish to provide any feedback to Umicore, they can contact Umicore’s Supply Chain Sustainability Manager, Jonas De Schaepmeester (firstname.lastname@example.org).
 1 “PwC has performed the above mentioned engagement and report for the Umicore Sustainable Framework for Cobalt solely for use by Umicore CSM under a contract agreed upon with Umicore CSM. PwC does not have any obligation towards any other person; PwC does not have nor accept any liability or responsibility (contractual, extra-contractual or otherwise) towards such other person.”