Due Diligence Compliance Report Cobalt Procurement 2021

Actor’s details

Actor’s name

Umicore
(Business Group Energy & Surface Technologies)

Location

Watertorenstraat 33, 2250 Olen, Belgium

Reporting Year-end

31.12.2021

Date of Report

18.03.2022

Senior Management responsible for this Report

Stephan Jannis
Vice-President Supply RBM
Energy and Surface Technologies

Watertorenstraat 33
2250 Olen
Belgium

Administrator

Géraldine Morelle
Manager Sustainability Battery Value Chain
Energy and Surface Technologies
geraldine.morelle@eu.umicore.com

Broekstraat 31 Rue du Marais
1000 Brussels
Belgium

Compliance Report’s scope

The scope of this Compliance Report includes the cobalt procurement  activities by Umicore Supply and Refining for the business units ‘Cobalt and Specialty Materials’ and ‘Rechargeable Battery Materials’ (including Umicore’s minority joint ventures) in the reporting year 2021.

Section 1. Establish strong Company Management Systems

Compliance statement

Umicore’s management system regarding cobalt supply chain due diligence includes policies, procedures and internal management structures. The company’s management system, referred to as the Sustainable Procurement Framework for Cobalt, is aligned with the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD, 2013).

1.1 Has Umicore created a company policy regarding due diligence for its supply chains of cobalt?

The Umicore Way’ describes Umicore’s mission and its core values related to its business conduct. It is at the heart of Umicore’s culture. Umicore has adopted a set of policies and charters to ensure its activities are conducted in line with the principles outlined in ‘The Umicore Way’. These include the Umicore Code of Conduct and Sustainable Procurement Charter.

The latter is the supply chain policy that applies Umicore’s principles to its suppliers and demonstrates how they are implemented in procurement activities. Umicore developed this charter in order to reflect its commitment to sustainable development in all areas of procurement – whether raw materials, energy, other goods or services. The document outlines Umicore’s commitment to its suppliers in terms of its own conduct and practices.

In addition, Umicore has a policy on “Responsible global supply chain of minerals from conflict-affected and high-risk areas”. Bearing in mind the specific risks in the cobalt supply chain, Umicore has implemented this policy into a specific cobalt due diligence framework: Umicore’s “Sustainable Procurement Framework for Cobalt” (“the Framework”). The Framework reflects Umicore’s intentions to ensure that its cobalt supply chain follows sustainable business practices. The Framework defines Umicore’s responsibility for conducting risk-based due diligence, screening and monitoring all its suppliers.

Since 2018, Umicore has formalized a public grievance mechanism.

Umicore’s management system is aligned with the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD, 2013).

The Framework includes a decision tree procedure, created to ensure practical implementation of the Framework. The overall description of this decision tree can be found within the Framework Description, which is available online. An internal procedure was developed to explain and document in detail all steps to be taken in the decision tree.

1.2 Has Umicore set up an internal management structure to support its supply chain due diligence?

The Umicore Sustainable Procurement Framework for Cobalt defines the governance for Umicore’s due diligence practices for the cobalt supply chain.

The Sustainability team in the Environmental, Health and Safety department administers the application of the Framework including the screening of risks in the affected cobalt sourcing and trading regions.

A dedicated cobalt sustainability committee, referred to as the “Approval Committee”, ensures adherence to the principles and guidelines of the Framework. This Approval Committee has the responsibility to evaluate due diligence findings, mitigation actions and procurement decisions. The Approval Committee includes the Executive Vice-President of Umicore’s business group Energy & Surface Technologies, the Senior Vice-President Supply RBM, the Group Director Sustainable Value Chain, the Sustainable value chain manager and the Manager Sustainable Battery Value Chain. The Committee has meetings on an ad hoc basis and at least twice per year. In 2021, two Approval Committee meetings were organized.

The governance structure was effectively applied in the reporting year 2021.
 

Section 2: Identify and Assess Risks in the Cobalt Supply Chain

Compliance statement

Umicore established processes and controls to assess risks in its cobalt supply chain. The management systems to respond to the identified risk were effectively applied for the reporting year 2021.

2.1 Supply Chain Traceability: Has Umicore established a system of controls in order to ensure transparency over its cobalt supply chain?

Umicore has a process in place that ensures that transport documents are obtained and that transactional details are recorded.

This procurement data provides information on the source of the raw materials and allows Umicore to consolidate the incoming cobalt material into a “materiality overview” in order to provide a view of all the quantities of cobalt procured.

Additionally, Umicore is able to identify the mines from which the procured cobalt material originates by means of chain of custody documentation and an additional confirmation of origin 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 for each end product, linked to the suppliers and mining locations. 

2.2 Suppliers Research: Does Umicore perform research on its suppliers to identify risks in its cobalt supply chain?

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 pursues a further business relationship if no indications of unsustainable business practices (such as inhumane treatment, forced and child labor, bribery, corruption, artisanal mining) have been identified. This screening is documented in a pre-sourcing due diligence check.

At 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 raw materials of cobalt based on a desktop review and its knowledge of the market and the supplier. The background check includes several topics:

  • Identification and screening of the supplier’s mother company (structure, policies, sustainability reporting…)
  • Information about the mining site (general description, technology, certificates, local initiatives…)
  • Information and screening of the shareholders
  • Information gathered by Umicore’s supply team during local visits (environmental performance, technology, markets, cobalt volumes…)
  • Media screening of sustainability issues including human rights violations, social issues, corruption and health and safety issues.

The internal Information Documentation department carries out daily media monitoring of relevant topics related to cobalt sourcing and of Umicore’s suppliers. The information obtained is used to update the background checks. The background checks are reassessed annually (except for suppliers of recycling feed or non-recurrent purchases).

2.3 Risk Identification and Assessment: Does Umicore perform risk identification and assessment on suppliers in its cobalt supply chain?

In 2021, Umicore performed risk identification and assessments steps as described in Umicore’s Framework by applying the following steps:

  • Red Flag Check
  • Materiality Testing
  • Plant Visits
  • Orange Flag Check
  • Risk Mapping

1. Red flag check

Umicore performs a red flag check on its suppliers based on the information collected in the background check and on market and desktop research. Any identified evidence of red flag criteria means Umicore’s relationship with the supplier will be stopped. The Framework procedure provides dedicated questions and screening guidelines to facilitate this red flag screening. The red flags are:

  • 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 linked to cobalt operations;
  • hand-picking and/or artisanal mining (as primary source);
  • supplier is not willing to accept the principles stated in the Umicore Charter or does not have similar policies in place.

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 monitoring, or after plant visits. The existing suppliers are reviewed at least once per year.

During the reporting year 2021, Umicore performed the red flag checks on its suppliers. An overview of the red flag indications and follow-up actions can be found in Annex to this report.

2. Materiality testing

During materiality testing, the share of each supplier in the total supplied quantity is calculated. This analysis includes all the cobalt purchases for Umicore’s entities involved in cobalt transformation. Based on this exercise, a first risk estimation is performed. All suppliers of cobalt with a share of more than 1% of the total supplied cobalt quantity (referred to as “material” suppliers) are assessed in the decision tree. In addition, this analysis ensures that the sum of the cobalt coming from “material” suppliers exceeds 95% of Umicore’s total yearly cobalt supply. For suppliers assessed as “non-material”, the due diligence and risk assessment procedures stop at this stage of the decision tree.

In 2021, the suppliers that were considered as “material” to Umicore represented in total 95.3% of cobalt purchases.

For 2021, the cobalt from recycling sources accounted for 8.0% of the total supplied quantity of cobalt.

3. Plant visits

Plant visits are performed to monitor and evaluate the practices of all “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 to the risk mapping and to update 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 visited at least every two years. Suppliers in low/medium or low risk countries have to be visited every five years.

In the reporting year 2021, the extraordinary health and safety circumstances and travel restrictions related to COVID-19 have kept Umicore from performing in person on-site plant visits as required by the Framework. Umicore performed in person on site plant visits for some suppliers with a delay in 2021 due to COVID-19 restrictions. 

For other suppliers where an in-person visit was not possible in 2021,  Umicore reached out to these suppliers and discussed the main elements addressed during a plant visit in order to gain confidence that no new or increased risks are identified in the sustainability of its supply chain in line with the required frequency as indicated in the Framework guidelines except for one supplier. The remaining delayed on-site plant visits will be performed as soon as circumstances allow for it.

4. Orange flag check

An orange flag screening is performed for “material” suppliers. Any identified evidence of orange flag criteria means Umicore will require mitigation actions by the supplier and the Approval Committee will need to decide whether or not to continue the business relationship. The orange flag check is completed based on the information collected from reports of plant visits and from desktop research. For a new supplier, the orange flag check is performed once the visit checklist has been filled out. For existing suppliers, the orange flag checks are re-assessed following either an alert of new issues or following plant visits and at least once a year. The orange flags are:

  • 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 2021, Umicore performed the orange flag checks in line with its Framework. An overview of the orange flag indications and follow-up actions can be found in Annex to this report.
  

5. Risk mapping

Risks are mapped for all “material” suppliers based on the supplier’s risk (including scoring for country risk, supplier relationship, regulatory environment and sustainability commitments) and impact (including volumes as well as financial and reputation impact). Based on the outcome of the risk mapping (Low, Low/Medium, Medium/High, High) the need for further due diligence steps is decided, including the self-assessment questionnaire and/or third-party audits. If any of these steps lead to the identification of evidence for red flags, the relationship with this supplier will be stopped.

For existing suppliers, the risk assessment is re-evaluated ad hoc (if there are indications that a supplier’s performance has changed) or at latest every 3 years.

During the reporting year 2021, risk mapping was performed for all suppliers and appropriate steps were taken according to the risk classification of each supplier.

2.4 Risk Mitigation: Does Umicore perform risk mitigation actions as described in its “Sustainable Procurement Framework for Cobalt”?

Based on the outcome of the risk mapping (Low, Low/Medium, Medium/High, High) Umicore engages with the supplier in an appropriate follow-up and, if required, mitigation plan. Progress in the mitigation plan is closely monitored and if necessary checked during the next plant visits and/or (targeted) supplier reviews.

In 2021, two Approval Committee meetings reviewed identified risks and subsequent follow-up measures related to them.


Section 3: Design and Implement a Strategy to respond to Identified Risks

Compliance statement

In 2021, Umicore effectively responded to identified risks.

3.1 Comments and Demonstration of Compliance

Umicore’s Framework ensures that identified risks are addressed and that follow-up on red and orange flag indications is performed, including the investigation of the indications, out-reach to stakeholders and discussion with the Approval Committee. All indications for red and orange flags that appeared in 2021, were investigated and evaluated by the Approval Committee. An overview of the indications and follow-up can be found in the Annex of this report.


 
Section 4: Independent Third-party Audit of Supply Chain Due Diligence

Compliance statement

Umicore arranged for an independent third-party audit of its due diligence performance of cobalt procurement for the reporting year 2021.

4.1 Comments and Demonstration of Compliance

PwC Bedrijfsrevisoren bcvba/PwC Reviseurs d’Entreprises sccrl[1] provided their independent ISAE 3000 limited assurance report on this Compliance Report in respect of the activities undertaken by Umicore during the year 2021 to demonstrate compliance with Umicore’s Sustainable Procurement Framework for Cobalt. The limited assurance report is available to Umicore customers and stakeholders upon request.

[1] PwC has performed the above mentioned engagement and report for the Umicore Sustainable Framework for Cobalt solely for use by Umicore CSM and RBM under a contract agreed upon with Umicore SA. 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 any such other person.

 

Section 5: Report on Supply Chain Due Diligence

Compliance statement

For the year 2021, Umicore will publicly report on the implementation and adherence to the supply chain due diligence processes and controls that are set out in its Sustainable Procurement Framework for Cobalt.

5.1 Comments and Demonstration of Compliance

The Compliance Report is Umicore’s report on the due diligence of its cobalt supply chain. The report will be available online as part of the company’s Annual Report for 2021. Relevant policies are publicly available, including The Umicore Way, Sustainable Procurement Charter, Code of Conduct, the Sustainable Procurement Framework for Cobalt and policy on Responsible global supply chain of minerals from conflict-affected and high risk areas.

Additionally, the limited assurance report by PwC Bedrijfsrevisoren bcvba/PwC Reviseurs d’Entreprises sccrl will be available on request to Umicore’s customers and stakeholders.

Management Conclusion

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 2021. Due to COVID-19 and its consequences certain site plant visits were delayed in 2021 (see section 2.3), 

For suppliers where an in-person visit was not possible in 2021,  Umicore reached out to these suppliers and discussed the main elements addressed during a plant visit in order to gain confidence that no new or increased risks are identified in the sustainability of its supply chain in line with the required frequency as indicated in the Framework guidelines except for one supplier.

The remaining delayed on-site plant visits will be performed as soon as circumstances allow for it.

Umicore’s management system is aligned with 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 adheres to the five steps for risk-based due diligence of the OECD Guidance.

The corrective actions identified in the Cobalt Due Diligence Compliance Report 2020 have been implemented and monitored in the course of 2021. The same will be undertaken for corrective actions identified in the Cobalt Due Diligence Compliance Report 2021.

Further, Umicore supported the development of the Cobalt Industry Responsible Assessment Framework (CIRAF) which is a management framework for risk assessment and mitigation, aiming at ensuring responsible cobalt production and sourcing. CIRAF was launched in January 2019 by the Cobalt Institute (CI). For its cobalt supply chain, Umicore’s due diligence practices follow the recommendations of level three of CIRAF. This means Umicore has identified material risks in its cobalt supply chain, has a policy and due diligence management system to address human right risks and all other material risks for its cobalt supply chain, and that Umicore also reports on efforts to address those risks. As Umicore sources Cobalt from high risk countries, the following risk areas are material for its supply according to the CIRAF decision tree:

  1. Air- water-soil pollution & energy efficiency;
  2. OHS and working conditions;
  3. Conflict & financial crime;
  4. Human rights abuses,
  5. Worst forms of child labour,
  6. Biodiversity;
  7. Artisanal Mining;
  8. Livelihoods;
  9. Resettlement.
     

Umicore has due diligence management systems for the risk areas 1 to 9 through its Sustainable Procurement Framework for cobalt, which means that the policies and performance of all suppliers are screened and reviewed. 


Other report comments

If users of this report wish to provide any feedback to Umicore, they can contact Umicore’s Sustainability Battery value Chain Manager, Géraldine Morelle ( geraldine.morelle@eu.umicore.com).

Annex: Flag Indications and Follow-up Actions

Flag indication

Description

Supplier Materiality

Supplier Country Risk

Follow-up Action

Status

Indication of child labor

The supplier has been mentioned in a lawsuit filed in the United States district Court regarding child labor and artisanal mining.

This has been reported in different media articles.

The Federal Court decided to dismiss the case in 2021.

Material

High

The Approval committee decided to close the case based on the previously obtained information through exchanges with the supplier and the dismissal of the case by the Federal Court in 2021.

Closed (Begin-ning of 2022)

Indication of  bribery and corruption linked to cobalt operations

The supplier is under investigation by official authorities. The investigation focuses on allegations of fraud, bribery and corruption around the acquisition of substantial mineral assets (in 2010).

Material

High

The outcomes of the official investigation concerning the allegations of bribery in the case (dating from 2010) are pending.  Umicore has continued to monitor this case and reached out to the supplier on this topic. While awaiting the legal ruling by official authorities, Umicore decided to continue the business relation with this supplier in the meantime.

Awaiting legal ruling

Indication of child labor

The supplier has been mentioned in a lawsuit filed in a United States district Court regarding child labor and artisanal mining.

This has been reported in different media articles and led to a grievance received by the Responsible Minerals Initiative (RMI) concerning Umicore Olen conformance with the RMAP Standards.

The Federal Court decided to dismiss the case in 2021.

Material

High

The Approval committee decided to close the case on the basis of previously obtained information from exchanges with the supplier and audits; and of the dismissal of the case in 2021 by the Federal Court.

Closed (Begin-ning of 2022)

Indication of torture, cruel, inhuman and degrading treatment or punishment

In 2021, a NGO reported allegations of infringements of human and labour conditions at different mine-sites located in the Democratic Republic of the Congo, mainly in relation with conditions of subcontractors.

Material

High

Umicore exchanged with the NGO on the findings of the report and their recommendations. In addition, Umicore  reached out to all its suppliers named in the report. Feedback from all suppliers was received and follow-up meetings were organized focusing on subcontractor management and where necessary, second and third-party audits on Environment, Health, Safety and Social are being scheduled. The Approval Committee decided to continue the business relation with these suppliers in the meantime.

Open

Indication of  bribery and corruption linked to cobalt operations

In 2017 and 2018, NGO reports and media articles accused the supplier of bribery and corruption related to the acquisition of the supplier’s mineral assets and operations in the Democratic Republic of the Congo.

Material

High

There has been no official judgement on corruption. Previous on-site third-party audit confirmed policies and training concerning anti-bribery and corruption are in place. Umicore will continue to monitor and review all the available information. The Approval Committee decided to continue the business relation with this supplier in the meantime.

Awaiting legal ruling

Indication of  bribery and corruption 

In 2013, media articles reported that a corruption probe and investigation has been launched in which the supplier owner is allegedly involved. The case was eventually dropped.

Material

Medium-low

Umicore engaged with the supplier around its anti-corruption and bribery policies and practices. Additionally Supplier highlighted the highly political environment of these articles and denied the allegations. The Approval Committee decided to further investigate policies in place, but to maintain the relationship in the meantime.

Open

Indication of torture, cruel, inhuman and degrading treatment or punishment

In 2019, media articles reported the deployment of the Congolese army to protect the concession of this supplier. Subsequently, incidents of inhumane treatment were reported to have been committed by soldiers in the area.

Material

High

To follow-up on those allegations, Umicore decided to perform a third-party audit of this supplier, however due to COVID-19, Umicore was not able to perform a third-party audit of this supplier in 2021, but audits is scheduled in 2022. The Approval Committee decided to continue the business relation with this supplier in the meantime.

Open

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