Blockchain and sustainability through responsible sourcing

Mining for cobalt, an essential raw material for lithium-ion batteries, carries a high cost in human suffering. More than 60 percent of the world’s supply comes from the Democratic Republic of Congo (DRC), with about 45 percent coming from large-scale mining operations. The remaining 15 percent comes from small-scale mines in the DRC, where children and adults labor under harsh and dangerous conditions to extract ore by hand.

It’s those working conditions, along with environmental damage to areas mined, that have focused the world’s eyes on the high-profile automotive and electronics industries. Their products — electric vehicles (EVs) smartphones and laptops — depend on lithium-ion batteries, and thus, cobalt.

What’s driving sustainable sourcing initiatives

Companies that take sustainability and social justice seriously work to keep cobalt mined by hand out of their supply chains. Similar concerns hold true for other minerals that pose responsible sourcing risks, including lithium, nickel, copper and the “3TG” group (tin, tantalum, tungsten and gold), and for materials that create a hazard for the environment when disposed of incorrectly.

The drivers for responsible sourcing of raw materials are strong, ranging from corporate governance to consumer, shareholder and other stakeholder demands to scrutiny from governments, regulatory bodies, financial markets and NGOs. However, until recently, proving responsible sourcing to all these interested parties was an elusive goal, posing significant reputational, legal and commercial risks.

The benefits of blockchain for responsible sourcing networks

Today, the Responsible Sourcing Blockchain Network (RSBN), built on IBM Blockchain Platform and assured by RCS Global Group, is providing the transparency, trust and security that are needed to demonstrate responsible sourcing for cobalt. What’s more, the underlying infrastructure that we’ve built for RSBN can be used to jump-start any sustainable sourcing initiative.

The proven benefits of using blockchain technology for sustainable sourcing networks include:

  • An immutable audit trail that documents proof of initial ethical production of a raw material and its maintenance at every transfer step from mine to end manufacturer
  • Secure, tamper-evident storage of provenance information and certificates of responsible production
  • The ability to share a proof of fact while protecting confidential or competitive information
  • Decentralized control so no single entity can corrupt the process, promoting trust
  • Lower costs through digitization of a paper process, potential reduction in audits and lower transaction costs
  • Scalability to accommodate new participants and new industries

Blockchain and RSBN: How it works

Traditionally, miners, smelters, distributers and manufacturers rely on third-party audits to establish compliance with generally accepted industry standards. For RSBN, RCS Global Group provides this assurance through its mineral supply chain mapping and auditing practice, assessing network participants against standards and best practices set by the Organization for Economic Cooperation and Development (OECD) and the Responsible Minerals Initiative (RMI).

RSBN uses blockchain’s shared, distributed ledger to track production from mine to battery to end product, capturing information on the degree of responsible sourcing at each tier of the supply chain. Downstream companies can access the verified proof that they support and contribute to responsible sourcing practices, which they can then share with auditors, corporate governance bodies and even consumers.

At every step, participants control who is allowed to see what information. Once added to the ledger, certifications and other documents cannot be manipulated, changed or deleted. These properties make blockchain a trusted platform for sharing data across different companies while helping prevent fraud.

Delivering business value across the supply chain

Networks such as RSBN encourage and enable collaboration between suppliers and customers across complex mineral and other conflict-sourced raw material supply chains, with business value accruing to all that participate. For example, here are benefits realized by RSBN participants.

Automotive manufacturers are gearing up to introduce many more electric vehicles (EVs) into the marketplace over 2021 and 2022, creating new demand for li-ion batteries and the cobalt they require. By engaging in responsible sourcing initiatives like RSBN, they can market their products as sustainably produced as well as sustainable on the road. Responsible cobalt sourcing also contributes to corporate citizenship efforts related to fighting poverty, supporting human rights and preventing environmental degradation.

Mines and smelters sit at the top of the supply chain, where responsible sourcing efforts begin and where the real challenges lie. Keeping hand-mined cobalt out of product batches requires process changes, financial investments and a commitment to fight corruption. By demonstrating their results through audits and certifications, these companies are positioned for favored status as suppliers to battery manufacturers.

Consumers have spoken. In a recent IBM study, 77 percent of consumers surveyed said that buying from sustainable or environmentally responsible brands is important. EVs, smartphones and laptops are high-visibility products whose value is closely tied to their rechargeable, long-lasting li-ion batteries. Being able to demonstrate responsible sourcing can help win customers, establish reputational value and prevent backlash such as legal action.

Get started quickly on your responsible sourcing solution

RSBN is a ready-to-join network built on IBM Blockchain Platform and assured by RSC Global. RSBN founding members include Ford Motor Company, Volkswagen Group, global battery manufacturer LG Chem and cobalt supplier Huayou Cobalt. Volvo Cars, Fiat Chrysler Automobiles and other companies that operate in “conflict sourced” minerals supply chains are also members.

Companies that want to make sure the raw materials they use have audited and documented responsible sourcing standards confirmed can join RSBN either as an individual company or with their whole supply chain and begin realizing value quickly. Alternatively, IBM Blockchain Services can leverage the assets and infrastructure that underpin RSBN to co-create a responsible sourcing network for other industries and raw materials. Talk to us today about how you can get started demonstrating your organization’s responsible sourcing compliance.

This use case telling the story of Sustainability through blockchain will be followed up by more examples of how blockchain services are being used in various industries to help solve real world problems. Be sure to read our recent articles on Invoice ReconciliationDigital TicketingFinancial Netting, and upcoming articles, or schedule a free one-on-one consultation to find out how you can benefit from this solution.