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Tesla asked to report on human rights amid cobalt deal with Glencore

Electric vehicle behemoth Tesla Inc. is facing renewed pressure to disclose its methods for tracking potential human rights issues in its supply chain following a recently reported cobalt supply deal with Glencore PLC.

The world's most valuable automaker as of July 2 plans to source cobalt from Glencore for lithium-ion batteries produced at its plant in Shanghai and a planned Gigafactory in Berlin, a deal that may involve up to 6,000 tonnes per year, according to multiple media reports. Such a transaction would further establish the Democratic Republic of Congo, which produces more than 60% of the world's cobalt, as a source of the battery metal despite concerns from human rights advocates about mining practices in the region. At the highest concern is small-scale informal or "artisanal" mining of cobalt in the DRC, a practice done by hand and known to carry the potential for child laborers.

Tesla was sued in December 2019 in the U.S. District Court for the District of Columbia along with Alphabet Inc., Apple Inc., Dell Technologies Inc. and Microsoft Corp. for "knowingly benefiting" from children mining at sites owned by Glencore and other mining companies, a claim Glencore has vehemently denied. The defendants in the suit have committed themselves to the responsible and ethical sourcing of minerals and have policies against the use of child labor. Plaintiffs in the case filed an amended complaint June 26 targeting Tesla's recent deal with Glencore and stating they will seek details of the arrangement in discovery.

A shareholder proposal scheduled for a vote at Tesla's 2020 annual general meeting, which was scheduled for July 7 but has been indefinitely postponed due to the coronavirus pandemic, requests input on whether the automaker should prepare a report on its processes for "embedding respect for human rights" within its operations and business relationships. The New York arm of Sisters of the Good Shepherd, which owns seven shares of Tesla common stock, offered the resolution, citing the lawsuit, concerns about cobalt supplies and questions about work conditions at Tesla factories. A similar resolution the group offered at the General Motors Co. annual meeting in mid-June received 31% support.

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Mary Beth Gallagher, executive director of Investor Advocates for Social Justice, which represents the Sisters, told S&P Global Market Intelligence there is a "real need" for Tesla and other auto manufacturers to make stronger commitments to human rights because failures can result in new business risks. Regarding the recent Glencore deal, Gallagher said acquiring more cobalt from the company "seems to be inconsistent with their messaging around reducing their use of cobalt, and what we want to see is stronger implementation of human rights."

"It seems like they're just increasing their cobalt use," Gallagher said, adding that it is unclear how the company will alleviate concerns about the potential for increased risk related to human rights issues.

Tesla has issued reports on its efforts around environmental, social and governance issues. The company's 2019 Impact Report addressed the concerns surrounding its cobalt supplies, asserting that its practices are in line with the OECD Guidelines on Responsible Sourcing from Conflict Affected and High Risk Areas and made transparent through the Responsible Minerals Initiative, an industry-led minerals tracing program intended to improve ethical sourcing of raw materials.

The risks associated with DRC-sourced cobalt have been clear to industries reliant on the metal for lithium-ion batteries. However, despite an effort by some companies including Tesla to reduce how much cobalt is needed to produce new batteries, analysts believe that there will still be a need to get materials from the region in the short term. As a result, ESG performance will likely be considered when companies set up new supply deals.

Daiwa Capital Markets said in a June 16 note reviewing the Tesla-Glencore deal that Glencore's membership in the Responsible Minerals Initiative demonstrated a "strict adherence to high ESG standard." Mark Newman, a senior research analyst at Sanford C. Bernstein & Co., LLC, said in a July 1 interview that a substantial reason companies have begun work on cobalt-free or cobalt-light batteries is the "somewhat shady history" of the metal and difficulty confirming the absence of ethically tainted material in the supply chain.

There are also economic drivers for departing from a reliance on cobalt, Newman said. "It's the most expensive metal in the battery, so if you can replace it with nickel or aluminum or manganese, then it's a lot cheaper, and if you replace cobalt with nickel, you're boosting the energy density as well, which means you get more range and also helps you lower the costs."

Tesla did not respond to requests for comment.