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VW aims to increase battery supply chain transparency

Highlights

Investors demand improved environmental, social, governance metrics

Volkswagen committed to responsible procurement of battery raw materials

Focus on human rights, better working conditions and environmental protection

New York — As automaker Volkswagen continues to ramp up it electric vehicle offering, it said it had decided to ensure the supply chain of its battery raw materials is as transparent as possible by signing a strategic agreement with analytics outfit RCS Global.

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As EVs slowly gear up for mass adoption, forecast to really kick in around 2025, car manufacturers are gunning to ensure that they are as environmental, social and governance (ESG) proof as possible. One big talking point is that of clean supply chains, in order for the carbon-reducing effects of EVs to truly benefit.

The focus of the partnership will be on auditing suppliers' conformance with human rights, safe working conditions and environmental protection along the supply chain all the way back to the mines.

In the wake of the coronavirus pandemic, local as well as transparent supply chains have been thrust into the spotlight, as ESG metrics continue to climb the ladder of importance for investors.

VW said Sept. 11 that it introduced a sustainability rating for direct suppliers a year ago, and a complimentary comprehensive system developed by RCS Global now also tracks adherence to sustainability criteria at sub-suppliers, refineries, smelters, mines and recyclers. New guidelines for improvements issued to suppliers make an active contribution to achieving improvements when risks and shortcomings are identified.

"Serious audit violations may even lead to the disqualification of suppliers from the supply chain. That applies, for example, to small-scale mining operators when child labor cannot be ruled out. The approach builds on the Due Diligence Guidelines of the Organisation for Economic Co-operation and Development (OECD)," the statement read.

The partnership has also enabled the development of due diligence measures for each type of relevant raw material by means of a comprehensive management system, despite the large number of companies in the supply chains.

Supply chain management paramount

The entire battery supply chain, from mining to end-user, needs to be as green as possible for the EV market to maximize its ambitions for a lower-carbon future, Vulcan Energy's vice-president for business development, Vincent Ledoux Pedailles told S&P Global Platts Sept. 10.

The European Battery Alliance has called for investment in the value chain — from extraction of raw materials all the way through to recycling at the other end of the value chain — to build the industry and create job security.

Pedailles said the recent pandemic had amplified the need not only for local supply chains, but also a reduced carbon footprint across mining and processing of lithium. He, like others, argued that the footprint of EVs could be hindered if the materials going into manufacturing them came from highly polluting practices.

"We live in an age of ESG investing. Money is now being allocated to business that backs up what they say they will do, and provide a more sustainable future for everyone," he said.

Discussing the VW/RCS partnership Ullrich Gereke, head of procurement strategy at VW, said the move helped the automaker better understand which raw material sources and suppliers were in its supply chain and to measure their responsibility performance.

"In direct contact with our sub-suppliers, we can better explain and monitor our expectations of responsible sourcing and better follow up on agreed measures following our sustainability audits," Gereke added.

Sustainability crucial to success

Sustainability is a crucial factor in the production of all Volkswagen models -- the ID.3 and the ID.4 EVs are produced with a neutral CO₂ balance and handed over to customers with a carbon-neutral footprint.

"All outsourced electricity delivered to the Zwickau factory, Europe's largest and most efficient electric car plant and the production location for both ID. models, is 100% green power. The plant also operates a highly-efficient block-type thermal power station with combined heat and power generation. Production of the battery cells, purchased externally by Volkswagen, is inevitably energy-intensive. For that reason, Volkswagen has stipulated that its cell suppliers must exclusively use green power in their manufacturing processes," the statement concluded.

Automakers are not just rushing to move to electric for the sake of humanity, they also face hefty fines linked to the carbon emissions of their fleets.

Pedailles said Vulcan's project can offset CO₂ potential penalties, a major boon if successful.

"Let's take VW as an example. They are targeting to produce 28 million EVs by 2028. If VW produces those EVs using lithium that has been processed using traditional routes, every single EV that the German automaker will produce will emit 675 kg of CO₂ just from the production lithium used in the battery cell. Multiply this by 28 million EVs and VW will have emitted more than 19 million mt of CO2 linked to just the lithium used in its cars," he said.

If VW was going to source a greener product, such as Vulcan's, they would actually generate minus 238 kg of CO₂ emissions per car or minus 7 million mt of CO₂ for their entire EV fleet," according to Pedailles.

"This could help VW, and other automakers, to reach their sustainability targets by offsetting CO₂ generated by the rest of their supply chain," he added.