These potential harms, if not adequately prevented, mitigated or remedied, can disrupt supply and hinder the rapid scale-up of clean energy technologies.
A new report by the International Energy Agency (IEA) – The Role of Traceability in Critical Mineral Supply Chains – says that to address these challenges, processes, tools and mechanisms are needed to ensure and demonstrate responsible practices across the value chain.
“Critical mineral supply chains cannot be truly secure, reliable and resilient unless they are also sustainable and responsible.
“Traceability can play an important role in supporting different types of policy goals, including on energy security, and ensuring sustainable and responsible supply chains are supported by strong due diligence processes.”
The report notes that many jurisdictions are already introducing regulations with specific origin and environmental, social and governance (ESG) requirements that indirectly or directly require supply chain transparency as part of broader supply chain due diligence requirements.
“If implemented carefully, traceability systems can enable the collection of data on product origin, geographic path, the sequence of entities that held ownership or control over the product and its physical evolution,” says the IEA.
A robust traceability system must include an assessment of the appropriate technical infrastructure.
This includes choosing appropriate tools and a strategy suitable for the nature of the supply chain, weighing the costs and benefits of different technologies and ensuring interoperability across the supply chain, says the report.
It includes an eight-step roadmap: from setting policy objectives to building trust mechanisms, “which can help ensure traceability systems are fit for purpose and aligned with the realities of global supply chains.”
Step 1: Determine the policy objectives and understand the supply chain context
Traceability can be used to obtain information on a product’s origin, path, chain of custody and physical evolution. It can also be used to pass along ESG data, thus helping to provide a picture of the product’s ESG performance and supporting a broader due diligence process. Countries interested in increasing mineral traceability should start by determining which policy objectives they want to achieve.
For example, mineral-producing countries may be interested in increasing traceability to enable product differentiation, potentially supporting higher prices for products with strong performance throughout the supply chain.
Step 2: Choose which products to focus on
After determining the policy objectives and understanding the supply chain context, countries should determine which products to focus on. Deciding which products to focus on will depend on a country’s policy objectives and economic profile.
Traceability can be used by mineral producing countries to enable product differentiation, which can potentially support higher prices for products with strong performance throughout the supply chain.
Step 3: Determine which information should be collected and shared
After determining which products to focus on, countries should determine which data they want relevant operators to collect and share. Determining which information is needed will depend to some extent on the country’s policy objectives.
Step 4: Choose which operators to focus on
Deciding which operators need to be involved will depend to some extent on the country’s economic profile. For example, a country that does not extract minerals may find it more logical to adopt a “downstream approach” to traceability – that is, encouraging downstream operators to obtain traceability data from actors further up the supply chain.
Step 5: Promote the development and use of interoperability protocols
To resolve interoperability issues, countries may be tempted to develop government-controlled platforms so that operators can share traceability data among themselves. However, government platforms present their own difficulties. Given the cross-border nature of mineral supply chains, the same operator may need to use multiple national platforms to exchange traceability data.
Step 6: Establish trust mechanisms
In order for traceability to be effective, information that is collected and shared by operators must be accurate, reliable and trustworthy. Traceability systems must include appropriate safeguards to prevent fraud.
Step 7: Create incentives for increasing traceability
Countries can use various tools to encourage operators to trace products or material inputs. Mineral-producing countries can provide funding to encourage mining operators to develop traceability systems. For example, governments can provide financial support for the development of technological infrastructure in remote mining locations with limited connectivity.
Step 8: Engage with stakeholders in foreign jurisdictions
Many energy minerals have complex supply chains spanning multiple jurisdictions and involving numerous actors. Operators seeking to trace their products often need to collaborate with actors located in foreign jurisdictions. This is particularly true for downstream operators located in countries with few upstream operations.
The report says that when developing traceability approaches to encourage responsible sourcing, policy makers should consider the relationship between traceability and the wider due diligence process.
“Countries pursuing policy objectives outside the scope of responsible business conduct, such as trade sanctions or origin requirements, may require or encourage companies to avoid certain jurisdictions.”
In such cases, traceability can ensure that critical minerals products from those jurisdictions are not imported into the country’s territory.
“However, where a country is pursuing ESG or responsible business conduct objectives, its focus should be on incentivising or mandating companies to address risks within supply chains.”
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