July 08, 2020
Investing in an ethical supply chain: the Volvo Cars Tech Fund strikes again
As we move towards all-out electrification, that automatically means we’ll need a lot more batteries in coming years. Some of the minerals in those batteries, in particular cobalt, come from troubled regions, exposing us to the risk of human rights violations in our supply chain.
To ensure that does not happen, we have started to implement so-called blockchain technology, which helps us create full traceability of our cobalt supplies with the help of digital ledgers. And since the existing collaboration with our blockchain partner Circulor has worked so well, we have decided to strengthen the relationship and invest in the company via the Volvo Cars Tech Fund, our own investment arm.
The investment in Circulor fits well with our corporate strategy, which means it also fits well with the investment policy of our Tech Fund. “Obviously we align ourselves closely with Volvo’s core brand values and sustainability is one of them,” says Andreas Strasser, in charge of investments in the EMEA region. “So we look to invest in companies that make Volvo’s sustainability journey more effective, or that help us solve challenges on our journey towards electrification.”
Circulor is exactly that type of company. In the past few years, we have been working with them to make sure that all the cobalt we use in the batteries for our electrified cars is fully traceable. “Some materials can carry a high risk factor in terms of human rights violations and child labour, and cobalt is one of them,” says Jan Carlson, one of our senior procurement experts in this area. The reason is that the majority of the world’s cobalt is mined in the Democratic Republic of Congo (DRC), a troubled country with a sub-par human rights record by most measures.
So one single audit per year is not enough, explains Jan. Instead, we need to be on the ground regularly and make sure that we properly trace, label and tag all minerals from the region. By doing that at the source and putting this data in a blockchain, a digital ledger that cannot be tampered with and is accessible to everyone involved, we can make great strides into creating a transparent and ethical supply chain. But in countries like the DRC, that is not an easy task and it requires vigilance from all involved.
Some people even question whether large car companies should really operate in the DRC. Yet Jan, who has visited the country a number of times as part of his work, believes that engagement is the way to go. “That is also the recommendation of the OECD (an organisation of mostly rich countries): don’t walk away, but stay and engage with local companies and NGOs. There are thousands of poor people who work in the mining industry. If you just walk away, you take away their livelihood.”
While its technology is a great help in improving things across the supply chain, it is also important for companies like Circulor to remain independent from car makers. So, to ensure that Circulor remains the valuable and credible third-party actor that it needs to be, we are deliberately taking a minority stake, says Andreas. “We consciously didn’t ask for any additional form of control and we only have an observer seat on the board,” he explains. “Plus, the second largest investor is Systemiq, an environmental consultancy. That balances it out nicely.”
In fact, we have not actually received shares in the company yet. At this point, we have given Circulor a convertible loan, which will be converted into shares at some point in the future when additional shareholders come in. That will guarantee that any Volvo Cars stake in Circulor remains small, while we are still able to support the company’s growth and development. Going forward, we will work with Circulor to trace other minerals than cobalt as well. For example mica, a material used in battery isolation, is an obvious candidate because it carries similar risks in terms of human rights.
Jan says that Circulor has been a great partner as we work to ensure an ethical supply chain for cobalt and other minerals. “When we started sourcing batteries for SPA2 almost two years ago, we quickly assessed that we needed more supplier traceability in place. We ran a pilot with Circulor, and they have really supported us all the way ever since. We really couldn’t have implemented this level of traceability without them.”