Post By: Jonathan Armstrong, Partner, Cordery Compliance
Introduction
It is common these days for organisations to make claims about their ESG credentials including claims that they are “kind to the environment,” “doing their best for the planet,” or “carbon-neutral.” However, in this complex and changing world, how can they justify those claims? Many countries around the world have fair trading laws in place which put the burden of proof on the organisation making the claims to be ready to back them up with hard facts. For example, in the UK, The Consumer Protection from Unfair Trading Regulations 2008 could make statements like these a criminal offence in some circumstances punishable by a fine, a prison term of up to 2 years or both. Will action over false ESG claims become a new compliance trend for 2022?
Recent reports about issues with green energy in particular have put these obligations into focus and suggest that organisations will need to have proper processes in place when making ESG-related claims. The areas where special care may be needed include the following:
Solar Power
Many organisations support their ESG claims by suggesting that their focus on renewable energy is doing good. That is not to undermine the effort that many are making however in our experience some organisations have not checked to see if the claims they are making are correct and whether they have taken into account the harm that can be done to the environment in the making, transportation and installation of solar panels.
As an example of some of the issues Sheffield Hallam University (SHU) looked at the global solar panel supply chain in their report “In Broad Daylight: Uyghur forced labour and global solar supply chains” in May 2021. The report makes for depressing reading and concludes that most, if not all, of the solar panel supply chain may be tainted by Uyghur forced labour.
Concerns about conditions in XUAR have attracted UK Parliamentary attention and led to sanctions for some individuals involved in China. Aside from slavery risks, there are also particular issues with workers’ exposure to hazardous chemicals such as cadmium in the manufacturing of solar panels. How can you be sure that your suppliers (and their suppliers) take health and safety issues as seriously as you do?
The origin of solar panels and component raw materials could also have implications with pending new EU rules. In September 2021 the President of the European Commission announced plans to ban the importation of goods made with forced labour. Some respondents to the UK Parliamentary enquiry have also suggested that the UK should use legislation introduced in 1897 to impose similar import bans for the UK.
Import bans are not confined to Europe. This is an area where the US Customs & Border Protection Agency has already been active too and there have also been proposals for new US laws.
In addition, in the UK many organisations are subject to obligations under the UK Modern Slavery Act 2015 (MSA 2015). There are proposals to amend the MSA 2015 which include extending the law to prohibit the falsification of slavery and human trafficking statements, to establish minimum standards of transparency and to prohibit companies using supply chains which fail to demonstrate minimum standards.
Wind Power
Similar concerns have also been expressed about the wind power supply chain. In January 2018 Action Aid published a study of human rights in wind turbine supply chains. The report looks at, amongst other things, concerns about the mining of minerals such as iron ore and chromium which are needed for the production of new wind turbines. It highlights the fact that many of the minerals used in wind turbines are mined in low and middle-income countries in Asia, Africa and Latin America. It also highlights the fact that issues connected with this mining include armed conflict, corruption, tax evasion, forced labour, displacement, destruction of eco-systems and depletion or pollution of water supplies.
Wind farms have also been criticised for being a danger to wildlife. It has been estimated that up to 500,000 birds in the US alone may be killed by wind farm turbines.
Battery Power
Concerns have also been expressed about the use of batteries in the move to electric vehicles. There are challenges in particular about the mining of cobalt in lithium-ion batteries with the presence of child labour in Congolese cobalt mines. It is estimated that around 60% of the world’s cobalt is mined in the Democratic Republic of Congo (DRC). It has been reported that children as young as 7 work in cobalt mines for up to 12 hours a day.
There are also substantial risks in the disposal of batteries including risks from both fumes to the air and chemical releases towards water sources or the surrounding environment. Batteries are commonly sent for recycling to Asia and there are high or extreme risks for modern slavery in many of the countries used for recycling.
Biofuels
Biofuels are also a concern. The cultivation of palm oil and sugar cane to be used in biofuels has led to deforestation in some areas of the world. The rights of vulnerable communities can also be at risk by major renewables projects developed on lands occupied traditionally by indigenous groups.
Migrant labour has been used in India, Malaysia and Indonesia increasing the risks of modern slavery occurring. Child labour has also been found in the production of these crops in all three countries. There have also been issues with soy farming in Brazil.
There is also a significant corruption risk with biofuels. The trial of one individual connected with the investigation is expected to start in the UK in September 2022.
Electricity Crisis
It is important to remember in addition that supply chains are not constant and many organisations will respond to the environment around them. For example, last month it was reported that a number of rail operators in the UK were moving from electricity to diesel given the rising price of electricity on the network. This may well be bad news for the environment as there is a shortage across the rail network of energy efficient diesel locomotives.
As a result it is important to make sure that your processes and procedures include regular reviews of your supply chain. Do your contracts with logistics providers for example include a commitment to notify you before the mode of transport is changed? If you are involved in carbon offsetting can you respond quickly to world events to make sure that commitments you have made are honoured? Part 2 of this article will include some practical tips.