【Zoom in ESG ⑳】Companies Managing ESG in Their Supply Chains

Global major companies such as Apple, Tesla, Alphabet, Microsoft (MS), and Dell were collectively sued by the International Rights Advocates (IRA) in 2019. They were accused of complicity in child labor exploitation in the cobalt supply chain from the Democratic Republic of Congo (DRC) in Africa, despite being aware of it. Cobalt is a key mineral used in manufacturing lithium-ion batteries for smartphones and electric vehicles. Over half of the world’s cobalt supply is produced in the DRC.

In reality, among the 14 child plaintiffs, six died in mine tunnel collapses, and the remaining children suffered severe injuries, including paralysis.
Following the incident, Tesla announced plans in its ‘2019 Impact Report’ to develop ‘cobalt-free’ batteries. The report detailed Tesla’s intention to increase the nickel content and reduce the cobalt proportion in its batteries, aiming for a 100% nickel battery. It also included a commitment to protect worker rights and create a safe working environment within the supply chain.

As calls for corporate responsibility in global supply chains grow louder, companies are actively taking steps, such as forming cooperative organizations for human rights, ethics, and environmental protection within their supply chains.
Apple, a participant in the ‘RE100’ campaign to transition to 100% renewable energy, announced a Clean Energy Program plan for its suppliers. Apple’s suppliers must produce products using 100% renewable energy by 2030.
Apple is establishing codes of conduct for suppliers at all stages of its supply chain covering labor rights, human rights, health, and environmental protection, while simultaneously conducting performance evaluations. As of 2019, it assessed 1,142 suppliers across 49 countries and reduced carbon emissions by over 1 million tons. The proportion of suppliers receiving high scores improved, rising from 26% in 2014 to 47% in 2017, and reaching 82% in 2019.
In its ‘2020 Environmental Sustainability Report,’ Microsoft stated it would track, support, and improve suppliers’ social maturity and business sustainability through its self-developed audit management system, ‘Microsoft Power BI.’
It also created a new Supplier Code of Conduct requiring partners to disclose carbon emissions, expressing its intent to enhance transparency in supplier information disclosure and strive for carbon reduction.
German global chemical company BASF established a Supplier Code of Conduct. Based on principles from the International Labour Organization and the global chemical industry’s Responsible Care program, it stipulates that partners must comply with ESG standards.
To secure product competitiveness through sustainability and strengthened ESG criteria within the supply chain, BASF co-founded the joint chemical industry initiative ‘TfS’ (Together for Sustainability) in 2011 with chemical companies Bayer, Henkel, and Solvay. This initiative conducts joint supplier assessments and audits, aiming to have these standards recognized as a global benchmark. It also created its own TfS program based on a risk matrix to conduct on-site audits and assess partner sustainability. In 2019, it performed ESG evaluations on 81% of its partners and improved the performance of 52% of companies through re-evaluations.

In Korea, companies are also joining initiatives for supply chain management. Samsung Electronics, Samsung Display, LG Electronics, and SK Hynix are members of the Responsible Business Alliance (RBA). The RBA is the world’s largest industry coalition dedicated to corporate social responsibility in global supply chains. It has also been revealed that they joined the RBA’s Responsible Labor Initiative (RLI), an initiative to respect the rights of workers vulnerable to forced labor in global supply chains.
Samsung Electronics manages supply chain risks and opportunities by considering sustainability at all stages—partner selection, operation, and evaluation. When selecting new partners, Samsung focuses on five areas: purchasing/quality, environmental safety, labor/human rights, eco-partnership, and financial status. A company is only registered as a partner if it scores above 80 points (out of 100) in all areas. It uses checklists based on RBA standards to inspect the environmental safety and labor/human rights areas.
To minimize the negative social and environmental impacts, such as human rights violations and environmental destruction that can occur during mineral mining in conflict and high-risk areas, it also follows the ‘OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.’ For example, it is establishing a system to avoid using conflict minerals by restricting the use of minerals mined in 10 African countries, including the DRC.
LG Electronics monitors the origins of four major conflict minerals (tantalum, tungsten, tin, gold) contained in partner products and components and requires smelters within its supply chain to obtain RMAP (Responsible Minerals Assurance Process) certification. It also conducts awareness training for partners on responsible mineral use.
Furthermore, to strengthen CSR (Corporate Social Responsibility) risk management for partners, it conducts CSR risk self-assessments for all partners and performs on-site inspections for high-risk partners. It uses in-depth self-assessment questionnaires to audit potential issues in production facilities related to labor, human rights, safety, health, and environment, and manages identified risks by categorizing them into low-risk, unstable, and high-risk groups.
SK Hynix provides free ESG consulting to its partners. It expanded the program from 41 partners in 2018 to 81 in 2019. This system involves proposing customized solutions and monitoring their stable implementation if risks are found in labor or SHE (Safety, Health, Environment) areas during ESG consulting.
It revisits partners where risks were found to continuously verify improvements. If partners wish, SK Hynix provides ESG tools and expert training to help them clearly recognize ESG risks and make improvements independently.

Hyundai Steel became the first Korean company to join the global steel industry initiative ‘ResponsibleSteel.’ ResponsibleSteel is an ESG initiative in the steel sector operated by the multinational non-profit ‘Stewardship Council’ based in Australia. It involves 71 steel and related companies, including steelmakers like ArcelorMittal, Aperam, and BlueScope, as well as BMW, mining company BHP, and global bank HSBC.
Hyundai Steel annually conducts ‘Supply Chain ESG Assessments’ to check partners’ potential risks in labor/human rights, environment/management, ethics/compliance, and safety/health. Based on the results, it selects high-risk partners, establishes improvement plans, and monitors the outcomes.
In 2019, it also conducted sustainability assessments on a total of 300 partners. Hyundai Steel stated, “We classified 26 partners in the bottom 5% and those with safety scores below 70 as high-risk suppliers and conducted on-site audits of these companies.”
It also paid attention to follow-up management. Of the 17 companies that submitted improvement plans for identified risks after supply chain audits, 14 were known to have improved the risks. The Supply Chain ESG Assessment requires a certain score in areas like ‘Safety/Health, Labor/Human Rights,’ and the results can lead to disadvantages such as bidding restrictions.