Written by Field Name
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The move towards decarbonisation offers businesses economic rewards and is an increasingly prominent baseline expectation for companies that claim to be environmentally sustainable.
However, from a human rights perspective, businesses that invest in clean energy products such as solar panels, advanced technology batteries and wind turbines need to be conscious of, and actively address, significantly elevated modern slavery risks that can potentially be associated with these industries. Allegations of forced labour deep within the global supply chains of key renewable energy products have become increasingly prevalent. This creates a potentially significant tension for ESG-active businesses to ensure that a sustainability-driven move to decarbonise does not occur in the context of unacceptably high supply-chain risks of modern slavery.
This paper provides a brief background on potential connection points between climate change and modern slavery, including as a contributing factor to underlying vulnerabilities. It also highlights some of the most significant areas of elevated modern slavery risk in the renewable energy sector. The paper also focuses on practical strategies that businesses may adopt as part of a responsible shift to more fully adopting renewable energy as a core operational component.
Key strategies that may be used in addressing the risk of modern slavery in the renewable energy sector
Human rights enforcement
Workers’ rights are legally enforced, and appropriate grievance mechanisms that incorporate the workers’ voice are in place.
Supply chain due diligence
Businesses procuring goods and services from the renewable energy sector actively undertake supply chain due diligence, with a focus that goes well beyond the first tier (direct suppliers).
Economic independence through geographic diversification
Evaluating the viability and any ESG-related impacts of sourcing and manufacturing of products from alternate locations / supply chains with more effectively mitigated modern slavery risks.
Collective action
Businesses, government, non-governmental organisations, and workers’ representatives collaborating to drive change.
From a private business perspective, comprehensive supply chain due diligence is amongst the most relevant, accessible and readily adoptable of these approaches.
The links between climate change and modern slavery
The relationship between climate change and modern slavery is very complex.
Climate change creates environmental and economic vulnerabilities that make people susceptible to modern slavery. The unjustifiably low costs of production due to labour exploitation can also result in over-consumption and high turnover of goods (more readily viewed as ‘disposable’) that can also be a contributing factor to wasteful use of energy and resources. This, in turn, contributes to climate change. Modern slavery risks may also be relatively elevated in many industries that have disproportionately high carbon footprints, such as forestry and palm oil production.
The rapid development of, and widespread transition to, renewable energy solutions is an integral part of global efforts to mitigate climate change. However, from an ESG perspective, it is unacceptable that such a positive societal shift occurs in circumstances where insufficient action is taken to effectively mitigate otherwise unacceptably high levels of modern slavery risk. Solar energy, batteries, and wind energy are three areas in which public scrutiny has revealed relatively elevated risks of modern slavery in supply chains.
Solar energy
The potential modern slavery risks associated with solar panel supply chains have been increasingly documented in recent years. Chinese companies dominate global photovoltaic (“PV”) manufacturing at each stage of the process, making 77% of the world’s polysilicon, over 97% of polysilicon wafers, 83% of solar cells, and 74% of solar modules.
The bulk (45% of China’s global share) of polysilicon is believed to be produced in the Xinjiang Uyghur Autonomous Region (“XUAR”). There is evidence of forced labour amongst ethnic minority groups, especially Uyghurs and other Turkic minorities within the XUAR. This exploitation occurs through a variety of forms, including a systematic network of state-sanctioned “idle labour transfer schemes.
Advanced Technology Batteries
Advanced technology batteries for electric vehicles and solar energy storage also have supply chains with relatively elevated modern slavery risks, including several key raw material inputs. This is primarily due to location of, and practices associated with, the extraction of conflict minerals (tin, tantalum, tungsten and gold), and other key metals such as aluminium, copper, lithium, manganese, nickel and zinc, cobalt, and rare earth elements. These raw materials
are typically extracted at remote tiers within complex, global supply chains, resulting in limited visibility for companies over modern slavery risks.
The 2023 Global Slavery Index identifies mining and quarrying as sectors that are amongst those most at risk of modern slavery, particularly forced and bonded labour.
For example, approximately 15% to 30% of global cobalt supply is estimated to originate from artisanal mines in eastern Democratic Republic of the Congo (“DRC”). Here, forced and child labour is overwhelmingly prevalent in an overall mining population of around 250,000 workers. EV batteries may require up to 20 kg of cobalt per 100-kWh pack.
Wind energy
To date, the wind energy sector has received less investigation and published research in relation to its overall modern slavery risks. However, as with solar and battery industries, the supply chains of wind turbines typically include several key raw materials that are considered high-risk for modern slavery. These include conflict minerals and cobalt, metals such as aluminium, copper, lithium, manganese, nickel and zinc, and rare earth elements.
Human rights exploitation associated with the logging of balsa timber in the Amazon (traditionally used for turbine blades) and other composite alternatives (including Polyethylene Terephthalate (PET) have also been documented.
Any company that is proactively seeking to reduce its carbon footprint should be conscious of not doing so in a manner that elevates overall risks of modern slavery in its supply chains.
The question then becomes how companies should engage with renewable energy sectors in a socially responsible manner?
Responding to potentially elevated modern slavery risks in clean energy supply chains
The potentially elevated modern slavery risks deep within global supply chains is not unique to renewable energy industries. Companies with significant cotton-based apparel or consumer electronics supply chains, for example, have been grappling with similar issues since the earliest emergence of human rights being addressed as an essential requirement of good corporate citizenship.
The UN Guiding Principles charge private businesses with the responsibility to address and prevent human rights impacts associated with their operations and business relationships.
As set out in Guiding Principle 19, a company should implement policies and processes appropriate for its operational size and sophistication. This includes human rights due diligence processes, grievance mechanisms, and remediation processes (including corrective action plans).
All organisations should have an effective policy framework in place. Businesses whose activities or business relationships expose them to higher risks need more comprehensive policies and processes, even if they are only a relatively small company.
As the Interpretive Guide to the UNGP states, “[t]he severity of a potential adverse human rights impact is the most important factor in determining the scale and complexity of the processes the enterprise needs to have in place in order to know and show that it is respecting human rights.”
There is a growing recognition of the essentiality of conducting specific human rights due diligence when procuring goods that may have supply chain connections with the XUAR.
The following sections outline due diligence practices and other actions that may be appropriate steps for companies that have significant engagement with potentially high-risk suppliers of renewable energy products.
Responsible supply chain management
A human rights policy is an important starting point for businesses wanting to enshrine and act upon core ESG principles.
For all companies, but especially those looking to engage significantly with suppliers in renewable energy sectors, this is particularly important, and such a Policy should expressly address potentially elevated modern slavery risks.
In Australia, the Modern Slavery Act 2018 (Cth) (“the Act”) imposes a layer of mandatory annual reporting for entities of a certain size.21 The outcome of the Act’s recent statutory review suggest that more stringent requirements may be forthcoming, particularly in the area of mandatory due diligence reporting.
(See Fair Supply’s The Future of Modern Slavery Reporting in Australia.)
Due Diligence
When engaging with a high-risk industry sector such as the clean energy sector, businesses should focus on substantive, supply-specific due diligence at several phases of the procurement relationship. Due diligence processes should seek to specifically identify, assess, and address potential human rights concerns.
The first step in any due diligence strategy is to thoroughly understand a company’s own supply chain and operations.
An initial modern slavery risk assessment should aim, insofar as practicable, to categorise all direct suppliers, including mapping each supplier’s location, procurement spend
(actual or potential), and the specific products or services the supplier company provides. Meaningful stakeholder engagement and a collaborative attitude are also key attributes of effective due diligence.
Businesses should identify and engage with workers, their representatives, and other interested stakeholders (such as public interest groups or industry bodies) in order to better understand risks, identify actual or suspected incidents of modern slavery, and remediate adverse impacts as necessary.
For the purpose of specific supplier-based modern slavery due diligence, we recommend that any companies operating in the renewable energy sector (regardless of the specific industry category) be subject to a level of scrutiny commensurate with relatively high-risk suppliers.
Appropriate processes for such suppliers may include:
Deep-dive screening
Including expert analysis of a broad cross-section of publicly available information about the supplier’s operations and supply chains, and industry-specific indicators.
Self-assessment questionnaires
Targeted questions about how the supplier identifies, assesses, and mitigates modern slavery risk. This should be viewed as the start of a 2-way dialogue concerning modern slavery risk, rather than simply a process where receiving responses from the supplier is seen as a legitimate end in itself.
Supplier code of conduct
Potential suppliers should agree to be bound by a Code prior to entering a formal procurement relationship. At a bare minimum, a Code should
require compliance with all local laws and widely accepted international human rights standards.
It should also contain appropriate enforcement mechanisms.
Modern slavery training
Organisations should consider providing targeted training on modern slavery and human rights obligations, and potentially partner with high- risk suppliers to offer such training to their own workforces.
Internal audits
Suppliers should have (and disclose the details of) a system for regular internal audits addressing modern slavery risk indicators.
External audits
Where modern slavery risks are potentially quite proximate to the direct suppliers own activities, this will likely justify developing a specific framework for carrying out external, third-party auditing to confirm extant risks are being appropriately addressed and mitigated.
Where possible, companies should strive to engage with potentially high-risk suppliers to help to improve labour standards, rather than simply “running away”.
A recent leading study identifies three main aspects to meaningful supplier engagement in this context:
- Prioritisation of suppliers who respect human rights.
- Working with suppliers to design and communicate expectations.
- Demonstrating sustained engagement with suppliers.
This provides a gold standard for supplier engagement. However, it may not be possible or appropriate to engage with certain China-based suppliers in the renewables sector due to the political situation in the XUAR. This will be discussed next.
Due diligence for suppliers with elevated modern slavery risk based on location
Any product that is sourced from a region with high geographical risk should be given an additional level of scrutiny.
Onsite auditing and other “on the ground” due diligence activities may be extremely difficult or practically impossible in regions where such activities are prohibited.
In the context of Uyghur forced labour concerns, such a reality magnifies concerns, as expressed by some experts, that state-sponsored (forced) labour transfer programs are so pervasive that “it is practically impossible to avoid forced-labor- tainted raw materials and manufactured goods if they are being sourced from the Uyghur Region under the current regime.”
Companies should take all reasonably practicable steps to screen suppliers for the following indicators of potential linkages to an unacceptably high risk of Uyghur forced labour:
- the company is participating in “poverty alleviation programs”.
- the company has received “paired” workers.
- the company operates in a region that is recognised as a “pairing counterpart” or “pairing partner” with the XUAR.
- the company reports to have accepted “ethnic graduates” or “surplus labourers” or makes reference to employment of ex-detainees or employees that were trained and cleansed of extremist thoughts or involved in “re-skilling”.
- the company reports to participate in state organised “fanghuiji programs” or provide “cadres” to support the operation of this program.
- the company reports in financial disclosures to have received preferential tax policies by the XUAR government or the PRC for its operation in the “western region of the PRC”.
- the company reports to receive incentives or subsidies from either the XUAR government or PRC government for items such as “training supplements, “vocational training” or “aid to Xinjiang”.
- the company is headquartered in Eastern China but operates subsidiaries in the XUAR region.
- the company operates a factory in a detention facility, or an industrial park that is connect to government “re-education efforts”.
Businesses should actively seek to participate in various forms of positive collaboration on these issues.
Exert impactful leverage on suppliers
Companies can combine forces to exert more impactful commercial leverage on suppliers with the aim of improving protection of worker rights. Collective initiatives may also lessen the resource burden on companies when undertaking due diligence such as through the sharing of key information. However, any such collaboration would have to be conducted within the limits of applicable anti-trust and competition laws. See for example, the discussion in ‘Addressing Modern Slavery in the Clean Energy Sector’ Norton Rose Fulbright Australia and the Clean Energy Council (2022).
Support multi-stakeholder initiatives
Businesses may support multi-stakeholder initiatives that are tackling the issue of forced labour.
Conclusion
Responsible supply chain management is something that businesses should be applying across their entire procurement processes, not just in relation to renewable energy supply chains.
Whilst specific and potentially significant challenges exist for effective due diligence within this global sector, these should not be viewed as insurmountable roadblocks. Businesses should pursue visibility across all supply chains with the aim of identifying areas of highest potential risks, and then seeking to effectively address those risks.
A meaningful ESG strategy should consider not only the best approach for reducing a company’s environmental impact, but also associated areas of potential human rights risk. Unless a truly holistic approach is adopted, corporate decisions that are genuinely intended to address negative environmental impacts might also be inadvertently contributing to the incidence of modern slavery, or other human rights abuses.