Modern slavery: the true cost of cobalt mining (Hermes Investment Management – January 16, 2018)

Investment capital permeates the global economy, underpinning businesses and supply chains across regions and industries. We believe that investors should not only be aware of the potential for their capital to generate returns but its impact on society and the environment. One such sustainability concern is cobalt mining.

Thousands of artisanal miners dig by hand in the Democratic Republic of Congo (DRC). Children, too. They have no industrial tools, no protective clothing, no hard hats, not even facemasks to shield toxic dust or shoes. They are searching for cobalt, the rare-earth metal powering the mobile revolution.

Cobalt is an essential component of rechargeable lithium-ion batteries. The end product may be in your pocket, on your desk, in your garage, or even in your investment portfolio. It powers most electronic gadgets, including smartphones and laptops, and electric vehicles.

Cobalt-rich batteries are seen as a greener alternative to traditional lead-acid batteries. They are smaller, lighter and hold more energy. Favoured by tech giants, including Apple and Samsung, the innovative power packs allow consumers to reap the benefits of truly mobile technology.

The price of innovation

As innovation pushes for ever-more-slimline devices and governments look to phase out petrol and diesel cars in favour of their electric counterparts1, cobalt is becoming a highly sought-after metal. In fact, some studies are predicting a 30-fold increase in demand by 20302.This figure may seem high, but it is not unrealistic. Tesla plans to produce 500,000 electric vehicles a year by 2018, and will reportedly require 7,800 tons of cobalt to do so3. The company has even built its own super-sized lithium-ion battery plant, named Gigafactory 14, to help it achieve this goal.

For investors in companies linked to cobalt mining, the most prolific of which is Glencore5, this predicted surge in demand – coupled with the naturally short supply of the rare metal – means that the price of cobalt is likely to continue to rise for the foreseeable future. The flipside of cobalt’s stellar financial performance, however, is tainted by a hidden human toll.

Hermes invests in companies that are connected to cobalt mining, such as Apple. We have a keen interest in improving the transparency of supply chains, ensuring that communities in which miners operate experience economic benefits from production, and eradicating child labour from the industry.

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