The Growing Need for Traceability in Critical Raw Materials

The demand for critical raw materials (CRMs) is surging as the world transitions to clean energy technologies. Projections indicate that the share of CRM demand from these technologies will increase significantly over the next two decades, with notable growth expected for materials like lithium, nickel, cobalt, and rare earth elements. However, there is rising concern about the sourcing of these elements which often involves high environmental, social, and governance (ESG) risks, especially in regions where mining practices are less regulated. This highlights the urgent need for robust traceability systems to monitor sustainability throughout the supply chain.

The implementation of traceability systems in the CRM value chain offers multiple benefits, including enhanced corporate reputation, improved supplier selection, and compliance with new regulations like the Ecodesign for Sustainable Product Regulation. Technologies such as blockchain, Internet of Things (IoT), and advanced data analytics are essential for establishing effective traceability. As the demand for CRMs continues to grow, the development of transparent and accountable supply chains will become more relevant, this will enable companies to manage risks and meet the expectations of stakeholders while supporting sustainable sourcing practices.

Why the demand for critical raw materials is growing?

The transition to a mineral-based economy is driving a rapid increase in the demand for Critical Raw Materials (CRM). According to the International Energy Agency (IEA), clean energy technologies' share of the total demand for CRM will rise significantly over the next two decades. In scenarios that meet the Paris Agreement goals, the demand for these minerals is expected to reach over 40% for copper and rare earth elements, 60-70% for nickel and cobalt, and almost 90% for lithium.

Additionally, research into the socio-environmental impacts of mining these "energy metals" has shown that more than half of the CRMS are associated with medium to very high environmental, social, and governance (ESG) risks. The results for platinum and cobalt indicate that 84% and 70% of resources are located in high-risk contexts, respectively.

The high ESG risks of the CRM supply chain make it necessary to implement robust traceability systems to monitor relevant data and enable decision-making regarding environmental and social impacts.

Why critical raw materials traceability is important?

There is a lack of reliable traceability in current supply chains and information about how CRMs are sustainably produced. The information about the sustainability profiles of metals used in products is not clear, and this concerns many stakeholders, including governments, international organizations, non-government groups, and consumers. This information is needed for consumers to be able to make active choices and for organizations to get a more precise idea of the company's sustainability profile.

The importance of this information relies on the fact that the extraction of metals and minerals is located in countries like China, Myanmar, and the Democratic Republic of the Congo, where it is difficult to obtain reliable information and illegal trade of many metals is practiced.

For instance, in the last decades, many human rights organizations have drawn attention to the importance of conflict minerals such as tin, tungsten, tantalum, and gold for financing armed conflicts and the use of child labor. To avoid this, several organizations such as the Conflict-Free Sourcing Initiative (CFSI) and the Responsible Minerals Initiative (RMI) were formed to develop a system that can ensure that the materials supplied will come from conflict-free mining.

Nevertheless, traceability is further complex by illegal trade practices and mixing of metals from different mines at smelters. Not to mention the fact supply chains extend across the globe and consist of numerous interconnected stages, like extraction, processing, refining, manufacturing, and recycling. Tracking the sustainability impacts of these materials becomes challenging. As companies worldwide work to improve their sustainability efforts, access to trustworthy and transparent information about the supply chain of CRMs is more important than ever.

Why should I implement traceability for critical raw materials?

Implementing traceability in the CRM supply chain can bring numerous benefits to stakeholders. Firstly, traceability aids in better supplier selection and risk control. The access to detailed information about the origin and journey of materials, companies can make informed decisions and mitigate risks associated with poor environmental-social-governance (ESG) practices. Furthermore, traceability can improve decision-making towards operational efficiency and process consistency by streamlining the flow of information and materials across the supply chain.

Additionally, it can enhance the development of a company's reputation by demonstrating a commitment to transparency and ethical sourcing. This can be a significant competitive advantage in industries like electronics and automotive, where consumer and regulatory scrutiny is high.

In light of newly-introduced regulations, like Ecodesign for Sustainable Product Regulation (ESPR) and Corporate Sustainability Reporting Directive (CSRD), tracking data in a reliable and secure helps to ensure compliance. The Digital Product Passport (DPP), introduced by the ESPR, illustrates well this need, as companies selling their products within the EU will be required to disclose specific data on their products to guide customers in their decisions. Having data available through a traceability system is a one-step forward in addressing new regulatory requirements. Curious to know more about DPP? Check out our explanatory article and reach out to our specialists.

Which technologies are used for traceability?

Several technological solutions for traceability are being explored and implemented nowadays. Blockchain is a good example, which ensures immutable and transparent records of transactions and movements of goods. Blockchain can provide end-to-end visibility and ensure that all participants in the supply chain have access to accurate and up-to-date information.

Other technologies, such as IoT (Internet of Things) devices and advanced data analytics, are also playing a crucial role. IoT tracks and monitors the movement and condition of materials in real time, while data analytics process and interpret this information to provide actionable insights. Together, these technologies create a robust traceability system that enhances transparency and trust. At iimpcoll, we can help you to select the appropriate technology for your company.

Future outlook: Towards a transparent supply chain

As the demand for CRM continues to surge, the importance of traceability in the CRM supply chain will grow. Future advancements in technology and increasing regulatory pressures will likely drive the adoption of more sophisticated traceability systems, ensuring that the journey of elements from mine to end product is transparent and accountable.

A transparent supply chain not only meets the demands of external stakeholders but also builds trust within the industry. Companies can improve their operational efficiency, better manage their risks, and enhance their reputation. Ultimately, a transparent supply chain will contribute to the sustainable and ethical sourcing of CRM supporting global sustainable development.

We invite you to connect with us to explore how we can help you achieve unparalleled traceability and boost your business performance. Let's build a transparent and trustworthy supply chain.