Keywords

Over the last decade, the discourse on Responsible Sourcing (RS) has garnered widespread attention by policy makers and led to the development of a plethora of different voluntary and mandatory policy programmes aiming to broadly change the corporate code of behaviour with regard to environmental, social and governance (ESG) standards (Erdmann and Franken 2022; Farooki 2020). The European Union (EU), following up on its commitments in the 2030 Agenda for Sustainable Development and the European Green Deal, has developed different policies to respond to corporate misconduct on human rights and environmental due diligence (HREDD) and rising discontent of citizens and civil society organisations (CSOs).

This chapter takes stock of the current policy discourse on RS in global supply chains (GSC) for mineral raw materials in Europe as well as recent and future policies (e.g. Battery Regulation, Corporate Due Diligence and Corporate Accountability) requiring companies to implement due diligence processes and foster RS practices. This chapter complements the EU approach by looking into non-EU policy approaches addressing RS challenges. Therein, we centre the analysis on the political economy of the current and future policies for RS, providing an in-depth view on the potential of legal requirements in regard to: (1) Fostering RS practices that improve working conditions, livelihoods and the environment; (2) Addressing the multitude of aspects covered by RS; (3) Integrating and converging current political discourses into a harmonised legal framework; and (4) Creating a level playing field for market actors.

The EU took a decisive step by acknowledging that the time for insufficient voluntary commitments is over and that transition to the mandatory HREDD to foster effective RS practices in mineral supply chains is now required. To achieve this, the EU policy has deployed a plethora of instruments to cover the complexity of RS in GSCs. The resulting policy landscape has dynamically grown over the last decade, although it potentially falls short of an integrated and coordinated policy approach. The attempts have focused on pooling resources, avoiding fragmentation, and reducing complexity or legal uncertainty. Against this background, we highlight important lessons learnt for legal requirements from a governance and policy effectiveness perspective.

1 EU Policy for Implementing Responsible Sourcing

The EU, under its political economic prosperity and sustainability agenda, perceives RS both as a means and an end towards its goals: RS is urgently needed for assuring (1) Sufficient supply of raw materials critical for the EU twin green and digital transition, and (2) Minimise further societal and environmental harm in and outside the EU in the light of the Europe 2030 Agenda and the SDGs. Against this background, political objectives and respective instruments for supply chain resilience and secure supply of Critical Raw Materials (CRMs) have been designed, as well as those looking to change company practices to minimise environmental and social/human rights impacts.

Consequently, the EU Member States can draw on a mix of instruments to target these objectives on both horizontal and product specific levels, and along voluntary and supporting as well as mandatory and enforcing measures (see Table 4.1): Essentially, the EU can draw on relevant experiences from a wide range of existing programmes, from the support for the implementation of labour standards and human rights in national legislation, to tools to enhance transparency and traceability in GSCs, to capacity building and empowerment of local producers, and support to civil society actors for ensuring corporate accountability (EU 2022).

Table 4.1 Overview of EU Member State and EU level responsible sourcing and due diligence legislation
Full size table

During the last two decades, private sector governance has left tremendous human rights and environmental impacts in GSCs. Its governance tools such as certification, standards and auditing have been criticised as being corporate-dominated and imposed by actors from the Global North, and suffer from severe legitimacy problems, ineffective auditing processes, liability loopholes, limited uptake, and shortcomings in the traceability of commodity chains (Fuchs et al. 2017; Mol and Oosterveer 2015; LeBaron et al. 2021; Schleifer et al. 2019; Schilling-Vacaflor 2021). Both, as a result of weak state capacity and corporate governance, the EU has devised stricter rules for RS in global supply chains in the form of product specific and sector–agnostic, or horizontal legal provisions, as regulations and directives. The major regulations and directives are described below.

1.1 Corporate Due Diligence and Corporate Accountability

At the EU level, the directive on Corporate Due Diligence and Corporate Accountability (henceforth referred to “Directive on Corporate Due Diligence”) was approved by the Council of the European Union. The directive obliges EU Member States to make laws requiring businesses to carry out effective due diligence in relation to human rights, the environment, and good governance in their operations and business relationships. While the development of the Directive has been welcomed by many actors, there are many open questions as regards its design features and enforcement measures. Several issues, in particular concrete obligations of companies and their legal liability, are highly contested (Schilling-Vacaflor 2021; Schilling-Vacaflor and Lenschow 2023).

1.2 Conflict Minerals Regulation

Concerning conflict minerals and human rights impacts, the EU passed the “Conflict Minerals Regulation” (CMR) in 2017 (EU 2017/821), which entered into force on January 1, 2021. The regulation specifies due diligence obligations for EU importers of tin, tungsten, tantalum, and gold (3TG) originating from Conflict-Affected and High-Risk Areas (CAHRAs). The regulation aims to ensure that: (1) EU importers of 3TG meet international RS standards, set by the Organisation for Economic Co-operation and Development (OECD 2013); (2) Global and EU smelters and refiners of 3TG source responsibly; and (3) Generally, RS is implemented to end the exploitation and abuse of local communities, including mine workers, and support local development.

1.3 Battery Regulation

The European Commission proposed to apply RS requirements to minerals used in batteries under the so-called “Battery Regulation” (i.e. lithium, cobalt, nickel, and natural graphite) (European Commission 2021). The new European Battery Regulation is part of the larger European Strategic Action Plan for batteries, representing a Europe-wide law to modernise the EU’s regulatory framework for batteries, while securing sustainability principles and leading the global battery industry. The regulation strives to create common rules for battery production processes, waste products and recyclates, fostering an EU internal market for the battery sector and thus ensuring a level playing field. In addition, it aims to increase the sustainability of the battery sector by introducing requirements for circularity and for reducing environmental, social, and human rights impacts through all stages of the battery lifecycle.

At this time, it is considered the most advanced directive of its kind, covering the battery market of the entire EU, with consequences for the entire battery production ecosystem, given that the EU itself is a large market for electromobility and batteries in general (Degreif et al. 2022). The regulation proposes:

  1. 1.

    Mandatory recycling and recovery targets for critical metals from products as well as recycled content targets for new products that increase over time.

  2. 2.

    Mandatory social and environmental standards for critical metals in products to ensure the ethical sourcing of materials.

  3. 3.

    Mandatory maximum life-cycle carbon footprint thresholds for certain products based on a standardised calculation method.

  4. 4.

    Longer mandatory product lifetimes, green public procurement, and more information about a product, enabling more sustainable products (or their use).

  5. 5.

    Direct enforcement and no transposition into national law (avoiding legal requirements misinterpretation, followed by infringement proceedings).

1.4 Critical Raw Materials Act

The proposed Critical Raw Materials Act (CRMA) will foster access to critical and strategic raw materials (CRM) from domestic as well as international sources. With regard to RS, it will coordinate the build-up of strategic raw material stocks among EU Member States; develop strategic partnerships with CRM producing countries; and collaborate to strengthen their RS and sustainability performance along the supply chain. Against this background the CRMA facilitates the development of European standards for the exploration, extraction, refining, and recycling of CRMs, strengthening the EU value chain and EU resilience. These in turn will be relevant for any trade-related agreements with producer countries as well as any strategic mineral development projects the EU finances within or outside its borders.

The EU employs a series of other policy instruments, which do not directly address RS in mineral supply chains, covering aspects of trade, investment, finance, and reporting. For example, the Trade and Sustainable Development (TSD) chapters in EU trade agreements or the Generalised Scheme of Preferences Plus (GSP+) link unilateral trade preferences to the respect for core labour standards (EC n.d.). These actions directly influence RS practices in producer and manufacturing countries by facilitating the implementation of international conventions covering human and labour rights, environmental protection, and good governance. At its current stage, the CRMA’s proposal for strategic partnership is heavily critiqued for its lack of specificity on irresponsible mining practices, inclusive and transparent development and monitoring processes, and mechanisms for providing financial support to producer countries (FERN et al. 2023).

1.5 EU Taxonomy for Sustainable Activities

The EU regulation for sustainable activities, (henceforth referred to as “Taxonomy Regulation”), is the cornerstone of its sustainable finance framework and an important market transparency tool. It helps direct investments to the economic activities most needed for the twin green and digital transition. The Taxonomy is a classification system that defines criteria for economic activities that are aligned with a net zero trajectory by 2050 and other EU environmental goals. While the taxonomy primarily targets investments, it also contributes to greater transparency of corporate actions introducing specific disclosure requirements on financial products, their manufacturers, and advisers, with the objective of reducing greenwashing practices (i.e. according to the revised Benchmark Regulation, benchmark administrators need to disclose whether their benchmarks take ESG into account and, if so, report on a set of indicators). Furthermore, by virtue of globally integrated capital markets and economic supply chains, the disclosure obligations on financial product issuers and corporations in the EU will create implications for international actors. This international influence of the Taxonomy will exist despite there being no intention to bind non-EU countries on their own sustainability or sustainable finance activities.

1.6 The Effectiveness of EU Policy

In conclusion, the EU has deployed several instruments which target the complex system of global supply chains and its actors, including Original Equipment Manufacturers (OEMs), lead firms and brands, suppliers, producers, implementing regulators, and impacted rights holders. They cover a wide range of instruments enforcing rules for market practices on investment, trade, minimum requirements for business practices impacting different dimensions, as well as corporate due diligence and chain of custody. Even though, the most impacting legal requirements (such as the Corporate Due Diligence reporting requirements) are still subject to change, the potential of changing business practices with regard to RS remains vague at best. In the following paragraphs, the authors provide insights on the current setup of legal requirements by looking into (1) Positive impact on the ground, (2) dimensionality, (3) convergence and (4) the potential to create a level playing field.

2 Responsible Sourcing for Creating Positive Impact on the Ground

The core idea of above listed EU policy instruments is to establish transparency in mineral supply chains by requiring a due diligence process to improve the situation on the ground. Specifically, regarding the first of its kind regulation—the EU Conflict Mineral regulation—the EU devised transparency in global supply chains as the best way to achieve its political and economic objectives: Supply chain resilience, access to resources, as well as mitigating its ESG impact beyond its borders (Vlaskamp 2019). This signifies a policy trend towards increasing due diligence and management focused approaches and moving away from stricter command and control instruments. For example, sanction-based regimes often lack effectiveness due to limited governance or influence in the targeted regions. Consequently, transparency and due diligence systems are the dominant theory of change for EU policy (Härkönen 2018).

Considering the impacts on livelihoods of affected rights holders or the natural environment, the EU policy and institutional setting on RS is still in its infancy, and therefore difficult to assess, as changes to supply chain practices take time. This is reinforced since EU directives or acts (CRMA or EU Corporate Due Diligence Directive), compared to regulations, have EU Member States transposition timelines, which delay effective implementation by EU Member States by one to two years. However, given the possibility of learning from the shortcomings of the Dodd-Frank Act, such as disengagement from the Great Lakes region or the de facto embargo of conflict minerals, costly downstream chain-of-custody systems across the supply chains, and avoiding regional scope (global CAHRA) (Koch and Burlyuk 2020), the EU regulation has been designed accordingly.

Even though due diligence regulations have been partially successful with regard to conflict minerals, the effectiveness of these policies is perceived as highly contested for lacking comprehensiveness, enforcement, and stringency (Moser and Leipold 2021). As regards comprehensiveness, the current Conflict Minerals Regulation fails to impose legal requirements on downstream companies, refiners, or smelters that are either not required to comply with the Regulation or over whom European importers might not have sufficient leverage (Macchi 2021). Addressing its enforcement mechanisms, the current design lacks strong mechanisms, performance indicators, or processes for remedial actions and, therefore, runs into danger of giving rise to a box-ticking approach and failing to concretely incentivise RS (IPIS 2019; IPIS and PAX 2023). Against this background, the application of legal liability and access to remedy are necessary cornerstones for enforcing effective due diligence (Smit et al. 2020).

The existence of liability for corporate accountability and access to remedy are crucial for enforcing future EU legislation (Smit et al. 2020). Failing accountability by non-disclosure or reporting on due diligence would need to be penalised, fined, or should ultimately lead to the suspension of authorisation to place products on the Union’s internal market (Schilling-Vacaflor and Lenschow 2023). Furthermore, access for victims and rights holder to RS violations should be characterised by a decreased burden of proof for corporate misconduct. However, it is yet to be seen how recent or upcoming legislative proposals will interpret liability and corporate accountability and, on level of enforcement, how public administration will monitor company reporting, provide channels for remedy and support for victims, as well as an appropriate court system.

While due diligence legal requirements have the potential to address global supply chains in an integrative manner, they are characterised by ex-post remediation, governance challenges for implementation, or lack monitoring of impacts on the ground and company reporting. More directly targeting corporate behaviour or business conduct for RS in mineral supplier or manufacturing countries has the potential to improve the situation on the ground with regard to livelihoods, education, or environmental protection. Sustainable investment or facilitating an ESG friendly institutional setting in these countries directly via the EU trade policy (such as via the EU Taxonomy or trade and finance related aspects of the CRMA) has the potential to control impact more directly via RS practices.

2.1 Dimensionality: Addressing the Problem from Multiple Angles

The dimensionality of instruments goes beyond what has been traditionally considered the global supply chain (starting at mining operations and going all the way to retailers). This trend can be explicitly perceived in the underlying principles of the newly established instruments (i.e. EU Taxonomy) as well as in parts of others (e.g. trade and finance related aspects of the CRMA). With regard to capital markets and financial products, public and private investment is directed towards facilitating more sustainable business models via the EU Taxonomy. Similarly, the CRMA establishes rules for RS in mineral project feasibility: It assesses a project’s feasibility and investment potential based on ESG criteria, potentially utilising the United Nations Framework Classification for Resources (UNFC).

From a political economy perspective, this trend signals that RS is better perceived and acted upon in a systemic and market economy-wide approach as compared to a corporate level management only. It signals that actors and institutions, for example investors and capital markets who are traditionally beyond the scope in mineral supply chains, are important cornerstones in enabling a system-wide change and bringing about a paradigm shift for RS in the economic system. Against this background, recent research identified three key pathways enabling this paradigm shift in GSC for system-wide implementation of RS: (1) Governments policies; (2) Corporate strategies and their governance of mineral supply chains, and (3) Change in current business models towards more circularity (Farooki and Barriere 2023).

While the normative perspective of human rights and social and economic dimensions in RS has permeated the public policy discourse, environmental or others such as circular economy or secondary raw materials have only started to be considered. With the Battery Regulation introducing circularity and HREDD as important dimension, we also see the EU Taxonomy and trade related instruments (CRMA) covering a wider range of ESG dimensions. This trend towards a more comprehensive approach to RS in different sector specific or sector-agnostic horizontal policies will most likely materialise in upcoming decades in many other EU proposals.

2.2 Convergence or Fragmentation?

The development perspective of recently introduced (e.g. EU conflict Mineral Regulation) or upcoming EU policy instruments (e.g. Directive on Corporate Due Diligence) directly targeting RS as well as those indirectly targeting RS (e.g. investment and trade) is both a sign of a wide-spread effort to address the problem from different angles as well as potential fragmentation and incoherence. Given the spread of current EU policies facilitating RS across multiple policy domains (security of supply, responsible business conduct and RS), the EU follows a holistic framing as what is required by confronting problems that relate to many subsystems, fragmented knowledge, and multi-actor constellations (Endl 2017). While addressing RS from different dimensions or policy sectors (e.g. investment or trade) is potentially beneficial to holistically engaging with these issues, it might affect implementation of said policies (legitimacy, goal coherency, shared administrative resources, etc.) (Head and Alford 2015). While the battery regulation has the benefit of combining different policy objectives (i.e. circularity and mandatory social and environmental standards) for an emerging industry sector, it might fall short of integrating goals of other policy domains and future proposed instruments (Directive on Corporate Due Diligence).

Efforts of policy integration pursue the convergence of two (or more) policy domains in recent policy developments and are of utmost importance for effective implementation (Nilsson et al. 2012) such as reducing administrative burden of public administration and avoiding conflicting legal requirements. The private sector led RS initiatives are more diversified and mature, but still characterised by fragmentation of different industry standards, certification & auditing schemes, and responsible business conduct initiatives. However, we are seeing first ex-post efforts to harmonise and converge these initiatives (e.g. Joint Due Diligence Standard for Copper, Lead, Molybdenum, Nickel and Zinc). While EU policy still appears to be in its dynamic and diversified development stage, given its current early development path, its RS policy has the potential to avoid pitfalls of a fragmented policy area (Persson and Runhaar 2018) and avoid mistakes of other EU policy arena’s.

The EU Battery Regulation provides an exemplary case for integrative policy design (Degreif et al. 2022): Funding and administrative resources for evidence-based policy expertise, collected via consultative and multi-stakeholder processes, and legal advisory processes are prerequisites for an integrative policy design and an effective policy.

While we see that RS is being streamlined into other EU policy domains (investment or trade in the CRMA or EU Taxonomy, it is yet to be seen whether the current efforts materialise in a synergistic or antagonistic way. Currently, the policy design processes for RS considers multi-stakeholder consultations to guarantee consideration of policy-domain, transcending aspects potentially conflicting with goals of RS (e.g. trade protectionism, business confidentiality, etc.). New or revised legal instruments have the possibility to implement delegated acts that serve to amend, or supplement, the non-essential elements of the legislation to adapt certain aspects. There are other ways for guaranteeing conformity and coherence of what is considered RS from a substantiative perspective: This includes the application of a generally recognised framework (such as the OECD Due Diligence Guidance for Conflict Mineral Regulation and Battery Regulation) or the utilisation of recognized supply chain due diligence schemes to recognise legal compliance (i.e. CMR). In conclusion, even though the design of current RS policy is characterised by a fragmented and diverse landscape, for certain, the normative diffusion of RS has firmly taken a foothold in the European policy landscape and is now in its uptake stage.

2.3 Addressing Fragmentation, Complexity and Complementarity: The Consultative Process for National Mining Policy in Chile

In designing legislation and regulations to support RS practices, governments have several tools at their disposal. Based on the research and consultations in the RE-SOURCING Project, we highlight one good practice example for policy design to which important lessons can be applied from the EU policy discourse on RS (Farooki and Barriere 2023).

As noted in Chap. 3, the RS agenda of extractive companies and downstream operations is influenced by the national legislation of jurisdictions they operate in, as well as sustainability standards and client requirements. The fact that managing the sustainability of mineral supply is a complex problem (Everingham et al. 2013; Endl 2017), requiring the deliberative engagement of diverse interests and capacity to exert influence on underrepresented actors, requires governments to utilise a consultative approach in public policymaking. In doing so, it provides governments with a unified vision for the country, such that all mandatory and voluntary RS mechanisms follow a harmonised approach as well as increased public legitimacy and expert advice (Andersson 2008).

Balancing these RS approaches and the needs of different stakeholders can be a challenge to governments. Furthermore, a government needs to ensure that all companies operating in its jurisdiction face the same requirements, rather than reflecting different practices based on their operating headquarters.

One way to support policymaking are participatory or multi-stakeholder processes, such as in the form of consultations, which have the aim to: (1) Collect knowledge to successfully address societal challenges and (2) Facilitate greater commitment for policy implementation. The RE-SOURCING project investigated the multi-stage consultation process, identifying appropriate stakeholders for consultation—technical and legal experts, communities, mining companies, environmental groups, and human rights advocates organised by the Ministry of Mines and Energy of Chile. Such a policy, based on consultations and consensus building, considers all viewpoints from the start and allows for a better-informed sustainable mining policy. This also limits the ‘frequency’ of changes that will be required to update the policy later, to incorporate issues that may have not been considered.

Given the plethora of standards, civil society initiatives, federal vs. provincial level legislative requirements and differing RS needs, a good practice for policy design can be based on an ex-ante national consultative process. Such a process consists of the following elements:

  • Designing and implementing an inclusive and nationwide consultation process;

  • Capitalising on the benefits of an inclusive and multi-phase consultation process for policy development; and

  • Creating a consultation process that allows for discussion and insights into strategic choices, challenges and success factors of a national mining policy for addressing RS.

The first step is to clearly define the objective of the consultative process. Objectives can range from providing a platform for stakeholders to raise concerns, gather information, or to make transparent conflicting interests or build consensus among stakeholders. The objectives should then be provided with an adequate stakeholder exchange process and sufficient resources by public authorities. This would include the appropriate allocation of time, human resources, and financial resources needed to cover the consultation process. Consultations at the national level require sufficient time to leave adequate opportunities for concerns to be heard and made transparent.

There are diverse stakeholders in the mining sector with differing political and economic resources to exert influence. Consultations need to prepare against these considerations, and thus carefully plan how stakeholder involvement and engagement takes place. Engagement should take account of inclusiveness and transparency in the consultation process. This requires an active monitoring of participation from representatives of all stakeholder groups. Where required, additional efforts need to be made to increase participation from potential underrepresented stakeholders.

As discussed in the introductory chapter, the issues around RS are manifold and can vary according to geography, political institutional setting, and stakeholder interests. Given the number of issues and topics that can arise in consultations around RS and sustainability, a pyramid approach can be utilised, where the consultation starts with the identification of primary issues that are expanded in each set of consultations. This, ultimately, requires an experienced team of experts to track issues emerging during consultations.

2.4 Creating a Level Playing Field

Legal requirements for RS processes set and enforce standards for businesses, regulate markets, and, ultimately, foster a level playing field, that is, a state in which conditions in a competition or situation are fair for everyone. Policy instruments take the form of legal requirements or prescriptions to address the availability of choices and behaviour of its targeted actors across entire industry sectors. Setting mandatory requirements is crucial for protecting companies with high ESG standards from competing market actors with lower prices and lower standards. The Battery Regulations exemplifies such an approach by introducing higher ESG standards for EU manufacturers as well as imported products, and therefore creating a level playing field for EU based battery producers as well as for non-EU-based companies practicing RS for the European battery market.

While legislative requirements provide the necessary mandatory push for corporate actors to implement due diligence processes and facilitate the uptake of RS practices, further actions in the form of accompanying measures are required to support actors throughout global supply chains. As such, as mandatory due diligence processes come into play, all supply chain actors will need to upgrade and extend the systems to identify, prevent, mitigate, and remediate social and environmental risks. This requires, for example, supply chain transcending actions such as (1) Guidance for different actors such as investors (EU Taxonomy); (2) Multi-stakeholder initiatives such as RE-SOURCING, business associations or unions to pool resources, increasing trust and cooperation between supply chain actors across multiple jurisdictions; or (3) Addressing structural or systemic issues such as weak legal systems in partner countries via trade-related aspects found in the CRMA.

3 Conclusions

This chapter provides a general overview of the landscape and discourse of EU level RS policy. It identifies both specific RS policy (e.g. Battery Regulation) as well as related or horizontal policy instruments covering aspects of RS (e.g. CRMA, EU Taxonomy) for specific actors, for example, investors, or commodities (e.g. 3TG). The chapter continues its analysis of the political economy in European RS policy by investigating different attributes such as a positive impact on the ground, dimensionality, convergence, or fragmentation as well as a potential to form a level playing field.

Over the last decade, the EU policy discourse on RS has garnered widespread attention by policy makers and, consequently, led to the development of different mandatory policy instruments aiming to change the corporate code of behaviour. Both, as a result of weak state and corporate governance, the EU has devised stricter rules for RS in mineral supply chains in the form of product-specific and sector-agnostic, or horizontal legal provisions as regulations and directives. With commodity specific legal requirements (EU Conflict Mineral Regulation) at the beginning, several policies followed suit covering a multitude of dimensions (e.g. Circularity or HREDD in the Battery Regulation), representing sector-wide integrated legal frameworks for due diligence (i.e. Battery Regulation), or market actor-targeted approaches (EU Taxonomy Regulation), such as investment. While EU policy deploys a plethora of instruments to cover the complexity of RS in supply chains, a policy landscape dynamically grown over the last decade potentially falls short of an integrated and coordinated policy approach pooling resources, avoiding fragmentation, and reducing complexity or legal uncertainty.

While legal requirements compel business into action, they do not necessarily reduce complexity, nor safeguard a level playing field at an international level without, for example, adequate leverage, partnerships, and trade agreements, as well as research and innovation. It requires a policy mix of mandatory requirements and enabling instruments to fully capture the complexity and scale of the problem at hand. Due to the complexity of global supply chains (e.g. crossing multiple jurisdictions), the involvement of multiple actors (suppliers, producers, rights holders), as well as the multitude of RS issues, a smart mix of instruments is required to accompany mandatory rules. Accompanying measures provide the guidance and support needed to incentivise and facilitate RS more holistically by reinforcing the effective uptake and implementation of the legislation. The combination of mandatory requirements, voluntary actions and accompanying measures can ensure that HREDD brings about the paradigm shift and a system wide transformation towards sustainable global supply chains that is necessary to improve working conditions, secure livelihoods and protect the environment.