Supply Chain ESG Risk Management Framework
Responsible Sourcing Policy
LG Energy Solution has established and operates Responsible Sourcing Policy. The Policy is based on the relevant international guidelines, standards and frameworks, including those of OECD, UN and ILO and sets out fundamental principles for LG Energy Solution and its suppliers to minimize supply chain ESG risks in the areas of human rights, labor, ethics, occupational safety and health, environmental sustainability and responsible sourcing.
Further, the Policy stipulates the operation of grievance mechanism which enables stakeholders to report any issue or concern relevant to potential ESG risks along our supply chains anonymously and facilitates such issues are handled in a timely manner. Committed to managing supply chain ESG risks based on the Policy, LG Energy Solution aims to contribute to improving the sustainability of the battery supply chains, thereby to ensure responsible and sustainable business.
Supplier Code of Conduct
Since 2016, LG Energy Solution has established and operated a Code of Conduct for Suppliers. The Code stipulates principles, standards and requirements that our suppliers must comply with in the areas including human rights, labor, ethics, occupational safety and health, environmental sustainability, responsible mineral sourcing, and grievance mechanism. Based on the Code, LG Energy Solution verifies the adequacy of the supplier's supply chain management system from the stage of selecting new supplier and systematically manages ESG risks in the supply chain through regular ESG evaluations and monitoring of corrective action plans. All suppliers that carry out transactions with LG Energy Solution must agree to fully acquaint and comply with the Code, and the information on suppliers' informed consent is managed through the Singlex Purchasing System
Supply Chain Management Process
Suppliers Management
LG Energy Solution evaluates new supplier candidates against 10 ESG risk indicators as part of the selection process. For the suppliers that are already in our supply chains, supplier ESG evaluations proceed in conjunction with regular purchase evaluations, with over 60 ESG risk indicators incorporated. Further, we require our suppliers to establish their own systems for supply chain transparency, risk identification, and third-party due diligence to avoid sourcing of raw materials from conflict-affected and high-risk areas; and to communicate the information on procedures and results of the implementation with us and other stakeholders.
With such assessment process, we evaluate our suppliers' compliance with our Supplier Code of Conduct, conduct on-site third-party audit on suppliers of high-risk group, identify and plan corrective actions, monitor their implementation, and disclose the information on procedures and outcomes of the evaluation in our annual ESG report.
Supplier ESG Risk Assessment Process
Regular Evaluation
ESG evaluations proceed in conjunction with annual purchase evaluations, with over 60 ESG risk indicators including human and labor rights, ethics, responsible sourcing, environmental sustainability, OHS, etc.
Self-Assessment
Questionnaire
Risk Level
Analysis
Suppliers categorized into Low/Mid/High Risk Groups
Scoping of
On-Site Audit Subjects
On-Site
Audit
Follow-up on serious nonconforming issues and identify corrective action plans
Request for
Improvement
New Supplier Evaluation
New supplier candidates are evaluated against 10 ESG risk indicators before the registration
On-Site Evaluation
Reflection of Evaluation Results
※ 143 suppliers' ESG risks were assessed in 2022, and 10 audited on-site
Beyond Tier-1 Suppliers
To build a sustainable battery ecosystem, it is important to expand the scope of the supply chain that participates in ESG activities beyond our Tier-1 suppliers. LG Energy Solution seeks to drive greater transparency and traceability with the chain of custody through the operation of the Supplier Code of Conduct and the regular process of suppliers ESG evaluation. Taking a step further, we strive to enhance our upstream supply chain management by gradually expanding due diligence on major raw material supply chains and collaborating with other players along the supply chains to secure traceability.
Since the issue of child labor in the cobalt supply chain was raised by the international human rights organization Amnesty International in 2016, LG Energy Solution has sought to operate our supply chain in an ethical and responsible manner through a variety of methods.
- 2017 : Third-party due diligence conducted on Huayou Cobalt, a cobalt refiner and precursor supplier in China
- 2018 : Due diligence conducted on artisanal and small-scale mine in the Democratic Republic of Congo focusing on child labor
- 2020 : Survey conducted on major cobalt supply chains, respective corrective actions planned and their implementation monitored
- 2021 : Joined forces on Responsible Minerals Initiative to address ESG issues in mineral sourcing
- 2020 : Joined forces on Fair Cobalt Alliance to engage in community support activities and to address child labor and forced labor issues in artisanal and small-scale cobalt mines in the Democratic Republic of Congo
LG Energy Solution also strives to build preventive mechanism that instantly detects various signs of risks arising in the supply chains. In particular, to enhance the transparency of the cobalt supply chain, we are applying a decentralized, blockchain-based platform for data storage that is virtually impossible to manipulate or hack. Moreover, in 2020, we established a system to automatically link the data of material flows, namely, purchase of raw materials, warehousing, production, and shipment, with the blockchain platform. In the future, we plan to minimize risks arising from the raw material production process by expanding the application of the blockchain platform and diversifying supply chains.
Building on experiences and lessons learned from cobalt supply chains management and due diligence carried out thus far, LG Energy Solution has developed an advanced due diligence framework and expanded the scope of implementation to cover more key raw materials including lithium, nickel, natural graphite, and manganese, with the groundwork initiated in 2023.
Conflict Minerals Management
LG Energy Solution operates an IT system to track and monitor our suppliers and the composition of materials from the purchase stage. The system enables to identify suppliers that source any of conflict minerals (tin, tantalum, tungsten, and gold) and requires them to report through the Conflict Minerals Reporting Template (CMRT), developed by Responsible Minerals Initiative, on the use of conflict minerals, mineral country of origin and the smelters and refiners being utilized.
What are the “Conflict Minerals”? 더보기
'Conflict minerals' refer to four minerals (tin, tantalum, tungsten, and gold) mined in the Democratic Republic of Congo and the neighboring nations, including Sudan, Rwanda, Burundi, Uganda, Congo, Zambia, Angola, Tanzania, and the Central African Republic. These territories are currently controlled by militant groups of insurgents and conquering armies that mine and distribute minerals to secure funds. This practice continues to cause disputes and often results in casualties, human rights violations, and labor exploitation
In July 2010, the U.S. Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act which lay the foundation for legal restrictions on conflict minerals. Every company, listed in the U.S securities market, must fairly disclose and annually report the use of conflict minerals to the Securities and Exchange Commission(SEC) by May 31st. Some Korean companies with obligation are also influenced by this Act, as a supplier to the U.S firms.