Supplier Code of Conduct
LG Energy Solution has established and has been operating the Code of Conduct for Suppliers since 2016. The Supplier Code of Conduct consists of global standards and regulations that suppliers must comply with for sustainable supply chain operation, such as human rights and labor rights, ethical management, health and safety, environmental sustainability, responsible mineral procurement, and grievance handling system. Based on the Supplier Code of Conduct, LG Energy Solution verifies the adequacy of the supplier's supply chain management system from the stage of selecting new suppliers. We effectively supervise supply chain risks through regularly evaluating sustainability management criteria and conducting follow-up monitoring for each supplier. All companies that do business with LG Energy Solution are obliged to comply with the Supplier Code of Conduct, and related procedures and histories are managed through the purchase portal system.
Creating a Preventive Process
LG Energy Solution is also preparing a preventive process to quickly detect various signs of risks in the supply chain. In particular, to strengthen the transparency of the cobalt supply chain, we have a blockchain-based platform with distributed data storage that makes arbitrary manipulation and hacking virtually impossible. As of 2020, we have adopted a system that automatically synchronizes data from each of the processes (warehousing raw materials, production, and shipment) to the blockchain platform. In the future, we plan to minimize various risks generated while producing raw materials by expanding business sites and raw material supply chains that utilize the blockchain platform.
Responsible Sourcing Policy
LG Energy Solution has established a policy for responsibly procuring raw materials, going beyond the Supplier Code of Conduct. Based on the OECD Due Diligence Guidance for Responsible Supply Chains, this policy specifies the basic principles of supply chain management for LG Energy Solution and its suppliers to minimize supply chain risks such as human rights violations and environmental pollution.
LG Energy Solution inspects the safety, environmental impact, and compliance management system of suppliers through regular supply chain evaluations, conducts additional due diligence as necessary following inspection results, and supervises whether assigned improvements are carried out. We also require our suppliers to obtain supply chain transparency, prepare independent systems to identify risks and conduct due diligence on the third-party supply chains, and communicate the results to LG Energy Solution and external stakeholders. In turn, our suppliers will avoid acquiring raw materials from conflict zones and high-risk areas.
In addition to these demands, LG Energy Solution operates a grievance handling system that external stakeholders can access at any time to promptly respond to supply chain related issues and inquiries. LG Energy Solution aims to conduct sustainable and responsible business by systematically managing supply chain risks based on our responsible sourcing policy, actively contributing to fundamentally improve risks in supply chains.
Supply Chain Risk Assessment
Since the issue of illegal child labor in the cobalt supply chain was raised in 2016 through Amnesty International, an international human rights organization, LG Energy Solution has strived to operate responsible supply chains through various methods. In 2017, we completed third-party due diligence on Huayou Cobalt, a cobalt refiner and precursor supplier in China. In 2018, we conducted direct due diligence on a small-scale mine in the Democratic Republic of Congo to check the status of illegal child labor and transparently disclosed the results on our website. In 2021, we joined the Responsible Minerals Initiative (RMI), a global initiative under the Responsible Business Alliance (RBA), to participate in a joint international effort to reduce risks in the supply chain.
LG Energy Solution has continued to conduct third-party due diligence on the cobalt supply chain every year through collaboration with various clients. In 2020, after a full-scale survey on major cobalt supply chains, we determined each company's assignments for improvement and are since inspecting their compliance. With the procurement of raw materials as the top priority for our sustainable battery business, based on our rich experience of due diligence in the cobalt supply chain and responsible supply chain management policies, LG Energy Solution will expand the procedures that verify and enhance supply chain risks for major raw materials such as lithium, nickel, and natural graphite.