With electric vehicles (EVs) set to sweep the global automotive market, demand for lithium-ion batteries is expected to increase dramatically. Lithium-ion battery manufacturing, in turn, fundamentally depends on access to the requisite raw materials, especially the essential minerals in the battery cathodes which include nickel, lithium, copper, and cobalt. While several rare minerals are plagued by ethical sourcing concerns, cobalt arguably presents the biggest concern for EV makers. These concerns include tight supply, volatile prices, and ethical supply chain issues associated with a long history of human rights violations in the Democratic Republic of the Congo, which accounts for roughly 65 percent of global cobalt extraction.
At its core, the Circulor system is a traceability solution. Lithium suppliers like Vulcan Energy and brand name OEMs such as BMW, Polestar, and Volvo are using it to follow raw materials through the EV battery production process, creating an immutable audit trail that provides all parties with a nearly real-time view of the supply chain. However, the solution goes beyond basic traceability.
Circulor has invented a whole series of tools and processes to resolve the complex challenges in tracing cobalt production. These include processes to digitize the raw cobalt at the point of extraction, track its journey through supply chain, automate the compliance and contractual paperwork in each hand-off and streamline industry workflows.
While blockchain technology is part of the solution for each of these steps, blockchain alone is not enough. As Circulor’s founder Douglas , “A blockchain will record an immutable record of custody of a material, the locations it’s traveled through, its composition over time, and all that; but if you’re trying to make sure the wrong material never enters the system in the first place, you need processes to make this work.” Accordingly, Circulor’s approach to supply chain traceability combines technology with rigorous protocols, third party audits and on-the-ground due diligence.
A critical challenge for Circulor is mapping its solution to the unique supply chain dynamics and workflows of its customers, and doing so in a way that is scalable, cost-effective, and efficient. Thousands of companies around the world rely on cobalt as an integral part of their products, making the task of scaling an ethical sourcing solution across several different industries particularly challenging. EV makers are in the spotlight today because of the large quantities of cobalt required to manufacture their batteries. However, the lustrous, silver-grey metal is also a vital component of high-performance alloys used in gas turbines, jet engines, orthopedic implants and more. In other words, the headway made with leading EV makers and electronics firms is still just one slice of the business world that will need to be engaged in finding solutions to cobalt supply chain challenges.
Circulor argues that effective traceability can be achieved by engaging critical nodes at each tier of the supply chain. “Participants at every supplier tier from source to OEM need to participate to enable end-to-end traceability, but that doesn’t mean you need large numbers at every tier to gain benefit,” said Johnson-Poensgen:
Currently we start at the OEM and map back to the upstream source. Then you track material flow through to the downstream participants. It could be as few as 4 participants [e.g., OEM, component manufacturer, refiner, mine]. Obviously, few supply chains are that linear or short, and most supply chains are networks. However, if you can map a path, you can provide traceability if the participants at each tier join in.[1]
In practice, implementing a viable solution means starting with solvable, bite-size chunks of the EV supply chain. In the case of BMW, Circulor is helping the company trace already known clean sources of cobalt coming from Australia, Canada, the United States and certain well-regulated operations from within the DRC.[2] Companies and operations mining and producing cobalt will not be added to Circulor’s ledger until they can demonstrate that they are sourcing the mineral responsibly. To do so, Johnson-Poensgen is testing the system with known sources of clean cobalt. “It makes economic sense to start with sources that aren’t a problem,” said Johnson-Poensgen. “Once the system is proven and operating at scale, one can tackle the harder use cases like artisanal miners.”[3]
Volvo, on the other hand, was initially using recycled cobalt in its electric car batteries to avoid the problems associated with sourcing raw cobalt from the DRC. It’s first blockchain project with Circulor tracked cobalt produced at a Chinese recycling plant to Volvo’s manufacturing plant in Zhejiang, China, over a two-month period in 2019.[4] However, as Volvo ramps up for all-out-electrification of its vehicle line-up, it expanded its work with Circulor in 2020 to accommodate the automaker’s need to source lithium-ion batteries that incorporate raw cobalt from the DRC.
Jan Carlson, a senior procurement leader with Volvo, explains how Circulor’s solution instills the confidence required to be 100 percent certain that they know where all the cobalt in their batteries has come from. “One single audit per year is not enough,” says Carlson. “Instead, we need to be on the ground regularly and make sure that we properly trace, label and tag all minerals from the region. By doing that at the source and putting this data in a blockchain, a digital ledger that cannot be tampered with and is accessible to everyone involved, we can make great strides into creating a transparent and ethical supply chain. But in countries like the DRC, that is not an easy task, and it requires vigilance from all involved.”[5]
The vigilance and due diligence required to effectively demonstrating a chain of custody is a time-consuming process that takes a large amount of effort and commitment from participating actors. This is further compounded by the lack of standardized CoC platforms, the primitive level of digitization among upstream supply chain participants, and the need for training on how to deploy supply-chain traceability solutions.
The ability to streamline these processes through blockchain-enabled automation is what makes Circulor a valuable partner to companies like BMW and Volvo. “The combination of physical audit, plus the integrity of the blockchain-enabled process is what gives us that reliable chain of custody,” said Johnson-Poensgen. “To create absolute certainty for companies like Volvo requires a segregated process all the way through the supply chain, which is enforced by our blockchain solution.”[6]
While Circulor is automating as much of its solution as possible, Johnson-Poensgen concedes that he has had to deploy quite a few people to China to help establish rigorous business processes and provide adequate onboarding and training services for supply chain participants. “Once I’ve learned to automate as much of this as possible,” he said, “I hope to partner with the big consultancies to help clients like car manufacturers and battery manufacturers implement these solutions into their supply chains.”[7]
Circulor’s work with BMW, Volvo, Polestar, and others in the EV market today has cemented the company’s credibility. The next step, according to Johnson-Poensgen, is to expand the client group to include companies from the aerospace, consumer electronics, and other mining sectors in the future. After all, the provenance of the cobalt in EV batteries is just one in a wide range of things that go into manufacturing cars and electronics that could have ethical sourcing implications. In fact, the European Commission recently published a report identifying 18 materials around which it would like to see industry implement responsible sourcing practices.[8] Beyond cobalt and the EV market, there are sustainability concerns surrounding most natural resources. “Deforestation, industrial farming, flooding, chemical contamination, and dislocation of communities are just some of the issues that both manufacturers and consumers need to be aware of,” said Johnson-Poensgen.[9]
[1] Douglas Johnson-Poensgen, interviewed via email by Anthony Williams, 18 Oct. 2019.
[2] B. Lewis, “UK firm pilots using blockchain to help BMW source ethical cobalt,” Reuters, March 5, 2018. https://www.reuters.com/article/us-mining-bmw-blockchain/uk-firm-pilots-using-blockchain-to-help-bmw-source-ethical-cobalt-idUSKBN1GH2UP, accessed August 15, 2019.
[3] Douglas Johnson-Poensgen, Interviewed via telephone by Anthony Williams, 21 June 2019.
[4] B. Lewis, “Volvo Cars, China in first blockchain project for recycled cobalt,” Reuters, August 2, 2019. https://www.reuters.com/article/us-volvo-cars-blockchain/volvo-cars-china-in-first-blockchain-project-for-recycled-cobalt-idUSKCN1US1T2, accessed August 15, 2019.
[5] https://group.volvocars.com/news/sustainability/2020/volvo-cars-tech-fund-strikes-again
[6] Douglas Johnson-Poensgen, Interviewed via telephone by Anthony Williams, 21 June 2019.
[7] Douglas Johnson-Poensgen, Interviewed via telephone by Anthony Williams, 21 June 2019.
[8] Drive Sustainability, The Responsible Minerals Initiative and The Dragonfly Initiative, “Material Change: A study of risks and opportunities for collective action in the materials supply chains of the automotive and electronic industires,” The Dragonfly Initiative, July 2018. https://drivesustainability.org/wp-content/uploads/2018/07/Material-Change_VF.pdf, accessed August 15, 2019.
[9] Douglas Johnson-Poensgen, Interviewed via telephone by Anthony Williams, 21 June 2019.