Although there has been a noticeable absence of new CSR-related domestic regulation in the last couple years, it has been interesting to see increased reports among my clients of what I would label “commercial” drivers for the adoption of CSR-related governance measures or compliance programs – e.g., inquiries/questionnaires from customers, investor pressure, peer benchmarking, consumer demand, etc. These drivers can require companies not typically subject to CSR-related legal requirements, such as companies that do not have a hardware product supply chain, to examine these issues for the first time, and will often be more effective in attracting the attention of upper management, given the connections to the economic bottom line (e.g., the maintenance of customer relationships, impact on consumer sales, etc.).
The increasing focus on the cobalt supply chain is an example of this trend. Risks and red flags relating to the use of child labor within the cobalt supply chain would certainly be picked up by and included within the ambit of current anti-human trafficking legislation, but cobalt is not currently regulated under the most robust mandatory minerals sourcing regime – the SEC conflict minerals rule. And even that rule – which excludes cobalt – is being attacked legislatively from all sides. Yet in this environment, firms are experiencing mounting pressure to address the risks associated with their cobalt supply chains.
The fact that commercial actors and forces are leading more companies to assess and address these issues in this regulatory vacuum suggests that the demand for CSR disclosure and information by customers, investors and consumers is perhaps more inelastic than we previously thought, and that expectations for companies in this regard will continue to grow even in the absence of regulation.
Volkswagen -- which has plans to launch dozens of new electric cars -- has introduced new rules for all its suppliers to ensure there's no child labor in the supply chain. "To put it quite clearly, if any supplier or any subcontractor of any supplier does not adhere to these rules and initiate the necessary action, we will be forced to stop dealing with the supplier in case of doubt," it said in December.