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Blog | Thursday November 2, 2023

How Will Chinese Companies Shape the Global EV Market?

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Overview

Global commitments to reduce emissions have led to increased regulation to phase out petrol and diesel cars, spurring on demand for electric vehicles (EVs)—and raising the question of how this demand will be met. Chinese companies are expanding into established and emerging markets for EV products and components, propelled by their access to critical minerals, production capacity, and investments in innovation. While this expansion could help accelerate decarbonization globally, it raises questions about how the EV market will develop, from circularity infrastructure and energy sources in new markets to international cybersecurity and human rights concerns. 

China’s role in the global EV and battery markets 

China has come to dominate global EV markets in both demand and supply. For demand, China is the largest EV market with 59% of all EVs globally sold there; which is expected to increase and be met by local suppliers. The government plans propose that by 2035 EVs will be the mainstream of all new vehicles sold and all public vehicles will be electrified.

Internationally, China currently produces 54% of the world’s EVs and is a major supplier of key EV components to global car manufacturers, including Tesla and Toyota. Chinese companies are gaining market share in established EV markets in the US and Europe, providing both finished products and components all while these markets continue to expand with consumer demand and new legislation from the EU. 

China’s control of critical mineral supplies required for battery production (such as lithium, cobalt and graphite), combined with its refining and production capacity, have been some of its key advantages in securing its position in the global EV market. China has begun to limit the export of key battery minerals which is expected to increase the scramble for battery minerals (previously covered by BSR) and drive up production costs.

China also has made steady advances in battery innovation that increase performance, reduce the cost of production and decrease the amount of critical minerals required, as well as taking the lead on battery-swapping models, with Chinese companies developing swapping stations globally.

Beyond established EV markets, Chinese auto companies are also rapidly expanding into emerging EV markets in India and Africa with lower priced EVs, aided by lower production and component costs. The battery swapping being expanded in China is also well suited to emerging markets where charging infrastructure is limited. For production, Chinese companies are also looking to expand beyond China. Although a recent bid by BYD to invest US$1 billion to establish a car and battery manufacturing facility in India was rejected by India citing “security concerns”.

The Push for China-free EVs 

In response to China’s dominance of the global EV market, the US is making a major pushback using human rights legislation, trade policy and tax incentives through the Inflation Reduction Act (IRA). In order to increase domestic extraction and recycling of critical minerals as well as production of batteries and battery components for the EVs, the IRA includes various tax incentives for EVs where components meet specific requirements for domestic sourcing and production.

Countries where the US has a free-trade agreement are included in this provision, however it specifically states that to qualify for tax credits battery components and critical minerals cannot be sourced from “foreign entities of concern”, starting in 2024 and 2025, respectively. The US has begun including EV batteries and other car parts in the products under scrutiny by the US Uyghur Forced Labor Prevention Act (UFLPA). Lithium production in particular has been tied to high-risk contexts for human rights in China.

Parallel regulation in the EU aimed at prohibiting the marketing of goods made with forced labor might put similar pressure on Chinese imports into the EU and the EU auto industry with impacts for companies using EVs as part of their decarbonization plans. While the EU is yet to go as far as the US in incentivizing a China-free EV supply chain, anti-dumping rumblings have been ongoing and the EU has launched an “anti-subsidy investigation” into lower-priced Chinese EVs in Europe. Many consider this both an economic and political response. There is also a growing concern over privacy, surveillance and the use of EVs to monitor citizens of each other’s nations as tensions between China and the US, UK, and EU rise.

Implications for business

Decarbonization and Grid Stability in Emerging Markets 

Affordable EVs can contribute to global climate change and mobility efforts, and support companies in their decarbonization goals, particularly Scope 3. 

This shift may also increase air quality within cities at a time when air pollution has been named the greatest threat to human health, especially in South Asia. Take India, home to 14 of the world’s 20 most polluted cities. Premature deaths due to tailpipe emissions are one driver behind the government’s goal of reaching 30% EV penetration by 2030—an ambition supported by a range of national and state-led policies and incentives, including tax benefits, subsidies, and infrastructure development.

However in the short term the rapid expansion of EVs—outpacing accompanying infrastructure and policy frameworks—brings challenges that companies need to consider.

Without widespread availability of renewable energy in emerging markets, the increase in EVs may place increased strain on power grids, and ultimately even increase non-renewable energy consumption. It also raises concerns about whether there is appropriate infrastructure to reuse or recycle the increased volume of batteries that will enter these markets. Insufficient recycling infrastructure for lithium-ion batteries (which last up to 10 years) means the sector’s rapid growth will add to extensive and toxic e-waste management burden. New rules based on Extended Producer Responsibility aim to support entrepreneurship in battery collection and recycling, which presents a huge long-term economic opportunity, reducing reliance on battery imports from China, creating jobs and potentially edtech solutions to build related skills.

Human Rights, Supply Chains and Geopolitics

Driven by geopolitics and human rights concerns, countries are using tax incentives, trade agreements and human rights legislation to counter China’s dominance of the market. These are forcing automakers to increase visibility into their supply chains and are expected to shift critical mineral mining and processing global, battery production and auto manufacturing in coming years.

The inclusion of EV batteries in the US UFLPA could disrupt EV production and imports in the US, impacting both Chinese companies and also the Western car manufacturers dependent on Chinese components. The risk of human rights violations and import-market regulations make it imperative for EV companies globally to enhance their supply chain visibility and engage stakeholders in the value chain to enhance overall transparency and sustainability practices.

An increasing number of Chinese businesses are seeking ways to collaborate and understand international regulatory requirements providing an opportunity for international business communities to engage and collaborate with Chinese businesses on these issues. This July, CATL joined the United Nations Global Compact noting the need to build its credentials on sustainability and human rights in order to access international markets that are increasingly focused on forced labor in supply chains.

Businesses need to consider the impact of these challenges on their decarbonization agenda, and take action to shape a sustainable operating context for EVs at scale, as well as make provision for disruption to the EV markets in years to come. 

Questions for business

• How dependent is your decarbonization and wider sustainability strategy on the role of EVs? What action can you take to shape a sustainable operating context for EVs at scale? 

• Have you considered the human rights impacts of fleet electrification and/or the use of EV services in all markets?

• Are you engaging your logistics providers on the sustainability issues in the EV supply chain across your geographies, paying particular attention to those with less regulation and infrastructure to support EVs?

• In the automotive industry, are you engaging your industry peers or industry associations to leverage collective action on the sustainability issues in the EV supply chain?

• In the automotive industry, are you engaging your suppliers directly to enable supply chain transparency and compliance with import regulations?

The research for this Emerging Issue was supported by students at Hong Kong University as part of our research partnership under its Common Core Curriculum: Gamechangers for Sustainable Business in Asia | HKU Common Core.

Blog | Thursday October 19, 2023

Inside BSR: Q&A with Cherry Lin

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Tell us a bit about your background. Where are you from, and where are you based? What does a day in your life look like? What is your favorite hobby?

I am from Fuzhou, a coastal city in Southeast China, and currently based in the city of Guangzhou with my 6-year-old daughter. Both are capital cities in neighboring provinces, but 900km apart! Typically, I return to my hometown for the spring festival and eat plenty of street food, which reminds me of my childhood.

I moved 2000km away from my hometown for university. It was at this point that I realized that China is a vast country and there are so many places to explore, and people to meet. I still have several close friends from various cities across China, and we continue to plan trips together. 

A day in my life consists of lots of time with my daughter. We enjoy playing board games, doing DIY, and playing music. I also love wandering around new cities and observing how local people go about their day-to-day lives. I’ve walked around Paris, Hanoi, Yangon, Melbourne, Hong Kong, and several other cities in China.

How did you first get involved in sustainable business? What is your current role, and what does that entail? 

During my time at college, I took on various volunteering roles, including supporting autistic children and helping disabled elderly people to seek assistance when needed. While volunteering, I was given a painting as a gift from a visually impaired boy who was learning the piano. I felt inspired by the communities’ strength and determination in the face of adversity. 

Before joining BSR, I worked for a state-owned company where I trained migrant workers. I got involved in sustainable business in 2011, when I joined BSR’s HERproject as the China country coordinator, with real passion and belief in my work. Since then, I’ve continually felt driven to work on gender equality and women empowerment across the supply chain. 

I am currently working as a manager at RISE, a collaborative to support collective action at scale for the benefit of women workers and push for gender equality in global supply chains. I am the country lead of China and the global lead of Quality assurance at RISE. My work includes working with global teams, brand contacts, and implementing partners across different countries, to expand the presence of RISE and maintain program quality.   

What are some interesting projects that you get to work on as part of your role at BSR? What do you enjoy about them?

There are a lot of interesting programs at BSR. I traveled to Myanmar four times from 2018-2019 for a program focused on women’s empowerment at various supply chain textile factories. My role involved supporting local NGOs in managing gender issues with supply chain factories. It was a full week workshop, and I was impressed by the innovative, energetic and fun approach of the young trainers at these NGOs. I also traveled to Cambodia in late March this year and spent some time with trainers from local NGOs over lunch talking about engaging younger workers via training. It’s always fun and inspiring meeting and working with these teams. 

In this role, I’ve worked with various groups and stakeholders; including workers, managers from factories and suppliers, international brands from different industries, as well as various local NGOs across the globe. 

What issues are you passionate about and why? How does your work at BSR reflect that? 

I plan to continue working on gender issues, I am also very interested in inclusion and diversity work. As a mother of a little girl, I hope my daughter can live in a world where her potential is not limited by gender, with equal resources and opportunities, and can feel confident to seek help when issues arise.  

I’ve been following public news reports in China around gender-based challenges including unpaid care work and sexual harassment, as well as the “glass ceiling” for a woman’s career. I have seen some progress in public awareness of the gender-based challenges in China. This proves that continuous efforts made to empower women and shift the social norm will eventually bring a lasting outcome.    

What are you looking forward to in 2024? 

Covid restrictions have made in-person contact nearly impossible over the past 3 years, and it was even more challenging as I work from home. I’ve started to resume in-person connections with team members and stakeholders. In March of this year, I traveled to Bangladesh and Cambodia and met team members from other cities in China for workshops in April, and this month we are planning in-person gatherings with brand contacts. 

People

Aisha Naeem

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As an office coordinator, Aisha manages a diverse array of administrative tasks. Her responsibilities include supporting meetings, overseeing the acquisition of office supplies, and arranging fun events. She is also responsible for managing BSR vendors' relationship and providing logistic support.

Prior to joining BSR, she has gained four years of valuable administrative experience, excelling in cultivating an environment of seamless collaboration and productivity.

Aisha has earned a Bachelor of Science Degree in Computer Science with concentration in Business and a minor in Mathematics from St. John’s University. She speaks English and Urdu.

People

Alisha Vellani

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Alisha is responsible for the accounts payable process and supporting accounting related tasks as well as process improvement.

Before joining BSR, Alisha worked at Habib Bank LTD, Pakistan’s largest bank, as a business analyst managing the IT payment and vendor procurement process along with project managing end-to-end processes in lieu of the digital transformation initiative. Prior to that, Alisha worked at BDO Pakistan in Risk Advisory, writing reports and assisting in projects with several clients.

Alisha has a BA in Business with Finance. She also speaks in Urdu and is currently learning Japanese.

People

Bridgett Fisher

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Bridgett supports BSR’s Financial Services team on sustainable finance and impact investing, and she works at the intersection of finance and human rights.

Prior to joining BSR, Bridgett worked for over a decade as a securities regulatory attorney at the Washington State Department of Financial Institutions. She handled a variety of compliance cases involving investment advisers, broker-dealers, and securities offerings. Bridgett is the Chair of the Washington State Bar Association, World Peace Through Law section.

Bridgett holds a B.A. in Political Science from the University of Washington, a J.D. from the University of Oregon School of Law, and an LL.M. in Sustainable International Development from the University of Washington School of Law.

Blog | Wednesday October 11, 2023

Responsible Business in Space

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In the present day, the space industry is at the cusp of unprecedented growth and transformation. What was once a realm of scientific inquiry and exploration has now evolved into a multitude of commercial activities, spanning technology, communication, manufacturing, resource extraction, habitat development, and leisure.

The allure of investment in this industry is undeniable. However, it has become increasingly important for businesses to anticipate sustainability issues and accountability within the space sector. This notion extends beyond the standard confines of business risk; it encompasses potential threats to the industry itself and, by extension, our planet.

In a concerted effort to discern the path forward, BSR engaged in dialogues with 16 distinguished leaders in the aerospace domain to produce BSR’s latest Report: Responsible Business in Space. Leaders interviewed included executive levels from VP through to CEO and board members, and covered companies in sectors ranging from launch providers, engineering services and space tourism. The report highlights strategic sustainability priorities for the industry. Key issues and opportunities were based around a forward-thinking definition of sustainability: what issues are crucial for the space industry to address for its long-term viability? The consultations also explored key barriers that inhibit the space industry's pace of action.

The findings are summarized in the report that we hope will serve as a starting place for companies. Key considerations include:

• Orbital Debris: The accumulation of defunct satellites and space debris poses significant risks to operational spacecraft and missions, demanding international cooperation and innovative debris removal solutions.
• Safety: As more players enter the space arena, the safety of astronauts, crew members, and the public is paramount. This requires consistency and rigor in safety protocols, regulatory compliance, and risk assessment across the industry.
• Climate: Space activities contribute to climate change through carbon emissions from launches and manufacturing. To mitigate these impacts, the industry must embrace cleaner technologies and sustainable practices.
• Talent & Talent Equity: Business would be well advised to promote diversity and equal opportunities in a traditionally male-dominated space industry. The opportunity for improved racial equity is also significant. Initiatives like scholarships, mentorship programs, and inclusive workplaces can break down barriers. 
• Sustainable Supply Chains: Sustainability should be integrated throughout the space industry's supply chain, with an emphasis on responsible sourcing, good governance, ethical labor practices, and waste reduction.

However, within these challenges lie key opportunities for business leaders. For example, the massive troves of satellite data present an immense potential for addressing global challenges, from climate change to disaster management. The innovative technologies developed for space habitation can also revolutionize life on Earth, promoting sustainability and efficiency. The power of storytelling remains a compelling and under-utilized inspiration for Science, Technology, Engineering and Math (STEM) development.

Industry leaders acknowledged the hurdles impeding progress, including high development costs, guarded technology secrets, and the challenges for profitability. To tackle these challenges, the space industry can draw inspiration from other sectors. Collaborative safety practices, transparent disclosure standards unique to the industry, and climate mitigation strategies similar to those in other sectors can all be adapted to reduce risks and promote responsible practices.

The future of the commercial space industry holds immense promise, but it is not without significant challenges. By actively addressing these challenges, seizing opportunities, and fostering a culture of collaboration, business leaders can steer a course toward a more just and sustainable industry.

For further information, including how BSR can support you with navigating sustainable priorities in the Space industry, please contact the team.

Reports | Tuesday October 10, 2023

Responsible Business in Space

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In the present day, the space industry is at the cusp of unprecedented growth and transformation. What was once a realm of scientific inquiry and exploration has now evolved into a multitude of commercial activities, spanning technology, communication, manufacturing, resource extraction, habitat development, and leisure.

The allure of investment in this industry is undeniable. However, it has become increasingly important for businesses to anticipate sustainability issues and accountability within the space sector. This notion extends beyond the standard confines of business risk; it encompasses potential threats to the industry itself and, by extension, our planet.

In a concerted effort to discern the path forward, BSR engaged in dialogues with 16 distinguished leaders in the aerospace domain. Leaders interviewed included executive levels from VP through to CEO and board members, and they covered companies in sectors ranging from launch providers to engineering services and space tourism. The outcomes brought several strategic imperatives. Key issues and opportunities were based around a forward-thinking definition of sustainability and considered the pivotal challenges that require focus for the industry’s enduring viability.

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Julia Hunter

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Reports | Thursday October 5, 2023

AI and Human Rights in Healthcare

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The Healthcare sector is increasingly using AI, from health or clinical care, research and drug development, public health surveillance and monitoring, to health systems management. This report identifies human rights issues associated with the growing importance of AI technologies and provides recommendations to companies on addressing these impacts.

Blog | Wednesday October 4, 2023

Nine Ways to Mitigate Risk of Child Labor Across the Supply Chain

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Child labor is on the rise across the world, with increasing incidence in wealthier nations, challenging the common assumption that it is primarily an emerging economy concern. Workforce shortages, migration patterns (including the increasing presence of undocumented workers and their children) conflict, and weakening regulations around child labor—particularly in the US—are all contributing to the rising exploitation of underage workers in high-income countries. This is especially true for industries that rely on low-skilled and flexible labor, including manufacturing, agriculture, and automotives, among others.

In the US, the Department of Labor (US DOL) reported that child labor violations have increased by 70% since 2018. Instances of child labor violations have been uncovered both in the supply chains of agriculture and meat processing facilities in the US, as well as in front-of-house positions within fast food restaurants. Meanwhile, at least 10 states have passed laws to weaken child labor standards in the last two years—including extending working hours and eliminating work permits for teenagers. Migrant and undocumented children are among the most vulnerable: the U.S recently opened investigations into Tyson Foods and Perdue Farms for child labor violations alleging that contractors working for the companies hired migrant children. 

Children are increasingly used to fill labor gaps, with migrant and undocumented children particularly vulnerable to exploitation. Outside the US, Australian food companies are also facing allegations of breaking child labor laws, while a café reportedly hired 11-year-old children to address labor shortages. In Russia, there are movements to ease child labor laws and regulations to help the country fill workforce gaps left by the war with Ukraine, which has also exacerbated risks. 

Adverse Impacts of Child Labor

Child labor refers to work that is dangerous, excessive, or harmful to children, including mental and physical well-being. According to UNICEF, many child laborers are subjected to long working hours, hazardous working environments, physical injuries, and mental, emotional and developmental health impacts making even them more vulnerable to trafficking and abuse.

In addition to jeopardizing children’s health, safety and development, child labor can have long-term impacts on families and communities. According to the ILO, more than 25% of children aged 5 to 11 and over 33% of children aged 12 to 14 who are in child labor do not go to school. By disrupting or ending schooling, child labor limits future work and economic opportunities, increasing income inequality over generations.

Implications for Business 

Child labor is a violation of international human rights and labor rights laws and standards. Businesses that employ children or have child labor in their supply chains—including those in high-income countries—face reputational damage, compliance and legal risks. According to the US Labor Department, there has been an 87% increase in fines on employers in recent months, and companies across the country have been hit with $6.6 million in penalties for child labor violations. 

Companies must navigate a complex regulatory landscape, with differing approaches to regulations across regions—and within countries – as well as increased scrutiny to counter weakened protections. In the US, companies may be caught between conflicting State and Federal laws. Amidst weakening regulations at the State level, the US federal government has taken steps to intensify labor investigations. The USDA has responded by increasing efforts to combat child labor in the meatpacking industry, while the Fair Labor Standards Act (FLSA) plays a crucial role in regulating and protecting workers' rights in these circumstances. Similarly, in Australia, the federal government has engaged in a new pledge to ‘stamp it out’ with similar calls in New Zealand.

While there are movements within some countries to reduce protection for children in the workforce, other countries and regions are taking a strong stance against child labor and requiring companies to eliminate the practice from their operations and supply chains.

In the United Kingdom, there have been calls from the All-Party Parliamentary Group on Street Children in June 2023 to outlaw child labor entirely. In Canada, the House of Commons has passed a bill aimed at tackling forced and child labor; however, critics argue that corporations still find ways to evade meaningful accountability. At the regional level, the EU has adopted a zero-tolerance policy on child labor in its new trade agreements and has implemented an EU Strategy on the Rights of the Child to further protect children's rights. At the global level, the ILO has set minimum age requirements for work and states that 15 years is the minimum age for work (13 for light work), while hazardous work is only permitted for individuals aged 18 or 16 under certain strict conditions.

Child labor also has long-term impacts that could make the operating environment for business more challenging in the future. In underregulated areas, procurement teams may find it difficult to determine whether possible new suppliers or business partners have child labor in their operations or their own supply chains, which could trigger new and emerging human rights and modern slavery reporting requirements. Additionally, by exacerbating existing social inequalities, child labor can reduce the earning potential of already disadvantaged groups, which can prompt the decline of a diverse and skilled workforce.

Online activities, not yet covered by child labor laws, further complicate the regulatory landscape for business. A new law in Illinois introduces the first protections in the US for Child Influencers, or children with large social media followings, entitling under-16s to a proportion of earnings from social media posts.

What can businesses do? 

• Adopt and implement clear corporate policies that prohibit the use of child labor and set out expectations for ethical business for suppliers and business partners.

• Conduct human rights due diligence to determine how certain factors may increase risks of child labor in their own operations or supply chains, including increased migration, economic downturns, and conflict. Companies in high-risk sectors can also conduct enhanced human rights due diligence and specific child rights risk assessments. 

• Engage suppliers by awareness-raising, training, and capacity building to prevent, identify and address child labor, including understanding the root causes. Companies should also train and monitor supplier subcontractors and recruitment agencies. 

• Provide decent work opportunities, including traineeships and apprenticeships, to young workers and adolescents while equipping them with relevant skills needed to prepare for the future workforce. 

• Collaborate with peers, industry, business across different sectors, and suppliers to jointly address systemic risks of child labor and other forms of modern slavery. The Global Business Coalition Against Human Trafficking (GBCAT), for example, aims to scale business action to prevent modern slavery, including child labor, through supplier capacity building, survivor empowerment and employment, leveraging technology solutions to fight human trafficking, and addressing the misuse of technology to facilitate crime.​ 

• Where possible, work with relevant stakeholders to advocate for strengthening legislation to protect against child labor violations.

• While companies should, at a minimum, comply with national laws and regulations, they should always adhere to the highest standard (as enshrined in international laws, standards, and regulations). 

• Publish and report risk assessment findings (including in operations and supply chains) to help increase industry transparency around risks and root causes and demonstrate actions that are being taken to prevent, identify and address child labor. 

• Collaborate with relevant stakeholders to provide appropriate remediation where child labor is identified on a case-by-case basis. This also includes requiring suppliers to have a robust remediation plan. 

Debate and leadership are required to ensure child protections are fit for a changing world, and not to jeopardize tomorrow’s workforce for short-term gain. Contact us to understand how your company can lead within an increasingly complex and fragmented global human rights landscape.