Guidelines for Developing Sustainable Energy Storage Supply Chain Policies

The U.S. Energy Storage Association (ESA) has published guidelines for building a responsible energy storage supply chain policy that fits into environmental, social, and governance (ESG) considerations.

Lithium-ion batteries are the dominant energy storage technology deployed in electric vehicles (EVs) and stationary grid-connected storage and have attracted scrutiny for potential ESG risk associated with labor conditions and environmental impacts in its supply chain.

The ESA cited a study by the Electric Power Research Institute (EPRI), which defined three primary issues arising in the lithium-ion battery supply chain:

  • In all, 50% of the global supply of cobalt originates in the Democratic Republic of Congo. Of this, 15% to 30% comes from small-scale artisanal mines prone to labor abuses and unsafe conditions.
  • Environmental impact of mining and processing, producing a large proportion of lithium salts.
  • Greenhouse gas emissions in the extraction, processing, transportation, and manufacturing phases of battery production.

The ESA guidelines focus on establishing supply chain policy objectives, developing assessment methods, evaluating policy options, codifying and implementing supply chain policy, and measuring and communicating progress toward goals.

Establishing supply chain policy objectives

The ESA said energy storage companies without ESG policies need to cover a single ESG topic or a range of ESG topics to establish their supply chain policy objectives. Companies that already have some ESG policy elements in place could establish supply chain objectives by applying their existing ESG policies to their suppliers.

The guidelines said companies with more targeted ESG goals could expand their goals into their supply chains to maintain consistency. The company could also extend its ESG obligations to its suppliers.

Developing an assessment method

After identifying ESG objectives, energy storage companies must develop methods to assess their progress towards those objectives. The scope and rigor of supply chain analysis would depend on the nature of goals and the company’s position in the value chain.

Direct observation and assessment of the supply chain of storage companies could provide significant information but could require more resources to accomplish effectively. Formal supply chain mapping, which involves identifying and quantifying upstream transactions for a single input, could become complex.

On the other hand, companies’ reliance on the reports of intermediate suppliers could reduce resource burdens for assessing progress towards objectives but limit its visibility into its supply chain. However, energy storage system integrators or developers with robust, reliable, and responsible supply chain policies can reinforce the value of responsible supply chain policy across the entire supply chain system. The policies’ reliance on internationally accepted and established standards and auditing protocols could simplify implementation and reduce the cost of conducting responsible supply chain policies.

Codifying and implementing responsible supply chain policy

To implement responsible supply chain policy effectively, companies and their internal stakeholders must embed the policy in the day-to-day management process compared with relegation to occasional reference or afterthought. Companies must inform external stakeholders like suppliers about their policies. Companies should also enforce a pledge or commitment to avoid or reduce adverse outcomes from supplier behavior.

The ESA said companies could also provide a code of conduct for suppliers while transacting with the procuring firms. Companies should also include implementation details, which are omitted in pledges and codes of conduct, into a request for proposal (RfP) and contracts. The policy implementation should also incorporate a periodic or continuous process for reconsidering and updating policies.

Communicating progress towards goals

Most large publicly traded companies report their ESG progress in an annual report. However, the reports are intended for ESG investors and may not provide details about compliance with supply chain policy goals. Responsible supply chain policies that target human rights, labor, and local environmental impact have qualitative outcomes that may not change annually and are less relatable in an annual report format. However, supply chains change over time, and the supply chain policy should evolve with market changes. Therefore, periodic monitoring and reporting are necessary.

Responsible supply chain policies are commonplace but not universal in the energy storage sector. Energy storage companies should institute a responsible supply chain policy that enhances the safety and sustainability of the sector and reflects their corporate goals. Several organizations like United Nations Global Compact, Responsible Business Alliance, and BSR can assist companies in evolving such processes.

The United States installed a record 3.51 GWh of new energy storage capacity in the third quarter (Q3) of 2021, Wood Mackenzie said in a report.

According to a report by Lawrence Berkeley National Laboratory, the pipeline of solar capacity in the U.S. at the end of 2020 was around 460 GW. Of this, 160 GW or 34% of projects include battery storage.