Preface 3

Foreword 5

Acknowledgements 6

Executive summary 11

1 Overview 14

  1.1. Growing global demand for critical minerals is intensifying supply chain pressures 15

  1.2. Efforts to boost resilience are intensifying but more is needed 16

  1.3. A whole-of-supply chain approach to standards-based, responsible production and traceability could help fill this gap 17

  1.4. Standards-based responsible practices and traceability can therefore serve complementary policy objectives 18

  1.5. Key findings 19

  1.6. Key policy recommendations 20

    1.6.1. Supply chain diversification 20

    1.6.2. Responsible business conduct and due diligence 20

    1.6.3. Circularity and resource efficiency 21

    1.6.4. Sustainable development in mining regions 21

    1.6.5. Revenue mobilisation 21

  Notes 23

  References 23

2 Understanding responsible business conduct and traceability 24

  2.1. Operational and governance risks threaten already strained supply chains 25

  2.2. Responsible business conduct standards to address operational and governance risks in mineral supply chains 27

  2.3. Multi-stakeholder and industry initiatives as tools to drive supply chain due diligence and transparency 27

  2.4. Traceability as a tool for responsible mineral supply chains 29

    Examples of government-led traceability efforts 32

  2.5. Traceability in the private sector: diverse approaches 34

    2.5.1. Diversity in traceability models 35

    2.5.2. Diversity in supply chain coverage 36

    2.5.3. Diversity in information collected by traceability systems 38

  Annex 2.A. Base Erosion and Profit Shifting 43

  BEPS Action 4 – Limiting Base Erosion via Interest Deductions 43

  BEPS Actions 8-10 – Aligning Transfer Pricing Outcomes with Value Creation 43

  Action 13 – Transfer Pricing Documentation and Country-by-Country Reporting (CbCR) 43

  Tax Incentives and the Global Minimum Tax 44

  Notes 45

  References 45

3 Lithium 48

  3.1. Overview of the supply chain 49

  3.2. Operational and governance risks 50

    3.2.1. Water use and environmental impacts 50

    3.2.2. Social impacts and community engagement 51

    3.2.3. Emerging risks 51

    3.2.4. Battery manufacturing and recycling risks 51

    3.2.5. Lithium pricing and other related party transactions 52

  3.3. Argentina 53

    3.3.1. Argentina: lithium production and processing 53

    3.3.2. Argentina: Regulatory environment 54

    3.3.3. Argentina: Operational and governance risks 55

  3.4. Chile 58

    3.4.1. Chile: lithium production and processing 58

    3.4.2. Chile: Regulatory environment 60

    3.4.3. Chile: Operational and governance risks 60

  3.5. Uptake of multi-stakeholder and industry initiatives on responsible business conduct 63

  3.6. Uptake of traceability 64

  References 66

  Annex 3.A. Addressing BEPS Risks and Tax Avoidance 72

  Addressing the under-pricing of lithium and nickel sales 72

     Additional BEPS risks beyond mineral pricing 72

    Mispricing of other related-party transactions associated with the mining activities 72

    Financing structures 73

    Information gaps and enforcement challenges 73

    Role of transfer pricing documentation and information exchange 73

  Notes 74

4 Nickel 75

  4.2. Overview of the supply chain 76

  4.3. Operational and governance risks 78

    4.3.1. Environment risks from mining and processing 78

    4.3.2. Social impacts and community engagement 78

    4.3.3. Governance challenges 79

    4.3.4. Manufacturing and recycling risks 79

    4.3.5. Nickel pricing 79

  4.4. Indonesia 80

    4.4.1. Indonesia: nickel production and processing 80

    4.4.2. Indonesia: Regulatory environment 82

    4.4.3. Indonesia: Operational and governance risks 84

  4.5. The Philippines 86

    4.5.1. The Philippines: nickel production and processing 86

    4.5.2. The Philippines: Regulatory environment 87

    4.5.3. The Philippines: Operational and governance risks 88

  4.6. Uptake of multi-stakeholder and industry initiatives on responsible business conduct 89

  4.7. Uptake of traceability 90

  References 94

5 Enablers and obstacles for responsible business conduct and traceability 101

  5.1. Context 102

  5.2. Key drivers of RBC and traceability initiatives 102

    5.2.1. Market and regulatory pressure as drivers of RBC uptake 102

    5.2.2. Market incentives as drivers of traceability uptake 104

    5.2.3. Link between traceability and participation in multi-stakeholder and industry initiatives 105

    5.2.4. Early evidence on the benefits of traceability 105

  5.3. Main gaps and shortcomings of existing multi-stakeholder and industry initiatives on RBC and traceability systems 106

    5.3.1. Uneven capacity across supply chain actors 106

    5.3.2. Data scarcity and fragmentation 106

    5.3.3. Fiscal governance 106

    5.3.4. Credibility of multi-stakeholder and industry initiatives 107

    5.3.5. Cross-border regulatory inconsistencies 107

  5.4. Barriers to scaling up traceability – insights from the survey 107

    5.4.1. Gaps between audits and customer expectations 108

    5.4.2. Implementation and operational barriers 108

    5.4.3. Industry appetite for investment into traceability 110

  5.5. Factors for scaling implementation 110

    5.5.1. Market incentives and price premia 111

  5.6. Implications for policymakers 112

  References 113

6 Conclusion and policy recommendations 115

  6.1. Applying traceability to specific policy goals 116

    6.1.1. Diversification and geoeconomic goals 116

    6.1.2. Responsible mineral supply chains 118

    6.1.3. Circularity and resource efficiency 119

    6.1.4. Local development in mining regions 121

    6.1.5. Robust fiscal policy 123

  6.2. Applying a targeted approach to implementing traceability for lithium and nickel 125

    6.2.1. Lithium sourcing from Argentina and Chile 125

    6.2.2. Nickel sourcing from Indonesia and the Philippines 126

  Annex 6.A. Methodology 127

  Survey 127

  Site visits 128

  References 129