Kumi is a specialist consultancy in implementing responsible business practices in global supply chains and have been working with the European Commission to create the Implementation Guidelines for the due diligence requirements in the EU Batteries Regulation. These due diligence requirements have far-reaching implications for the global battery industry and will drive progressive improvement in the sustainability of this sector.

In this webinar, Kumi and Circulor discuss in detail:

• The key concepts and principles of due diligence in battery supply chains,

• The scope and expectations set by the Batteries Regulation, especially for Economic Operators who will face the legal compliance obligations, and

• Practical implementation to ensure companies are working in adherence with the Regulation.

They also discuss the management systems and due diligence actions that companies will need to undertake to identify, assess and respond appropriately to social and environmental risks in battery supply chains.

If you have any questions on the insights shared in this webinar, or how Circulor can support your business, please set-up a meeting with our team here.

Circulor and Kumi EU Battery Regulation Due Diligence Webinar Transcript:

Speakers:

• James Lewry - Kumi, Client Services Director

• Alexander Graf - Kumi, Senior Consultant

• Andrew Britton - Kumi, Founder and CEO

• Douglas Johnson-Poensgen - Circulor, Founder and CEO

• Ellen Carey, Circulor - Chief External Affairs Officer

00:02:00 - James Lewry

A warm welcome and thank you for joining our webinar on the due diligence requirements of the new EU Batteries regulation.

There's been a big growth in corporate sustainability regulation in recent years, particularly in Europe, and there's even more on the way. We've seen national acts like the LKSG in Germany and the Norwegian Supply Chain Act lay the groundwork for Europe-wide regulation like the forthcoming CSDDD and the EU Deforestation Regulation.

But the EU Batteries Regulation is probably one of the most demanding we've seen to date.

Its due diligence requirements go well beyond what many companies are doing right now, setting a new benchmark in transparency and accountability.

Part of the Europe's Green Deal, the Batteries Regulation will embed sustainability and transparency across the entire life cycle of batteries within the EU market. It requires due diligence to identify human rights impacts and environmental harm in high-risk supply chains across all stages of the battery life cycle.

It's also one of the most demanding sets of requirements to date. So, in the next hour we will demystify the due diligence requirements of the new regulation. We'll cover what businesses tuning in to this webinar need to know to comply by August 2025, which is when the requirements take effect.

We'll also see how the regulation requires collaboration, not just data from the OEM's and other Economic Operators, and across the entire supply chain. This also includes the role of neutral third parties to address concerns of commercial confidentiality and data integrity in supply chain transparency. So, to help us unpack the regulation, we have a panel bursting with expertise.

00:03:49 – James Lewry

I'm James Lewry. I am the Client Services Director with Kumi and I am lucky enough to moderate a real expert panel today.

Andrew Britton is Kumi's founder and CEO, and he's been instrumental in helping to shape due diligence policy and practice with the OECD and the European Commission on Industry Standards and compliance frameworks. Andrew has been leading Kumi’s development of the due diligence implementation guidance for the EU Batteries Regulation.

Next up, Doug Johnson-Poensgen is the founder and CEO of Circulor and a pioneer in establishing traceability across the battery supply chain. Doug will bring his first-hand experience in the Battery Pass project to our discussion today to help us understand how these regulations can be scaled across industry.

Next, Ellen Carey is Circulor's Chief External Affairs Officer. She has over 15 years’ experience of bridging the gap between policy and business and she'll be sharing her insights on supply chain transparency and accountability, drawing on her international and US experience, where she helped integrate physical tracing into the US Clean Vehicle Tax Credit.

And finally, Alex Graf is Kumi's senior lead on the due diligence guidelines and he'll be taking us through his first-hand knowledge of the requirements.

Now, before we start a big thank you to all of you that have sent questions for our panel today, we are going to try and get through as many as possible and there will be a follow up FAQ to this webinar with answers and if we didn't get time to cover your question, don't worry. And don't forget you can also ask questions during the session in our Q&A box on the Zoom panel which our team will answer as they go.

So, with that, let's hear from Alex and he will give us an overview of the new regulation and what it means for business. Alex.

00:05:41 – Alexander Graf

Thank you, James. As we all know, EU Batteries Regulation has come into force in August 2023 and companies are expected to gradually implement its requirements over the next couple of years. Requirements such as, for example, carbon footprint, different recycling targets and supply chain diligence among others.

Not only that, the EU Batteries Regulation is, actually, not the only kind of EU legislative effort connected to supply chain due diligence. There is, for example, the EU Conflict Minerals Regulation that is already in force for a couple of years. And, of course, there's also, as we have heard from James, the much broader, much larger scale Corporate Sustainability Due Diligence Directive.

As for diligence in the battery supply chain, the expectations will come into force in August 2025 leaving companies with roughly nine months in order to demonstrate successful implementation of the requirements.

Now, despite this actually rather short time frame, there is still not much information out there. The regulation is rather clear as to what the requirements are, but in our work with companies, we can clearly see that they are struggling to understand actually what is needed in terms of what is expected from them and in terms of how to implement these requirements.

This combination of, well, a rather short time frame together with actually little knowledge that is out there is actually putting quite some pressure on companies.

Now, if you're asking yourself, what do we actually have to do, here is the answer.

00:07:29 – Alexander Graf

This is what you have to do. This is what you have to do until August 2025. The only exception being reporting and disclosure which, at least, based on the current state-of-the-art, is due one year later, so, August 2026 but this is information still to be confirmed.

The extent of the regulation lists the set of international frameworks that builds the basis of all the due diligence expectations in the regulation among these, the so-called OECD due diligence guidance.

In short, the OECD Minerals Guidance and the cross-sector OECD due diligence guidance for responsible business conduct. For those of you familiar with the OECD guidance, probably most, if not all, of these elements, as you can see them here, are not new in that sense. And in that sense, the regulation is also not reinventing the wheel, the only exception being the so-called third-party verification.

Third party verification is a mechanism in order to assess and approve conformity with requirements in EU product legislation, such as the EU Battery Regulation.

And, as you can see here, this is actually quite a lot of things that you need to implement until August 2025, especially if you have not already some sort of due diligence process, OECD aligned due diligence process, in place.

Interestingly, in our work, in our support of companies to prepare them for the Battery Regulation, we can often see a very strong focus on policies. “Can you help us establish a policy?” And, from there, directly jumping, then, into third-party verification, “What do we need to do in order to get third-party verified?” And reporting, “What needs to go into the report?”

However, while these are important aspects and items of the due diligence requirements in the regulation, these are neither the most challenging ones nor the most important.

In fact, in our conversations with companies, the vast majority of them would immediately say that the main sticking point for them is supply chain transparency, so, the so-called system of control and transparencies - Article 49.2.

This is for companies to collect a minimum amount of reliable information in order to understand the supply chain.

Who are your suppliers beyond your direct business relationships? What are they doing and what are they doing in terms of due diligence?

It is already very challenging and difficult actually to only collect the most basic information about the supply chain beyond direct suppliers.

00:10:15 – Alexander Graf

In addition, core aspects of due diligence or the core aspects of the diligence are what you can see in terms of the management processes, risk assessment and risk response. So, identifying and understanding what risks and also what already existing impacts are in your supply chain and what action needs to be taken about that.

Together, these are the elements that should be in the focus of supply chain due diligence. And when you ask ‘why are they challenging?’, well, one of the main reasons is all these elements that are just listed; supply chain transparency, risk assessment, risk response but, actually, also grievance mechanisms, as you can see them on this list. They all require some sort of supplier engagement.

And, as you probably know from your own experience, supply engagement requires time. It requires effort, it requires collaboration, trust, etc.

Now, apart from the due diligence requirements as such in the regulation, the regulation is also quite specific in terms of scope.

First, an extent of the regulation lists a specific set of risks in terms of environmental and social and human rights risks. Two important points. Number one, I just mentioned, this list not only includes either environmental or social and human rights risks, but both.

Number two, this list is non exhaustive meaning that companies are actually required to look into other risks and, if identified, to act accordingly and address them. This includes first and foremost, but not exclusively, the so-called Annex 2 risks in the OECD Minerals guidance.

So, we are talking here about, for example, severe governance risks such as conflict financing, corruption and bribery, or money laundering.

In addition, the Battery Regulation also defines the supply chain focus. This means first of all, that only four raw materials are actually in scope of the regulation. Four raw materials; nickel, lithium, cobalt and graphite as they are needed in order to produce the so-called battery active material.

00:12:38 – Alexander Graf

There are still some discussions ongoing in terms of what this means in detail, for example, whether the electrolyte is included or not. But by and large, the scope of the focus is on the production of battery active material.

Also important to note, both primary and secondary raw materials are in scope of the regulation, meaning that also recycled materials need to be considered when conducting due diligence.

Apart from that or other than that, the regulation distinguishes two main parts. One, the already mentioned system of controls and transparency. Again, this is about understanding who your suppliers are, having reliable information about their operations, about what they are doing in terms of due diligence as the basis or prerequisite in order to conduct further due diligence.

This system of controls and transparency applies to the entire supply chain of the four raw materials from the point of extraction to the direct suppliers of the Economic Operator who has to comply with the regulation. In addition, and building on top of that comes risk management, in particular the core activities of risk assessment and risk response. These are only confined to mining, processing, and intermediate trading of the battery raw material.

00:14:07 – Alexander Graf

Since I mentioned at the beginning already that companies often struggle to understand how to implement a due diligence process in more detail. Here you can see a rough overview of how such a due diligence process or model process may look in detail. And we are also providing something like this in the draught guidelines. It combines elements from the OECD due diligence guidance and, without the need to go into any sort of details here, I think it becomes quite clear that together with supply chain transparency these are actually the core parts that companies will and should spend most of the time over the next nine months in order to start implementation, prepare for the Battery Regulation and then also continue implementation beyond that of course.

Companies are required, companies need to collect information, they need to prioritize risks and suppliers, and they also need to conduct further assessments and, at the end of the day, also make sure that action is being taken wherever necessary.

Not only that, all this needs to be done based on certain principles that underpin every due diligence activity. These principles are listed in the OECD due diligence guidance and we also explain them in the guidelines.

And again, without the need to discuss them one by one, they basically all fall under the banner of what could be called risk based due diligence, risk based due diligence, to which the EU Battery Regulation is directly and explicitly commits to.

00:15:54 – Alexander Graf

Now, after having heard all that. Here comes the big question. So what?

And I would like to give you three messages on your journey to prepare for the Battery Regulation. First, urgency. Nine months is actually not much time, and policies are actually the easy part and third-party verification and reporting only come at the end to demonstrate successful implementation. In other words, focus on implementation.

Number two, get the right mindset. This means understanding what risk-based intelligence is about. And, it is not about demonstrating zero-risk supply chains. It is about acknowledging that there are risks in your supply chain and that there are, quite likely, also already existing impacts, adverse impacts… and then it is all about what are you going to do about it in order to improve or in order to achieve improvement.

The mindset also includes that you cannot outsource or shift responsibility as the Economic Operator who has to comply with the regulation. The regulation is very clear in that. This does not mean that you have to do everything yourself. In fact, you cannot or should not do everything yourself. But, still, you need to make sure that due diligence has been done and act wherever and however it is necessary.

And last but not least, no black boxes. This is very much related to the responsibility of Economic Operators, but at the end of the day, any meaningful due diligence process requires reliable information about the supply chain. Again, in terms of who are the suppliers, what are they doing, and what are they doing in terms of due diligence?

And, number three, how to get started?

Well, if you don't know much about the OECD due diligence frameworks, that's the starting point. Understand and familiarize yourself with these frameworks, but the focus here is on frameworks, so both the OECD minerals guidance and the OECD due diligence guidance for responsible business conduct, because the regulation commits to both.

Based on this, and building on this, identify the gaps in your systems. Subsequently, address these systems, identify and address or close gaps either by yourself or by getting external expertise on board.

And, last but not least, again, engage with your suppliers now. This is one of the most challenging and time-consuming parts. Almost all core activities, all core components of the due diligence, do include some sort of supplier engagement. So, start the conversation, prepare them on what's coming in terms of supply chain transparency, in terms of collaboration for risk assessment and risk responses, mitigating risks, etc.

Now, of course, there are many more details that we could discuss here in terms of, well, the different systems and actions to be taken, the scope of the regulation and, of course, also alignment between the Battery Regulation and the Corporate Sustainability Due Diligence Directive. But what I tried to provide you here was basically the big picture. The big picture, which is so crucial to understand, in order to get implementation and, ultimately, also compliance right from the start.

I can only invite you to follow also our channels and our materials. There's definitely more to come and of course also engage with us the teams of Kumi etc.

Well, with that in mind, I hope you all have some food for thought now and I'm very much looking forward to the panel discussion. Thanks.

00:19:44 – James Lewry

Thanks very much for that overview, Alex. There's a lot to unpack there, a lot to think about as we go into the Q&A session now.

Speaking of Q&A, just a reminder that on the Zoom chat you can ask any questions you like to us today. If we don't cover your questions in the session we will be following up with an FAQ after the webinar.

So, thinking about what Alex has just said there, what are the main things and implications for businesses listening to this webinar today that they need to consider with the new regulation. Andy, maybe you can kick us off.

00:20:19 – Andrew Britton

Sure. Well, I mean the first thing is that, you know, this regulation is really unprecedented. We've never had this type of due diligence obligations put into law in this way. And so, we have hundreds of companies who are directly impacted and probably thousands who are going to be indirectly impacted through the cascading of responsibilities. So, this is a really big deal and, ultimately, it comes down to the Economic Operators. They're the ones who have to comply. They're the ones who must ensure that the due diligence has been effectively implemented through their supply chains and they can't outsource that responsibility.

00:20:57 – James Lewry

Thank you. Doug, what do you see?

00:20:59– Doug Johnson-Poensgen

Obviously, you know, we've already started to do traceability within supply chains and there are two points to make. I think the first is that this level of transparency of the relationships between suppliers is virtually unprecedented, and therefore there is a change effort of encouraging people to do this and helping them to realize that this is not giving away all the secret sauce.

The second point, and this is something we now see routinely in the supply chains that we're tracking, all of which, by the way, are in the battery minerals space is that suppliers are changing constantly, particularly with commodity prices being what they are at the moment. There's a lot of spot purchasing and routine search for suppliers at the right availability and at the right price with perhaps slightly less consideration sometimes of things like the sustainability of materials or where it's been sourced from. Trying to maintain visibility as an OEM right the way through that constantly changing environment is impossible if you're just relying on questionnaires and self-declaration or Excel spreadsheets.

00:22:08 – James Lewry

Alex, we talked, in fact, I said in my introduction about the wide-ranging regulations and the growing state of regulations as well. When you compare the EU Batteries Regulation to those other regulations, what is it that you're seeing in terms of how different this regulation is?

00:22:30 – Alexander Graf

It's actually quite interesting when you look at the different regulations in the EU context. As I also mentioned in my introduction or in my presentation, for example, the Conflict Minerals Regulation, the Battery Regulation and the Corporate Sustainability Due Diligence Directive, you can really see a sort of transition, not only in terms of timing, but also conceptually, actually. So, when we are looking, for example, at the Conflict Minerals Regulation that is already in force for quite a while, we have a much more straightforward focus on the so-called OECD minerals guidance, a very strong focus on control points. So, a focus on the smelter and refiner stages, as such, and with it also a very strong focus on a very specific set of risks if you want. And I mentioned this in the presentation, the so-called Annex 2 risks. And, when you look at the Battery Regulation in comparison, this scope is already much broader in terms of risks, you saw that in the presentation.

So, companies are really required to look at the much broader variety of risks in that sense, but also in terms of the responsibility they have. So, as I mentioned, there can't be any sort of black boxes and responsibility cannot be shifted in that in that sense. And companies are really obliged themselves, although they don't have to do everything themselves, to make sure that they have enough visibility in order to demonstrate that the diligence is really being done.

So, these aspects of responsibility of risk scope and no black boxes in that sense are definitely big differences compared to the Conflict Minerals Regulation. Just as a last sentence, when you would go, then, further to the Corporate Sustainability Due Diligence Directive, then of course the scope would again get much broader.

Yeah, there are quite interesting differences also between the Battery Regulation and the Corporate Sustainability Due Diligence Directive, but by and large, I think that, yeah, that's what it is.

00:24:23 – James Lewry

There's some big differences. Ellen, what are you seeing from your perspective?

00:24:28 - Ellen Carey

Yeah, I think the EU Battery Regulation increasingly has company in terms of global policies and their requirements, either to access market incentives or to just basically access a market with compliance with the rules and the regulations.

So, Alex talked just now about the kind of the breadth, but in terms of the depth, in terms of the supply chain and proof of provenance specifically on lithium, cobalt, nickel and graphite, we're seeing follow-on policies around the globe that are also looking for that proof of provenance and end-to-end material traceability.

I think in the last three to five years there's been a little bit of experimenting on these policies, like, ‘how far do we need to go?’, policies like Buy America, Buy American only go to component/subcomponent, but it's not… There's a few learnings in the last three years.

One, going only to tiers 2,3, and 4 are not affecting the change that is desired in terms of economic, national security, sustainability and climate security.

Number two, is annual or biannual audits aren't cutting it. That dynamism that's in the supply chain isn't being accounted for, as Doug said.

And third, we're now having it, too, is product attribution, right? In terms of a car receives a tax credit or a product is able to be imported and placed in the marketplace. So, we're certainly seeing when it comes to critical minerals, things where there's a lot of economic security and wanting to know that these supply chains are resilient. Lithium, cobalt, nickel and graphite as Alex mentioned, end-to-end and then that continuous visibility that accounts for the natural dynamism in the supply chain.

00:26:20 – James Lewry

It’s interesting what you were saying there about the depth of due diligence and Andy, I know traditional tools like audits are being discussed a lot. What role do audits have in the regulation?

00:26:33 – Andrew Britton

Sure. I mean there's, I guess, the good thing is that for many companies in the supply chain, they have started doing work on due diligence. So, for many companies, this is not a completely new area of work or of focus.

But there is undoubtedly a need to look very carefully about what you're doing and consider is it fit for purpose.

So, if I take just one example of one of the tools that companies use around supplier self-assessment questionnaires. It's very common practice and I'm sure, Doug, you see this all time, we certainly do in our work, that, you know, companies send out a standardized questionnaire across all of their supply chain.

It's really important to think, well, what is that achieving and what if actionable information is it giving you? Because really, due diligence has to be adapted for context, and there's no use sort of expecting an SME supplier in an emerging economy to have the same level of sophistication as your manufacturing supplier in Germany, because these are completely different entities, so it really needs to be adapted for context and also focused on risks and impacts, because actually that's what this is about. This isn't about ‘do you have a policy?’ It's about what risks are present and, if there are risks, what action are you taking?

00:28:04 – Doug Johnson-Poensgen

And I just want to jump in there if I can because you asked about audit. First of all, I think that you know, no technology solution like a traceability solution will ever replace due diligence, including on the ground due diligence. The two go together. And the second point, I think, is that when we inherit a supply chain map often created by an auditor, very often it is a point in time which describes, based on evidence of purchasing, the relationship between various suppliers and who bought what from who. But, as I pointed out earlier, there is a lot of change in these supply chains and, almost every time, at least 50% of it is wrong once you start actually physically following batches of material through the supply chain live. And that's because not only do chemistries change, you know, the R&D department of an OEM might be changing a battery model and that means changes of suppliers and the supply chain… stuff is changing all the time.

It's relatively dynamic and these points in time just aren't sufficient to fulfil the requirement to know where stuff’s come from and who's been in your supply chain and what's going on within it.

00:29:17 – James Lewry

Yeah, it’s long been the challenge with audits, for sure. So, Alex, I'm thinking, then, about some of the risk factors and I know in the regulation, Annex 10 covers specific risks. How does the risk prioritization work in practice for the regulation?

00:29:36 – Alexander Graf

Now, first of all, when you speak about risk prioritization according to the regulation, but also if you want the rule book in terms of the international framework, when we talk about prioritization, it's about prioritizing risks and impact based on so-called risk significance. And the main categories in order to do that would be the so-called severity and likelihood, and for all those who are more interested into these concepts, the OECD Due Diligence Guidance, especially their cross-sectoral guidance for responsible business conduct, thus provide some further guidance on what that means and how to assess that and what would be indicators, for example.

Now, in practice, this means that you disconnect very much actually to the questionnaires and audits that you do not necessarily need to audit your entire supply chain. In fact, it is much more about focusing on identifying and focusing on high-risk suppliers in that sense. And then also focusing your resources in terms of further assessments and in terms of implementing actions in order to actually drive change as such.

So, I would definitely say prioritization is also about quality over quantity in that sense, but still at the end of the day, if all the Economic Operators who are in scope of the regulation do that and really prioritize focus on a smaller amount of high risk kind of companies and focus on actual action and implementation, there's still scalability and there's still kind of change on a large scale.

00:31:05 – Andrew Britton

And if I could just come in on that. As Alex was saying, you know, with due diligence you have to start broad and high level and then you go increasingly in depth. And I know one of the questions that we've had come in from the audience has been around, well, I can't start due diligence until I know the names of every supplier. Well, that's really not the case. Because you need to start, as Alex was explaining in his presentation, looking at the type of facility and the country and that already gives you a lot of information to begin that prioritization process. And in the implementation guidance that we have been drafting for the Commission, there's some risk profiles which also provide a set of resources that companies can use to do that basic scoping. So, in time, yes, you will need to get to individual suppliers.

Now, again, you may not need the actual names or identities. You can use a neutral third-party platform to protect confidential information, but you certainly don't have to start in that way. It's all about layering due diligence… like peeling the layers of an onion.

00:32:14 – James Lewry

Yeah. And you mentioned all these questions, a quick reminder to keep questions coming into the Q&A box. We are very excited to see those, and we have quite a few to get through later today.

Switching up slightly and thinking more about, I guess, collaboration across the supply chain and the theme that we talked about briefly earlier. Thinking about some of the regulations’ requirements such as providing provenance, material flow and due diligence actions upstream and downstream, the issue of collaboration comes up time and time again because, I guess, it's very challenging for any one company to do this alone. Doug, you've got a huge amount of experience building traceability solutions for companies, what do you think about this role of collaboration and the need for that?

00:33:09 – Doug Johnson-Poensgen

Well, the traditional relationship between a buyer and a supplier has been one of, you know, specify what you want and then beat them up on price and then make sure you get it. Sorry, I'm slightly simplifying! But, if you're trying to develop a system of traceability through a supply chain and you're trying to work with the whole of your value chain to reduce the inherited scope 3 emissions and encourage and drive towards greater use of, for example, renewable energy, that is not something that you can just specify in a tender. You're looking to, in our case, from each participant in the value chain all the way back to the source of raw material, whether it's scrap or freshly mined material, get a minimum level of information that enables you to create a reliable chain of custody at the batch level for, say, this 200 tonne parcel of nickel left here and found its way over here, through many stages of physical and chemical transformation because rock is clearly nothing like a car.

That is a team activity. And we've found some of our auto OEM's and Tier 1 battery cell manufacturers have together held supplier days to explain to all of the suppliers in their collective supply chain what they're doing and why and that's a really good starting point to make clear that this is a journey and nobody’s perfect.

00:34:33 - Ellen Carey

Something to add here too. Because, I think we've matured in terms of this process that we shouldn't leave out two other arenas of collaboration. One is internal, because Doug's mentioned a reliable chain of custody, multiple practitioners within a downstream customer can use that upstream data and they should be working together. But, as functions as we see them, they're often siloed and working individually on their different respects, and that's just not a way of getting that reliable data and creating a system of efficiency and cost savings, right?

And, then the next arena would be industry solution providers, consultants and regulators working together. I think Circulor is really proud of the work that the Battery Pass project has done with the German government. And I think there's more efforts in that, you know all over the world where regulators, industry and solution providers can really talk about what data is shared, what data is kept proprietary and that's a really good three-legged stool that can be very effective.

00:35:38 – James Lewry

And thinking about collaborations, well, I know a big question we get is around industry schemes and the role of industry schemes and regulation. Andy, what's your view on industry schemes?

00:35:58 – Andrew Britton

Well, look, they have a role and indeed they're even written into the regulation that they can have a role, schemes that have been recognized by the Commission have a role. But the point is, that even though you can use schemes to support due diligence, you know, they are one of the one of the tools in the toolbox. It's not the toolbox.

And the point is, a scheme, a use of an industry scheme, whether it's recognized or not, this can really support and provide a level of assurance that certain activities are happening, it can help build capacity at certain parts of the supply chain but it doesn't mean that an Economic Operator can just say ‘show me your stamp, then all is well’. They still need to do their due diligence process.

00:36:38 – James Lewry

So, moving on then to something slightly different and that's a concept, I guess, Alex, that the regulations introduced around neutral third parties. And, as we've heard, by August 2025, companies are going to have to prove the origin of material flows and make sure that the quantities of both virgin and recycled content of cobalt, graphite, nickel and lithium are verified. In the implementation guidance, we've introduced the concept of neutral third parties, can you just explain a bit more about that?

00:37:15 – Alexander Graf

Yeah, so as you said, the neutral third parties is basically a concept or an option that we introduced in the guidelines as such. So, they're not in the regulation, but something that we basically kind of propose in order, well, to tackle one of the big challenges and I also mentioned this in my presentation. So, one of the big challenges or tensions you can feel is simply when it's about collecting information about the supply chain.

Typically, especially downstream companies that are in scope of the regulation, they want to collect information they usually have, sometimes, even quite extensive information requests. And, then further upstream, actually, very often there is, well, often companies are not able to share information may be due to business confidentiality, vertical/horizontal competition or also competing laws and regulations in that sense.

There is definitely a certain tension here in terms of supply chain transparency versus confidentiality, etc. A neutral third party is a concept, again, we did not invent it, but we introduced it in the guidelines, as such, in order to kind of ease this tension or this trade off that is involved.

And the idea behind it is that Economic Operators do not need necessarily themselves to have access to all this information. They just need to ensure that this information is being collected, that is being stored, and that is also being kind of verified to a certain extent, that there is a sufficient level of confidence that the information is accurate. And also of course just to make sure, on the other hand then, this does not mean that information needs to be hidden from companies. Again, also, in the guidelines, we are very clear, if more information is needed, well, Economic Operators should have access to it.

But, overall, neutral third parties are simply a mechanism that try to give more control to the suppliers themselves in terms of who has access to what information and I'm sure that while our colleagues from Circulor are much better place to explain in more detail how this actually works in the implementation.

00:39:23 – James Lewry

Well, there's a great invitation there, Doug, to explain some more.

00:39:28 – Doug Johnson-Poensgen

So, traceability is not the same as total transparency. For example, if you are trying to attribute energy mix to the flow of a particular set of batches of material, finding average one OEM versus another, you need information on total production volumes and what proportion of that went to the different steps of the supply chain. That's obviously commercially sensitive. It's a necessary input to a calculation, but it's not something that needs to be disclosed and we put a lot of effort into sort of privacy preserving technologies to allow, for example, legitimate calculations and we can obviously show how they are done without disclosing what would be considered to be commercially sensitive information.

That's one point. The other thing is around trust. I mean, neither of us have any role whatsoever in these supply chains other than to be the truth tellers.

00:40:23 - Ellen Carey

I'm afraid we often hear some reticence of sharing data and why is a third-party neutral player needed, etc?

But I'm afraid that we need to examine more the flip side of that which is sharing data without it being protected and without systems of controls, and who gets what and where. Because we have customers and other industries or adjacent industries, where after two years’ time they realize that their proprietary data that they need to show requirements or compliance with market requirements, their data is all over the place via e-mail and Excel spreadsheets that have gone to this, that and the other who have asked for proof of compliance.

And in that scenario, there's actually more harm to data protection and to their commercial sensitive information.

00:41:11– James Lewry

Finally, then, one of the things that I know I started off by saying at the start of the webinar, which was around myths that we hear a lot and I'm sure, you like us, we're hearing a lot of these myths around the regulation. But if you could bust a myth, what would that be, Alex? What would the myths around the Battery Regulation be that you'd like to bust?

00:41:41 – Alexander Graf

I think it connects to one of the points Andrew was also hinting at already in one of his comments and it is, in short, that, certification or audit results are enough for compliance and it's not.

You need to have certain information about the supply chain, as we mentioned, you also need to have the means in order to verify whether such certifications, stamps, audit results, whatever it is, are actually reliable in that sense.

There are different forms of doing that by checking public information, by engaging with stakeholders, but overall, you need to have a minimum amount of checks and balances or any sort of information that you receive is actually working. And, in that sense, again, just having a certification or a stamp is not enough. Also, not for your suppliers. If your suppliers show you that they are certified or that they are member in a certain due diligence scheme, for example, that is very important, that is good, that may make your job somehow easier but, still, you need to verify and make sure that the information you are provided with makes sense.

00:42:55– James Lewry

Certification doesn't equal compliance. Ellen, myths you’d like to bust?

00:43:01 - Ellen Carey

Well, I think Alex said it so nicely in his presentation in terms of reliable information from the upstream supply chain. I think companies really need to ask themselves what is reliable, what can I trust, what passes the smell test or the sniff test? And I think that's really important. I think also looking more globally, maybe there's a focus that the EU Battery Regulation stands alone. It doesn't, and it won't very quickly.

So, very similar regulations are being enacted in the US and countries around the world, and following quickly on is the Ecodesign for Sustainable Production Regulation and, I think, getting certified this year is the EU Forced Labor Regulation. So, it's time to start taking a systems approach to all of this and getting, as Alex nicely mentioned, that reliable continuous information about what's happening upstream from you.

00:44:04 – James Lewry

So, the myth is that this is not just a Europe regulation. This will have an impact through supply chains and there's more coming.

00:44:11 - Ellen Carey

Yeah, it's not a stand-alone. There are ties and we need to start seeing those ties and how to approach things efficiently.

00:44:20 – James Lewry

Andrew, a myth you'd like to bust?

00:44:23 – Andrew Britton

So, the myth I'd like to bust, James, is responsible supply chains means risk free supply chains. It absolutely does not. You know, the whole point of the OECD guidance is about building responsible supply chains, doing due diligence and taking action to address risks. And we all know from our in our friends in the civil society, when you look at the complex supply chain of things like electric vehicles, there are all sorts of risks and challenges, so if you're a manufacturer and you're reporting that there's no risks in my supply chain, well, that just means you're not doing your due diligence. The whole spirit and intent of the regulation is to help build more responsible supply chains that work for everyone throughout the different geographies where this applies. So, for companies, it's about, you know, be part of the solution, don't run away from the problem.

00:45:20 – James Lewry

Very clear, very clear. Thank you for that.

00:45:22 – Doug Johnson-Poensgen

I love that point. My myth is that it is possible at industrial scale to do traceability right the way through a supply chain. When I mean industrial scale, I mean full production scale at vehicles and it's not a prohibitively expensive.

I mean, to give you an idea of the total cost of traceability to for, you know, from source to a car would cost you less than a high street coffee and a muffin. So per car, this does not undermine the economics of electric vehicles at all to do properly.

00:45:56 – James Lewry

That's a nice visual for when I buy my next coffee in there.

Well, let's then turn you, the audience. We've had some great questions that have been submitted to us in in advance of this webinar. Indeed, you've been sending questions through on the Q&A as well. So, I am going to put these now to our panel. These are not prepped so I'm going to pick on somebody I think that may know the answer to these questions.

The first, actually, is what are the consequences of not implementing these guidelines, Alex?

00:46:37 – Alexander Graf

Let me try. So, the Battery Regulation is actually quite interesting when it comes to what are the consequences. And there are different types of consequences depending on the different requirements. As a product legislation, some of the requirements are really needed or you need to basically comply in order to basically achieve the labelling requirements.

So, the so-called CE labelling, you need that in order to place batteries on the market. Without them you simply can't. Some of the requirements fall under this. Due diligence is not part of that.

Due diligence is actually an expectation or requirement that will be enforced and by the different Member States. So, in case of non-compliance, it is up to Member States to decide in terms of what the penalties and what the consequences are. On the one hand this sounds quite loose, on the other hand, this is a mechanism that is also being used for other regulations and also to be clear, well, wherever you put batteries on the market, if you don't comply, it could mean that that Member State will see some consequences and will enforce kind of action in that. So, there's a risk involved also.

00:47:50 – James Lewry

For sure, that’s an important point. I think, also from a company perspective putting products on the market, what do you see as consequences, I guess?

00:48:02 – Doug Johnson-Poensgen

So, it's only a matter of time when, for example, every car manufacturer's car has a battery passport that some clever journalists, you know, auto journalists will start creating league tables of, you know, you've been told by EV's which of these is ‘the best’ and how do you judge the best? Well, which manufacturers are trying the hardest to do business responsibly and also to reduce the carbon footprint of each of the cars they're manufacturing. We see a little bit of that now. I mean, there are car manufacturers like Polestar shooting to try and get a net zero car by 2030… a bit of a moon shot. But the reality is that all car manufacturers have claimed that by about 2040 they'll be net zero. Well, prove it.

And that will start to drive their top line not just in compliance and regulatory spend.

00:48:50 – James Lewry

Is that pressure two way, then, from the consumer perspective and also from the regulatory perspective as well?

I would say, actually, that's probably one of the most common questions we get asked, what are the consequences?

Let’s turn to another question then. We've got a question here, which is what is considered a robust chain of custody and how do companies achieve it?

00:49:14 – Doug Johnson-Poensgen

A robust chain of custody is batch level traceability from source to product. So, in the primary supply that means you need to know where the rock came from - by the way, that's a specific requirement, for example, also in the US, - and who the actors are within the supply chain that worked on this specific batches of material that find their way into your batteries. For me, that is the key. Relying on a paper trail is not enough, and, of course, we all know you can fake that.

00:49:49 - Ellen Carey

To echo Doug’s point, increasingly the regulations globally are very clear in terms of these critical minerals extracted, processed here, going into these cells, into these packs, to this serial number, to this VIN number, so that all of that information is clear and in terms of reliable, auditable information to be in compliance or to receive certain tax credits, that's the information that's really needed.

00:50:19 – James Lewry

Another question here, slightly different, this one's more about audits, actually, the quality of assessments. So, the question is, who will audit the quality of the assessments for each company?

00:50:34 – Andrew Britton

Well, so, in terms of the enforcement mechanism for Economic Operators who bear the legal burden, and this will be what's known as notified bodies. So, notified bodies will be audit firms as appointed by a Member State and they'll have that specific responsibility to audit compliance. So, that's the short answer in terms of the Economic Operators.

When it comes to things like due diligence schemes, well, schemes can be recognized by the European Commission as fulfilling certain due diligence requirements in alignment with the regulation. Those schemes that are recognized, then, the schemes themselves become responsible for ensuring that they have a good audit process but ultimately, there's no getting away from the fact that the Economic Operator is still at the end of the day, the one has to turn around to their regulator and say, yes, I've satisfied myself that the due diligence is robust, effective and here's the evidence.

00:51:42 – James Lewry

Very good. One for you, Alex, as it is quite a specific one. I feel that you're ready for this. So, given that August 2025 is around the corner, as you mentioned in your presentation earlier, what would you advise companies to focus on right now and what do the reports that companies have to issue look like?

00:52:02 – Alexander Graf

Well, I mean the first part of the question was actually the last part of my presentation. So, in terms of how to get started, again, just to give you a quick overview, really understand what due diligence is about and that means understand the different due diligence frameworks that are also listed in the regulation. For those of you who are not familiar with them, they are listed in Annex 10. So, we're talking about the OECD due diligence guidance. At the same time, then, of course, also understand and assess your own systems in terms of, well, what are the gaps and what is to be done?

And, other than that was the third part I mentioned, is really and supplier engagement. I think this is something I can't stress enough because this is the most time-consuming part and no matter what we are talking about in terms of due diligence, risk assessment, risk mitigation, supply chain transparency, etc. there is always some sort of supplier engagement involved. Just to mention this also, supplier engagement as such is not everything so it's a big and important part is more broader stakeholder engagement. I think this is also important to mention. But still, engaging with your supply chain, understanding what's happening there, whether the risks etc. is really key and you can't start early enough with that.

00:53:18 – James Lewry

Just the point, then, around also in that question, the person asked around the report itself and what that is?

And then before you before you answer that, I'll add a little bit extra on because there's another question on reporting and the second question is around the date itself, so the question is does public reporting on due diligence obligations start in August 2025 or one year after?

00:53:47 – Alexander Graf

Exactly. I mean the short answer to the date is at least the current state that we know is it's one year later, so August 2026.

That's the expectation as of now. We will see whether this will be the same for the final guidelines when they are being published in February 2025*. But I would say it is to be expected one year later.

(* Text updated from 2026 to 2025 to reflect the correct guidelines publishing date)

As to as to the content, well, in particular, again, I can only invite everyone to look into the due diligence guidelines, number one, the OECD Minerals Guidelines, I think it's step 5, where you can see how reporting should look for the other guidelines, the cross-sectoral guidelines, it is, well, actually also Step 5 if I'm not wrong.

So, it's in both. You get some guidelines there. By and large, it should be a representative picture, a representative reflection, again, of these systems and actions as I showed them.

What have you done, basically, over the past year in order to really demonstrate meaningful implementation of due diligence? We will see also with the setup of the third-party verification and the notified bodies whether there will be more specific expectations. But, as of now, by and large, that's it.

00:55:00 – Andrew Britton

Just to add to Alex's point there, you know, a common misunderstanding with reporting is that it's sufficient for, say, well, we have this policy etc. Look back at the source guidance, look at the regulation you're expected to report on what risks have you identified and what actions have you taken in response? So, that's really at the heart of this.

00:55:26 – Alexander Graf

Now that you mention it, I think one very important point in this regard is also, again, in line with what risk-based due diligence is about because this is the focus of due diligence also in the Battery Regulation, reporting should always focus on outcomes and not outputs. This is very much in line with what we call continuous improvement as the ultimate goal of due diligence. So, instead of reporting on, well, we have this and that amount of corrective action plans, it is much more about, well, for example, what is the number of affected stakeholders that you reached in that sense. So, it is really about outcomes and impact, not output.

00:56:05 – James Lewry

Thank you, Alex.

And sadly, that's all we have time for. There's a lot of information that we've heard there, a lot more questions I'm sure that you have as well.

As I said at the start, we will send through a frequently asked questions sheet following this webinar today so please don't worry if your question hasn't been answered by the panel or in the Q&A, we will get to it, I promise, and we'll follow up with you afterwards.

But for now, thank you so much to the panel, some real expertise in this area and in supply chain traceability and risk assessment more broadly.

And thank you to you for joining us today for this webinar.

Please do reach out to us if you'd like to hear more and we hope to see you soon.

Thank you.