This report provides an overview of the emerging due diligence obligations and ensuing recommended changes to common current due diligence practices of Drive Sustainability members. Its goal is to help enable Drive Sustainability members to take an effective and efficient approach to implementing the EU Batteries Regulation (EU-Batt-R).
From the perspective of the authors and the civil society experts interviewed for this report, a central value of the EU-Batt-Reg lies in its broader perspective on due diligence, which extends beyond specific regions or isolated interventions. It aligns due diligence expectations with authoritative international normative due diligence instruments, namely the UN Guiding Principles on Business and Human Rights (UNGPs), the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (OECD MNE Guidelines), the OECD Due Diligence Guidance for Responsible Business Conduct (OECD RBC Guidance) and the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD Minerals Guidance).
This alignment with authoritative global frameworks has several benefits. It supports a level playing field by aligning the due diligence expectations with well-established frameworks that many businesses already implement. These frameworks inform an increasing number of due diligence-related regulations, such as the EU Corporate Sustainability Reporting Directive and the forthcoming EU Corporate Sustainability Due Diligence Directive. The robust and pragmatic nature of these frameworks has the backing of a diverse group of stakeholders, including civil society, businesses, and states. This consensus gives businesses a high degree of confidence that they can plan their due diligence systems in adherence with these frameworks and meet a range of stakeholder and regulator expectations. The holistic due diligence requirement set out in the EUBatt-R presents an opportunity for businesses to further engage suppliers while gaining a broader understanding of the operational contexts of their supply chain. This engagement approach, in addition to being central to effective due diligence, can promote adaptability to risks and supply fluctuations (supply chain resilience) while driving positive impact through businesses' supply chains.
The analysis for this report was based on both primary and secondary research. It included a close analysis of the text of due diligence components of the EU-Batt-R itself, and a critical assessment of current common due diligence practices of automotive original equipment manufacturers (OEMs), which reflect a range of maturity levels. Gaps in desktop research were addressed in interviews with industry experts through semi-structured interviews and thematic analysis. The authors were provided with specific questions from Drive Sustainability members relating to the EU-Batt-R, which were addressed in the drafting process.
Levin Sources has engaged with Drive Sustainability and its members since 2021. Levin Sources is also familiar with the due diligence practices of several members individually through separate engagements. Through these experiences, the authors’ observation is that in general, members’ due diligence practices broadly seek to align with the OECD Minerals Guidance. Therefore, due diligence as set out in the OECD Minerals Guidance constitutes a primary point of comparison across this report. The report outlines how companies can build on current due diligence practices and recommends changes to current practices to achieve a more effective implementation of the EU-Batt-R. Analysis Report of Due Diligence Requirements of the EU Batteries Regulation 5 The EU-Batt-R requires companies to align their due diligence practices with overarching international due diligence frameworks. Hence, the report utilises the 6-step due diligence cycle reflected in the OECD MNE Guidelines and the OECD RBC Guidance, which are generally aligned to the UNGPs. We have used this structure in an effort to enable comparability and alignment with overarching due diligence principles.
RECOMMENDED CHANGES TO COMMON CURRENT PRACTICES IN ORDER TO IMPLEMENT THE EU-BATT-R MORE EFFECTIVELY
Step 1 - Embed policies and management systems: Companies are expected to extend policy commitments and management systems to manage risks beyond the scope of the OECD Minerals Guidance, aligning them with Chapter VII of the EU-Batt-R. This broader scope encompasses minerals outlined in Annex X.1 (cobalt, natural graphite, lithium, nickel and its chemical compounds), social and environmental risk categories from Annex X.23 , international instruments specified in Annex X.3, and internationally recognised due diligence systems referenced in Annex X.4.
Step 2 - Assess risks and prioritise: Companies are expected to align their due diligence management system with the requirements of the EU-Batt-R and broader international due diligence instruments listed in Annex X.4. (i.e. the UNGPs, OECD MNE Guidelines, and the OECD RBC Guidance). The OECD Minerals Guidance is also listed in Annex X.4 as a reference due diligence instrument, but not in isolation. Companies are expected to establish senior management oversight for the entire management system and implement controls and transparency for minerals within the EU-Batt-R scope, including those sourced from non-conflict-affected areas.
Compared to current common practice in the automotive sector, companies will likely have to adjust their risk assessment and prioritisation approaches. This is to ensure their due diligence risk lens encompasses the full risk categories scope of the EU-Batt-R, and that sources of risk information do not leave blind spots, which is commonly the case when companies rely solely on data sources of ratings, rankings, and supplier questionnaires. The EU-Batt-R emphasises the importance of engaging affected rightsholders (or their legitimate representatives) which is one of the most significant lacking aspects in common current automotive due diligence practices that can lead to significant risk blind spots.
Step 3 – Address risks and impacts: The EU-Batt-R emphasises the need to exercise leverage (influence) with suppliers and other stakeholders as a key risk mitigation approach. It will also be important to engage with relevant stakeholders (meaning affected people) through meaningful communication channels, including affected communities, when formulating a risk mitigation plan. These practices tend to be underutilised in current common due diligence approaches, which frequently rely on audits and certifications as the sole means of preventing or mitigating risks. While audits and certifications may contribute to a degree of risk mitigation, evidence over the past two decades shows that they cannot be relied upon to effectively constitute the entirety of risk prevention and mitigation.
Step 4 - Track and verify implementation and results: On the one hand, the EU-Batt-R places an emphasis on third-party verification processes which will be used in two ways: (1)third-party verification by notified bodies to assess whether companies’ due diligence systems comply with the requirements of the EU-Batt-R and (2) third-party verification of due diligence practices of suppliers used by economic operators in their supply chain. On the other hand, effective implementation will likely require companies to establish effective tracking processes beyond audits. As set out in the reference (Annex X.4) global normative due diligence frameworks, a significant aspect of this due diligence component should include inputs from (potentially) affected people to gauge the degree to which risk prevention and mitigation efforts are working.
Step 5 - Communicate how impacts are addressed: The EU-Batt-R stipulates annual reporting on due diligence practices, including its effects on affected people, and the disclosure of relevant auditing activities. There is a differentiation in reporting audiences, specifying disclosure of information to market surveillance authorities, downstream purchasers to suppliers and the public. The EU-Batt-R allows OEMs to determine, to some degree and considering confidentiality requirements, what information it provides to the public. However, the Regulation expects at a minimum disclosure of significant adverse impacts, how they had been addressed, and a summary report of third-party verifications carried out (including the name of the notified body).
Step 6 - Remediate where appropriate: The EU-Batt-R requires companies to review their existing grievance mechanisms and remediation mechanisms in line with the UNGPs. The establishment of a grievance mechanism is not the same as fulfilling the remediation requirements of the UNGPs and based on current common practice in the automotive sector, this due diligence component will require significant attention given that it is less established in common responses to the OECD Minerals Guidance.
