When the 2023 Tesla annual general meeting takes place on May 16, shareholders will be able to vote on a floor proposal about the way Tesla uses particular human resources and how those practices are enacted. Specifically, the proposal asks Tesla’s board to issue a report describing if and how Tesla plans to eradicate child labor and forced labor from its supply chain by 2025 and to introduce more supply chain transparency.
Will Tesla implement supply chain tracing and concrete steps to ensure full supply chain transparency? Does it have a fiduciary right to do so at a time in which mineral acquisition is so imperative to the EV transformation?
The Tesla floor proposal was filed by As You Sow on behalf of Investor Advocates for Social Justice (IASJ). The nonprofit has a mission to create a safe, just, and sustainable world in which protecting the environment and human rights is central to corporate decision making. Child and forced labor have become significant concerns for companies, consumers, and legislators. With prevalent media coverage on child labor in the US, including a focus on a leading automaker’s supplier’s plant, consciousness around eradicating child labor is growing.
Tesla’s 2022 Response to Shareholders’ Labor Transparency Pleas
Here’s an abbreviation of what Tesla stated in its 2022 annual report:
Tesla acknowledged that a shareholder request had been issued. The Board of Directors was asked to release a public report describing if, and how, Tesla’s policies and practices governing the sourcing of battery minerals and progress towards cobalt-free battery goals would put the company on course to eradicate child labor in all forms from its battery supply chain by 2025.
The company responded that sourcing cobalt for EV batteries from mining companies did face ongoing allegations of child labor and poor working conditions, and those allegations pose material risks to Tesla. Tesla said it knew that the Democratic Republic of Congo (DRC) supplies 70% of the world’s cobalt. It admitted that it understood that such artisinal mines are documented for child labor infractions. The company agreed that cobalt mining as hazardous work is one of the worst forms of child labor, as children work with sharp tools in mines at risk of collapse. Tesla nodded that it was aware that voluntary corporate actions have failed to eradicate hazardous child labor from cobalt mining.
The report continued on with the shareholders’ argument that child labor in the cobalt supply chain exposes Tesla and its investors to financial, legal, and reputational risks. A 2019 class action lawsuit was dismissed, Tesla reminded the shareholders. Although it did not challenge the fact that child labor is occurring in its cobalt supply chains, the US automaker argued that conduct by its suppliers is out of its control, and Tesla’s own policies prohibit its suppliers from using child labor. The shareholders countered that this argument disregards and seeks to undermine corporate responsibilities for human rights impacts associated with business relationships. The power buyers need to adhere to a zero-tolerance policy for child labor or risk being dropped as a supplier, the shareholders demanded.
As a result, shareholders insisted that Tesla implement supplier requirements, not expectations, that are binding, enforceable, and regularly monitored for compliance with national and international laws prohibiting child labor and the company’s own policies. To do so would position Tesla as a socially responsible company.
Tesla Shareholders Call Out the Company’s Ennui in 2023
With increased public and regulatory attention on child labor and forced labor in supply chains, shareholders are again arguing that Tesla’s sourcing policies and practices expose the company to significant material risk.
They claim that the company is already facing risk, highlighted in a recent letter sent by 17 institutional investors who hold more than $1.5 billion of Tesla stock. A letter to Tesla Chair Robyn Denholm states that each of these shareholders initially added Tesla to their portfolios because they saw Tesla “as a true leader in producing products and services essential for our transition to a sustainable and green economy.” That feeling has changed over time as the group is increasingly concerned with governance and leadership issues at the company.
The letter outlines how the Tesla board has offered little more than “meager oversight of CEO Elon Musk” or other critical aspects of corporate strategy, including the company’s approach to human rights and labor rights, which exposes the company to substantial legal, operational, and reputational risks, thereby jeopardizing its long-term value. The group has asked the board to formulate a means to ensure Tesla has a CEO that dedicates adequate time and attention to the company, either through a policy that limits the CEO’s outside commitments or that illuminates a CEO succession plan. Moreover, they ask for a plan to overhaul the composition of the board of directors, including rolling off directors with close ties to the CEO.
Refuting the Tesla statement that it does “not source from artisanal and small-scale mining,” the As You Sow/IASJ shareholder proposal cites two recent investigations focused on mining in the DRC and assert that it is almost impossible to separate the flow of artisanal and small-scale mining cobalt from the larger supply of industrially mined cobalt. The NYU Stern Center for Business and Human Rights concurs and has issued a white paper titled Making Mining Safe and Fair – Artisanal Cobalt Extraction in the Democratic Republic of the Congo. The report concluded that ASM operations are an integral part of cobalt mining in the DRC and that there is a growing need for formalization of artisanal mining. Formalization, they say, brings the revenue-generating activities into the formal sector by setting and enforcing basic human rights standards for the extraction process, and it offers a viable approach for addressing risks related to cobalt mining.
Tesla’s supply chain in the Xinjiang Uygur Autonomous Region has also been “substantially tainted with forced labor,” according to the 2023 shareholder proposal. They say that recent legislation and an ongoing Senate Finance Committee inquiry further highlight the regulatory risk to Tesla and several other automakers from human rights violations in their supply chains. The Uyghur Forced Labor Prevention Act (UFLPA) was signed into law by President Biden in 2021. It establishes a rebuttable presumption that the importation of any goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China, or produced by certain entities, is prohibited by Section 307 of the Tariff Act of 1930 and that such goods, wares, articles, and merchandise are not entitled to entry to the United States. The presumption applies unless the Commissioner of US Customs and Border Protection (CBP) determines that the importer of record has complied with specified conditions and, by clear and convincing evidence, that the goods, wares, articles, or merchandise were not produced using forced labor.
Featured photo: “Illegal mining in Ituri” by Julien Harneis, via Flickr (CC BY SA 2.0)
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