SOCIAL CHALLENGES

Rare-earth magnets are essential components for products as diverse as computer hard drives, wind tur- bine generators, headphones, electric cars, and guitars. They are even used in stop motion animation. Apart from being exceedingly useful, rare earth elements are also dangerous. All parts of the rare earth supply chain pose severe risks to health, environmental protection and safety. If ever there was a good case for careful supply chain management, the rare-earth industry is one. While China is the major source of these elements and the Chinese government classifies them as a strategic resource to which special rules apply, many of the buyers are located abroad. Can foreign companies have a beneficial impact on Chinese suppliers of rare-earth elements?

PROJECT APPROACH

BRUGGER Magnetsysteme decided to focus on the risks associated with rare earths because it was concerned about the consequences of its sourcing activities in China. In 2014, it launched a project to increase sustainability in magnet supply chains. The project team carried out initial audits and a comprehensive upstream supply chain study and organized training sessions in corporate social responsibility (CSR). The project also helped suppliers to implement CSR plans.

From the start, BRUGGER Magnetsysteme partnered with the Center of Environment, Health and Safety (EHS) at Nanjing University. The center’s team contributed to the project with its expertise and its reputation as a leading Chinese authority in the field, thereby increasing the project’s credibility among sup- pliers. The team also guided the suppliers through the CSR learning process. In Ger- many, BRUGGER’s co-financing partner was the German Development Corporation, on behalf of the Ministry for Economic Cooperation and Development. The team carried out initial audits, a comprehensive supply chain study and organized training events in CSR. With these preparations in place, the suppliers implemented their CSR improvement activities, which involved a combination of organizational upgrades and physical improvements.

All suppliers also installed additional EHS-equipment, with co-financing from BRUGGER’s project. By the end of 2016, all participating suppliers achieved their CSR certification, which has been renewed in 2019 by an independent Chinese auditor. As a result of the supply chain work, they were awarded the Umweltpreis Baden-Württemberg 2020, the highest environ- mental protection honor for industrial companies in the German Federal State of Baden-Württemberg.

VALUE ADDED

From the  beginning  of  the project, the initiative increased CSR performance among owners, managers, and staff at the suppliers. Interestingly, not only for EHS issues – the project’s main target – but in other areas as well. One example:

Employees at supplier companies benefited from better work contracts. In addition, BRUGGER’s suppliers are making an ongoing effort to improve their CSR performance. Some of BRUGGER’s suppliers have developed their business much faster because of the project and even acquired new customers. Furthermore, the suppliers have become much more transparent about their own supply chains. Additional suppliers and traders have also asked to become CSR-certified by the project. Finally, through its related FairMagnet initiative, BRUGGER has been able to expand the project to other magnet producers outside of China.

LESSONS LEARNED

BRUGGER found several factors particularly important for the project’s success.

They include having a comprehensive project concept and the direct involvement of top management. Having an experienced project team is equally important, as is having a reputable and credible Chinese partner, in this case a leading university. Financial incentives were a significant factor as well, e.g., paying for equipment. Finally, co-financing from the German government was extremely useful. According to BRUGGER, the project would have been much smaller without it. The project’s scope was limited, however, since rare earths are a  strategic  resource in China. The government considers parts of the supply chain to be of national importance, and they cannot easily be included in the project as a result. However, through the effort of now over seven years, the BRUGGER team feels that a certain degree of trust has built up also in the Chinese network, enabling discussions on topics that were previously difficult to discuss. Another limitation, at least temporarily, is that CSR is still an emerging topic in China. According to BRUGGER, there is room for improvement, but it will require a long-term commitment by all stakeholders.

IDEAS FOR THE FUTURE

Having reached CO2 neutrality in their own operations, BRUGGER Magnetsysteme is continuing its cooperation with its suppliers to further develop their CSR efforts and get new suppliers on board who will reach CO2 neutrality in their supply chains as well. In addition, BRUGGER is expanding its focus to other parts of the supply chain, and seeks like-minded companies in Germany to join the FairMagnet initiative.

Source: More Than A Market Booklet 2021