Blockchain systems and ethical sourcing in the mineral and metal industry: a multiple case study

• DOI: https://doi.org/10.1108/IJLM-02-2021-0108
• Published date: 10 January 2022
• Date: 10 January 2022
• Pages: 1-27
• Subject Matter: Management science & operations,Logistics
• Author: Nir Kshetri

Blockchain systems and ethical

sourcing in the mineral and metal

industry: a multiple case study

Nir Kshetri

Management, The University of North Carolina at Greensboro, Greensboro,

North Carolina, USA

Abstract

Purpose –The purpose of this paper is to examine blockchain’s roles in promoting ethical sourcing in the

mineral and metal industry.

Design/methodology/approach–It analyzes multiple case studies of blockchain projects in the mineral and

metal industry.

Findings –It gives detailed descriptions of how blockchain-based supply chain networks’higher density of

information flow and high degree of authenticity of information can increase supply chain participants’

compliance with sustainability standards. It gives special consideration to blockchain systems’roles in

overcoming the deficits in the second party and the third-party trust. It also demonstrates how blockchain-

based supply chain networks include outside actors and configure the supply chain networks in a way that

enhances the empowerment of marginalized groups.

Practical implications –It suggests various mechanisms by which blockchain-based supply chain

networks can give a voice to marginalized groups.

Originality/value –It demonstrates how blockchain is likely to force mineral and metal supply chains to

become more traceable and transparent.

Keywords Artisanal and small-scale miners, Blockchain, Dodd-frank wall street reform and consumer

protection act, Environmental, Social and governance, Supply chain networks

Paper type Research paper

1. Introduction

A number of serious environmental, social and governance (ESG) issues have been identified

in supply chains (SCs) in general (LeBaron, 2021) and the mineral and metal (M&M) industry

SCs in particular (L

ebre et al., 2020). Mineral extraction activities’adverse impacts include

environmental degradation, exploitation of child workers, human rights violations,

population displacement and violent conflicts (UNSDSN, 2016). Most serious ESG risks

reside deeper down in the SC (Sedex briefing, 2013). These include artisanal and small-scale

miners (ASMs) in Africa. Exposure to toxic pollution is reported to cause birth defects among

the children of cobalt miners in the Democratic Republic of Congo (DRC), which is the world’s

biggest cobalt producing country (amnesty.org, 2020).

The wide media coverage has brought to light highly unethical practices in M&M

extraction activities. This is especially true for cobalt.About 10–20% of lithium ion batteries

consist of cobalt (Nelson, 2019). An electric car battery requires 10–20 kilograms of cobalt

(Wolfson,2019). About two-thirds of cobalt used in the world is mined from the DRC. There are

reports that children as young as six work inthe mines, who are exposed to unsafe working

conditions. They are exposed to potentially life-threatening skin and respiratory toxicity

(Taylor, 2020). The wages are as low as US$0.75/day. A large number of preventable deaths

have been reported in the cobalt mining industry (Ledger Insights,2020). Due to such issues,

Blockchain

systems and

ethical

sourcing

1

The author is grateful to an IJLM Associate Editor and two anonymous reviewers for their detailed,

generous and insightful comments on the previous versions.

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/0957-4093.htm

Received 15 February 2021

Revised 21 September 2021

12 November 2021

12 December 2021

Accepted 26 December 2021

The International Journal of

Logistics Management

Vol. 33 No. 1, 2022

pp. 1-27

© Emerald Publishing Limited

0957-4093

DOI 10.1108/IJLM-02-2021-0108

cobalt is also referred to as “blood cobalt”(LeVine, 2018). The proponents of blockchain

believe that these issues are likely to be tackled with this technology (Bennett, 2019).

From the 2010s, regulators in Western countries have started responding to some of the

serious ESG issues. For instance, the Dodd–Frank Wall Street Reform and Consumer

Protection Act requires US companies to vet SCs. Countries covered under this legislation

include the DRC and nine neighboring countries (Ayogu and Lewis, 2011). Section 1502 of the

Act requires mining companies to disclose if they source conflict minerals: tin, tungsten,

tantalum and gold (3TG) –from these countries (Mwai, 2018). The EU Conflict Minerals

Regulation (EU Regulation No. 2017/821) was adopted in May 2017 by the EU Parliament and

EU Council (European Union, 2017), which came into force in 2021. Importers of 3 TG are

required to carry out due diligence on their SCs to ensure that they were processed

responsibly (European Commission, 2017).

Despite these regulatory developments, addressing ESG issues in the M&M industry is

not easy. The M&M industry SCs have unique, unusual and idiosyncratic characteristics. For

instance, minerals and metals often change physical characteristics, chemical composition

and other features along the SC. Commenting on the challenges involved in tracking

tantalum, which is used for making capacitors for smartphones laptops and other devices,

traceability-as-a-service (TaaS) provider Circulor CEO Doug Johnson-Poensgen put the issue

this way: “This isn’t a simple track and trace. It’s complicated, because we start with ore and

end up with smartphones. Food traceability is much simpler. A banana does not change into a

diamond halfway through its journey to a consumer”(Hyperledger,2019).

Blockchain has the potential to address many of the ESG issues in SCs. The EU has

recommended that the use of technology such as blockchain be explored to enhance SC

visibility (European Union, 2020). Emphasizing the seriousness and urgency of ESG issues in

this industry and blockchain’s potential, Everledger CEO Leanne Kemp said: “We saw that

the next most potentially conflicted SC is going to be in rare earths and batteries. We’re not

interested in tracking lettuce. That’s not where the world needs us to be”(Allison, 2020a).

Prior researchers have suggested that by making effects and results more transparent, a

firm can signal the quality of standards and gain legitimacy from various stakeholders

(Mueller et al., 2009). Blockchain researchers have recently established that due primarily to

its features such as decentralization and transparency, a rapidly emerging application of

blockchain has been in verifying sustainability (Di Vaio and Varriale, 2020). Unsurprisingly

the world’s biggest companies from industries such as automobile, lithium ion battery and

diamond manufacturing have implemented blockchain to track SCs. Despite the importance

of understanding blockchain’s roles in promoting sustainability in M&M SCs, prior research

has done little to address this issue.

Researchers have also emphasized the importance of studying the roles of technological

innovations in SC management (SCM). Bush et al. (2015) suggested scholars and practitioners

to look at sustainability issues in global SCs in order to better understand the effectiveness of

instruments used, analyze the sustainability impacts and examine the effects on various

stakeholders.

Specifically, the need for more research has been emphasized in blockchain’s potential to

overcome challenges in the existing governance arrangements (Kshetri, 2021a). Such

challenges include the standalone and discrete systems of SC governance with a low degree of

integration with outside actors (Macdonald, 2007), and the lack or ineffectiveness of

watchdog organizations to make sure that companies follow sustainability standards

(Dietrich and Auld, 2015). There are also complaints that the existing governance

arrangements have failed to close geographical, informational, communicative, compliance

and power gaps (Bostr€

om et al., 2015). These gaps have enabled the dominant groups to

maintain their operation and authority (Miller and Bush, 2015). A related point is that socio-

economic empowerment requires coordinated set of actions from a range of state and non-

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