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Title page 1

Contents 8

Preface 4

Foreword 6

Acknowledgements 7

Executive summary 12

1. Overview 15

1.1. Growing global demand for critical minerals is intensifying supply chain pressures 16

1.2. Efforts to boost resilience are intensifying but more is needed 17

1.3. A whole-of-supply chain approach to standards-based, responsible production and traceability could help fill this gap 18

1.4. Standards-based responsible practices and traceability can therefore serve complementary policy objectives 19

1.5. Key findings 20

1.6. Key policy recommendations 21

1.6.1. Supply chain diversification 21

1.6.2. Responsible business conduct and due diligence 21

1.6.3. Circularity and resource efficiency 22

1.6.4. Sustainable development in mining regions 22

1.6.5. Revenue mobilisation 22

Notes 24

References 24

2. Understanding responsible business conduct and traceability 25

2.1. Operational and governance risks threaten already strained supply chains 26

2.2. Responsible business conduct standards to address operational and governance risks in mineral supply chains 28

2.3. Multi-stakeholder and industry initiatives as tools to drive supply chain due diligence and transparency 28

2.4. Traceability as a tool for responsible mineral supply chains 30

Examples of government-led traceability efforts 33

2.5. Traceability in the private sector: diverse approaches 35

2.5.1. Diversity in traceability models 36

2.5.2. Diversity in supply chain coverage 37

2.5.3. Diversity in information collected by traceability systems 39

Annex 2.A. Base Erosion and Profit Shifting 44

BEPS Action 4 - Limiting Base Erosion via Interest Deductions 44

BEPS Actions 8-10 - Aligning Transfer Pricing Outcomes with Value Creation 44

Action 13 - Transfer Pricing Documentation and Country-by-Country Reporting (CbCR) 44

Tax Incentives and the Global Minimum Tax 45

Notes 46

References 46

3. Lithium 49

3.1. Overview of the supply chain 50

3.2. Operational and governance risks 51

3.2.1. Water use and environmental impacts 51

3.2.2. Social impacts and community engagement 52

3.2.3. Emerging risks 52

3.2.4. Battery manufacturing and recycling risks 52

3.2.5. Lithium pricing and other related party transactions 53

3.3. Argentina 54

3.3.1. Argentina: lithium production and processing 54

3.3.2. Argentina: Regulatory environment 55

3.3.3. Argentina: Operational and governance risks 56

3.4. Chile 59

3.4.1. Chile: lithium production and processing 59

3.4.2. Chile: Regulatory environment 61

3.4.3. Chile: Operational and governance risks 61

3.5. Uptake of multi-stakeholder and industry initiatives on responsible business conduct 64

3.6. Uptake of traceability 65

References 67

Annex 3.A. Addressing BEPS Risks and Tax Avoidance 73

Addressing the under-pricing of lithium and nickel sales 73

Additional BEPS risks beyond mineral pricing 73

Mispricing of other related-party transactions associated with the mining activities 73

Financing structures 74

Information gaps and enforcement challenges 74

Role of transfer pricing documentation and information exchange 74

Notes 75

4. Nickel 76

4.1/4.2. Overview of the supply chain 77

4.2/4.3. Operational and governance risks 79

4.2.1/4.3.1. Environment risks from mining and processing 79

4.2.2/4.3.2. Social impacts and community engagement 79

4.2.3/4.3.3. Governance challenges 80

4.2.4/4.3.4. Manufacturing and recycling risks 80

4.2.5/4.3.5. Nickel pricing 80

4.3/4.4. Indonesia 81

4.3.1/4.4.1. Indonesia: nickel production and processing 81

4.3.2/4.4.2. Indonesia: Regulatory environment 83

4.3.3/4.4.3. Indonesia: Operational and governance risks 85

4.4/4.5. The Philippines 87

4.4.1/4.5.1. The Philippines: nickel production and processing 87

4.4.2/4.5.2. The Philippines: Regulatory environment 88

4.4.3/4.5.3. The Philippines: Operational and governance risks 89

4.5/4.6. Uptake of multi-stakeholder and industry initiatives on responsible business conduct 90

4.6/4.7. Uptake of traceability 91

References 95

5. Enablers and obstacles for responsible business conduct and traceability 102

5.1. Context 103

5.2. Key drivers of RBC and traceability initiatives 103

5.2.1. Market and regulatory pressure as drivers of RBC uptake 103

5.2.2. Market incentives as drivers of traceability uptake 105

5.2.3. Link between traceability and participation in multi-stakeholder and industry initiatives 106

5.2.4. Early evidence on the benefits of traceability 106

5.3. Main gaps and shortcomings of existing multi-stakeholder and industry initiatives on RBC and traceability systems 107

5.3.1. Uneven capacity across supply chain actors 107

5.3.2. Data scarcity and fragmentation 107

5.3.3. Fiscal governance 107

5.3.4. Credibility of multi-stakeholder and industry initiatives 108

5.3.5. Cross-border regulatory inconsistencies 108

5.4. Barriers to scaling up traceability - insights from the survey 108

5.4.1. Gaps between audits and customer expectations 109

5.4.2. Implementation and operational barriers 109

5.4.3. Industry appetite for investment into traceability 111

5.5. Factors for scaling implementation 111

5.5.1. Market incentives and price premia 112

5.6. Implications for policymakers 113

References 114

6. Conclusion and policy recommendations 116

6.1. Applying traceability to specific policy goals 117

6.1.1. Diversification and geoeconomic goals 117

6.1.2. Responsible mineral supply chains 119

6.1.3. Circularity and resource efficiency 120

6.1.4. Local development in mining regions 122

6.1.5. Robust fiscal policy 124

6.2. Applying a targeted approach to implementing traceability for lithium and nickel 126

6.2.1. Lithium sourcing from Argentina and Chile 126

6.2.2. Nickel sourcing from Indonesia and the Philippines 127

Annex 6.A. Methodology 128

Survey 128

Site visits 129

References 130

Tables 10

Table 2.1. Dimensions of traceability 32

Table 3.1. Lithium operations in Argentina 55

Table 3.2. Lithium operations in Chile 61

Table 4.1. Select nickel mines in Indonesia 82

Table 4.2. Select industrial parks in Indonesia 83

Figures 10

Figure 1.1. Key findings 21

Figure 1.2. A phased approach to promoting traceability for lithium and nickel 23

Figure 2.1. BEPS risks along the supply chain 27

Figure 2.2. Overview of supply chain and thematic coverage of selected multi-stakeholder and industry initiatives on RBC in mineral supply chains 29

Figure 2.3. Status of traceability system implementation in mineral supply chains 36

Figure 2.4. Traceability models used in critical mineral supply chains 37

Figure 2.5/Figure 2.4. Supply chain tiers covered by respondents' traceability systems 38

Figure 2.6/Figure 2.5. Types of information collected through traceability systems in mineral supply chains 40

Figure 2.7/Figure 2.6. Environment related information collected through existing traceability systems 41

Figure 2.8/Figure 2.7. Governance related information collected through traceability systems 42

Figure 2.9/Figure 2.8. Human and labour rights information collected through traceability systems 43

Figure 3.1. Visualising lithium trade flows 51

Figure 3.2. Participation and membership in key multi-stakeholder and industry initiatives in the lithium supply chain 65

Figure 4.1. Nickel supply chain 78

Figure 4.2. Participation and membership in key multi-stakeholder and industry initiatives in the nickel supply chain 91

Figure 5.1. Primary drivers of company participation in multi-stakeholder and industry initiatives on RBC 104

Figure 5.2. Primary drivers for pursuing traceability in mineral supply chains 105

Figure 5.3. Participation in multi-stakeholder and industry initiatives on RBC and status of supply chain traceability systems 106

Figure 5.4. Main challenges in setting up and operating traceability systems 110

Figure 5.5. Likelihood of increased investment in traceability over the next three years 111

Figure 5.6. Ranked preferences for support measures to scale traceability efforts 112

Boxes 11

Box 2.1. Examples of multilateral initiatives on product passports 31

Box 2.2. Supporting technical solutions to traceability: the MaDiTraCe Project 34

Box 2.3. China's rare earth management regulation and traceability system 35

Box 3.1. Site visits in la Puna: challenges to leverage mining companies' activities for local development 57

Box 3.2. Site visits in la Puna: leveraging mining companies' activities for local development 59

Box 3.3. Site Visits in Antofagasta: challenges to leverage mining companies' activities for local development 63

Box 4.1. Indonesia's tax incentive regime - Promotion of nickel sector 84

Box 4.2. Site visits in Indonesia: challenges with enforcement of legislation at local level and impacts on local communities 86

Box 4.3. SIMBARA: Indonesia's mineral traceability system 92

Annex Figures 11

Annex Figure 6.A.1. Profile of survey respondents by supply chain segment and relevant minerals 129