As a Silicon Valley technology industry worker, I often try to reconcile the humanitarian, environmental, or political aspects of global issues with business realities. I may wish it made business sense for companies to focus on alleviating poverty or improving health care and education, but—even with the best intentions—by definition, for-profit companies are not charities. As it is, big multinational companies spend millions on corporate social responsibility efforts.
Thankfully, the business argument for sustainability is fairly easy to make. At least until emerging market growth slows appreciably and manufacturers find alternative materials to use, the price of elements in our high tech gadgets, and the security risks of not finding alternatives, are both headed up.
First, look at the demand side of the equation. Ironically, many of the technologies that move us toward greener, smarter, and more connected lifestyles are also rare earth and scarce materials hogs. These include wind turbines, hybrid car batteries, liquid crystal displays, audio coil magnets, and solar cells, among others. According to Intel, over 60 elements are used in the manufacture of semiconductors. Depending on the process, these may include boron, phosphorus, platinum group metals, and gallium. Printed wiring boards require large amounts of lead and copper. For every megawatt of electricity generated by a wind turbine, one ton of rare earth permanent magnets are needed. And even as new technologies demand more of these materials, rising living standards around the world mean more people want to buy them, propelling demand even higher.
Now consider supply. Rare earth metals are not scarce in terms of reserves, and only about a third of known reserves are in China. The problem is that 96 percent of active mines are located there. The balance has begun to shift, particularly following a temporary embargo of rare earth exports by China attributed to a diplomatic spat with Japan last year. For its part, Beijing has made it known that it no longer wishes to be the world’s sole supplier of these elements. With an eye to moving exports up the value chain, prioritizing domestic demand and taking steps to protect the environment, Beijing introduced a new export tax on rare earths from 01 April. Existing rare earth mines in the US, Canada and Australia are being brought back online, but the environmental impact of refining methods for rare earths makes refining politically tricky and creates ethical questions. One Australian mining company is building a major new refinery in Malaysia, and rare earths mined in the US will have to be exported for refining, according to various reports.
Rare earths are not the only culprit. Reserves of other elements used in high tech manufacturing including helium, phosphorus, silver, indium and gallium are being depleted. Even experts do not agree on how much remains in the ground, but what is not in question is that prices are have grown volatile. Market fears compound actual supply constraints, encouraging stockpiling, speculation, and hedging. Indeed, some elements with ample reserves are experiencing price spikes, particularly tin and copper, thanks to market speculators.
Resource depletion raises a host of risks for tech companies. Despite our best intentions, many old electronic components end up in dumps in Asia and Africa. There, crude and toxic methods may be used to extract elements whose value is too great for impoverished locals to ignore, even if they understand the illegality and toxicity. Theft of existing infrastructure, as scrap prices rise, is leading to power outages, train signal malfunctions, and Internet outages. Last week, a Georgian woman in her seventies, scavenging for copper, inadvertently cut off Internet access for the entire country of Armenia. The UK has termed copper theft risk its second biggest national security threat after terrorism. As materials prices rise, the residual value of used kit increases, and the grey market expands, posing brand risk as well.
Geopolitics will play too. Governments may get more involved as supply choke points emerge, leading to tensions reminiscent of global oil supply disputes. This was seen last year when a diplomatic disagreement may have contributed to a temporary embargo of rare earth exports from China to Japan. While net consumer countries bicker, supplier countries may enjoy a rise in strategic clout, including:
- Saudi Arabia, with reserves of tantalum
- Democratic Republic of Congo with cassiterite, wolframite, coltan and gold
- Zambia, a major copper exporter
- Bolivia, with supplies of lithium
Given these looming problems, it is pretty easy to argue that sustainability is not just a nice-to-have. I took a look at what some companies are doing, and here are a few examples of what I found.
- Rethinking the product cycle: The beauty of elements is that by definition they are not used up in manufacturing, but can always be returned to their essential states. Some companies are designing new products with disassembly and re-purposing in mind. Hitachi, for example, is pioneering new mineral harvesting machinery (ready in 2013) that will extract 100 rare earth magnets per hour from old hard disk drives using automation rather than riskier human labor.
- Encouraging the return of used products for the purpose of recycling metals may represent a new revenue stream for some firms and boost corporate reputation as a responsible ICT partner. Apple laptop enclosures are now made with recycle-friendly aluminum, and glass displays free of lead and arsenic. The company website says it has achieved a product recycle rate of 66 percent.
- Hedging: Technology multinationals traditionally rely on supply chain vendors to ensure steady supply through hedging. However, as supplies tighten, some companies may turn to in-house hedging to mitigate risk. Hedging can also protect against price collapse if upward trends turn into bubbles.
- Rethinking the sales model: Refurbished products can be sold at much better margins than new ones, even accounting for associated costs. As customers look for more cost-effective options, they may lean toward cloud service solutions and be more receptive to leasing. Leasing and re-selling used kits allows companies to take advantage of the residual value of products, profiting on the same basic materials again and again.
- Sharing the costs: Industry consortia can help defray the costs associated with developing sustainable solutions. Indeed, the GreenTouch Consortium, which includes Alcatel-Lucent’s Bell Labs, Huawei, Telefonica, AT&T, Stanford University, China Mobile and others, is working to pioneer sustainable ICT solutions. Cisco is teaming up with British Telecom and the Ellen MacArthur Foundation to brainstorm more sustainable product cycle design.
All of these are good options that companies are looking at, and some are pursuing. To be honest, however, it appears that despite Silicon Valley chatter about disruptive technologies and solutions, sustainability is not a high priority in many technology company boardrooms. That doesn’t make business sense to me, given the risks to supply chain, information security, and the environment. Lately, it seems more canaries are coming up out of mines dead than alive.