Corporate social responsibility and sustainability – the background

While the company’s sole mission is rooted in sustainability, observers have raised concerns about the socio- political and environmental effects mining of the metallic components used i

HO CHI MINH CITY UNIVERSITY

OF FOREIGN LANGUAGES - INFORMATION TECHNOLOGY

FACULTY OF BUSINESS ADMINISTRATION

RISK MANAGEMENT

MIDTERM REPORT

Members: Chau Pham -21DH120208

Kha Nguyen -21DH123152 Khai Pham - 21DH123161

Ho Chi Minh City — August, 2023

ABSTRACT

1 Introduction

From being reserved only for aristocrats, cars became increasingly modern and

popular thanks to Henry Ford's use of mass production technology

The American auto industry last had prosperity 114 years ago which named was Ford

But it took Tesla just over ten years to succeed, grow to be "a titan", and win the

admiration of millions of people The surrounding companies’ market capitalization is

estimated to be $48.58 billion Tesla is referred to by Morgan Stanley as "the world's

most important car company." According to numerous surveys, the Tesla Model S is

"the most popular utility vehicle in America”

Tesla Motors company was founded by two engineers Martin Eberhard and Marc

Tarpenning in 2003 in Menlo Park, California, in the famous cradle of tech companies

- Silicon Valley (Vance, 2015) Tesla was named after a Serbian electrical engineer

and physicist, Nikola Tesla Tesla's first car used an AC motor directly from Nikola

Teslas 1882 design The company is a leader in manufacturing electric vehicles

(EVs), solar panels, and rechargeable battery technology While the company’s sole

mission is rooted in sustainability, observers have raised concerns about the socio-

political and environmental effects mining of the metallic components used in battery

manufacturing of its EVs, as well as subsequent disposal of battery remnants after the

cars are written off

The first Tesla Roadster was be sold for $100.000 To make sure create a high-end

brand which was sold at a high price towards the rich to cover costs Then reduce it

for many luxury objects

Tesla took the car world by storm, with users, media and investors all raving about its

performance Even General Motors had to form a task force to see what Tesla was

doing

2 Corporate Social Responsibility and Sustainability — the background

2.1 CSR and sustainability laws for the automobile industry

The company introduced the larger five-door lift back Model S in 2012, the opulent

SUV Model X in 2015, and finally, an affordable Model 3 - the final step in Musk's

Master Plan - in 2016 The Model 3 was the first step in a journey to transform the

entire automotive industry from a hydrocarbon to a new green electric era Tesla has

created innovative battery storage and charging technology that has been incorporated

into its other products, the Powerwall and Supercharger This particular battery

storage system is often referred to as an EV battery Lithium, nickel, graphite, and

cobalt are just a few of the materials used to make EV batteries Some of these metals

are sourced from developing countries, including war-torn zones such as sub-Saharan

Africa (Sovacool 2019) To curb the exploitation of vulnerable countries for their

minerals, the US government passed the Dodd-Frank Wall Street Reform and

Consumer Protection Act in 2010 (US Congress 2010) Lithium, Nickel, and Cobalt,

the metals used in the production of batteries, are not covered by the law; only

tungsten, tantalum, and gold are covered

2.2 Historical CSR & sustainability issues for Tesla Inc

Sustainability concerns have been raised against the disposal of EV batteries after they

are spent or when the cars are written off (Scottberg, 2020) Whilst EVs comprise only

2% of cars today, it is expected that most of the cars on the roads will be electric by

2030 (Newswire, 2019)Given that Tesla is the largest EV manufacturer in the world,

the organization is specifically targeted by environmentalists' growing worries over

lithium battery disposal The Tesla board is asked to come up with workable remedies

to the issue before the flood of depleted batteries starts While lithium itself is not a

pollutant and may be recyclable, the other heavy metal components (cobalt, nickel,

and manganese), are considered environmental toxins and require even more stringent

disposal strategies (Rapier, 2020)

It is noteworthy that the company prides itself as a champion of environmental

sustainability in its mission statement and constitution (Tesla, 2019) Tesla, however,

had not expressly reported on CSR&S since it began operations in 2012 until it

published its first report on its ongoing work in this area in 2018 (Tesla Impact Report,

2018), in an effort to allay concerns about battery pollution near the end of the cars'

useful lives

3 Enterprise Risk Management of CSR&S issues — the background

The process of identifying, analysing, evaluating, regulating (or managing), and

keeping track of threats to a company's financial health is known as risk management

Corporate strategy, management, and operational levels are the three levels within

which risk manifests itself (Tricker, 2019) Therefore, the reporter uses their method

of risk analysis and management (Figure 1) to evaluate Tesla's CSR&S concerns

Figure 1: A risk analysis and management approach (licker, 2019)

3.1 Risk Analysis of CSR and Sustainability Issues at Tesla Inc

There are two CSR&S hazards for Tesla Inc

The DRC, which has more than half of the world's cobalt reserves, may become the

company's primary source of raw materials due to the impending shortage of metals

needed for battery manufacturing (Sovacool, 2019)

b) In the upcoming years, there will begin to be an environmental impact due to the

lack of an efficient and scalable recycling or disposal strategy for battery components beyond the life of the cars (Rapier, 2020)

These occurrences are very likely certainly to nearly occur Given that Tesla positions itself as a green business and a pioneer in sustainability, these risks are essential to its continued existence (Tesla Impact Report, 2018)

3.2 Risk mapping of CSR and sustainability issues at Tesla Inc

Impact of

even

(cost or

loss)

Low

Low Likelihood of High

even (probability) Figure 2: Risk mapping for three of Tesla’s CSR&S issues

All two risks (**) are in the high impact/high likelihood quadrant The blue line represents the importance of board-level involvement plotted against likelihood and impact

3.3 Risk Strategies for CSR and Sustainability Issues at Tesla Inc

(Tricker, 2019) prescribes that the board of directors (BoD) should give serious

consideration to risks that fall in the high impact/high likelihood quadrant Therefore,

Tesla’s CSR&S issues must be dealt with at the board level with appropriate policies

and strategies for management, suppliers, miners, and employees to follow Four

strategies are at the board’s disposal to manage these risks: avoid, mitigate, transfer, or

retain (Tricker, 2019) Mining and disposal of metals are at the core of EV battery

manufacturing and neither can be avoided Additionally, the supply of cobalt, nickel,

and lithium is already in the hands of third-party mining companies and therefore,

cannot be transferred The supply chain of metals is also easily trackable across the

globe such that Tesla cannot practically dissociate itself from its supplying miners

Given the gravity of these two CSR&S issues exposed, and the options available,

mitigation is therefore the most appropriate risk management policy approach for the

Tesla BoD to pursue

4 Critical analysis of CSR and Risk Management Activities of Tesla’s Board of

Directors

Tesla was established in 2012 by indtviduals from the ‘Silicon Valley’ with strong

technology industry backgrounds and a high-risk appetite The sole aim was to disrupt

the automobile and oil industry by introducing EVs that are environmentally friendly,

yet fun to drive and practical for daily commutes (Tesla Impact Report, 2018) Given

the sustainability basis on which the company was founded, the constitution, articles

of association, and annual reports before 2019, took CSR&S issues of the company

for granted and did not see a need to emphasize them in these documents They did

not foresee or decide to temporarily accept - the hazards of battery disposal in those

early years

Tesla only released its first report on CSR&S on 16 April 2019 (Tesla Impact Report,

2018) The timing appears reactive, given that a lawsuit against the company followed

a few months later and the growing number of observers had started questioning how

the company handles battery disposal once some of their cars reach their end of life

(Scottberg, 2020) The timing of the first report also coincides with the appointment of

two new independent directors to the board in late 2018, increasing the diversity of background to the ‘tech heavy’ team (Hull, 2019) as alluded to in the interim

assignment report by this author

Whilst the report could be considered an afterthought and coming out somewhat too

late, the Tesla Impact Report (2018) addresses some of the CSR&S issues leveled

against the company Tesla is also working towards the complete elimination of cobalt

from its batteries in the future (Dent, 2008) In response to concerns about the disposal

of toxic heavy metal battery components, the Tesla’s board states that it is developing

a recycling program with the help of third parties, to ensure that none of the metals

end up as environmental pollutants (Sanderson, H, 2018)

5 Recommendations and Conclusions

Tesla should think about establishing a CSR committee inside its Board of Directors

to strengthen its commitment to CSR&S concerns Only the committees for salary,

disclosure controls, and nomination and governance make up the present board

According to the evidence, boards with CSR committees handle these challenges more

effectively (Orazal, 2020) It is possible to produce high-energy density cells without

the use of cobalt, according to research and development in the field of battery

technology (Dent, 2008) It is advised that Tesla quicken the switch to more modern

energy storage technology Tesla should look into alternate cobalt, nickel, and lithtum

supply sources including Australia and Canada in the meantime (Bochove, 2017) In

the long run, mining in these industrialized nations may be worth the greater expense

Another intermediate or long-term suggestion is for Tesla to think about making

investments in its raw material suppliers so that it can assume control of the mining

operations and have a voice in how mining businesses in the Katanga region conduct

their business In addition to investing in the local communities to raise living

standards and support Congolese children via healthcare and education, the

corporation might modernize mining in the DRC To make sure that all of Tesla's

stakeholders are aware of these charitable endeavors, such CSR&S initiatives ought to

be combined with a shift in Tesla's marketing approach Tesla presently sells

automobiles through word-of-mouth, customer recommendations, and Elon Musk's

frequent tweets The company does not currently pay for advertising and does not

have a budget for brand marketing (Koetsier, 2019)

While plans to develop a battery recycling program are in the works, according to

Tesla's Impact Report (2019), the company still needs a thorough and effective plan to

persuade skeptics that old batteries won't become the next significant pollutants in the

same way that plastic and crude oil are being regarded Tesla needs to do more to

refute claims made by opponents of EV technology that carbon emissions produced by

its supply chain are on par with those of internal combustion engines (Ajanovic,

2018) Tesla does not include CSR&S issues in its annual financial reports, likely

because it feels that by producing only EVs, it is already contributing more to

environmental sustainability than any other automaker The analysis has shown that

the company has some serious CSR&S risk issues too that its board can only ignore at

its own peril

To ensure that all stakeholders are aware of their CSR&S risk management efforts, it

is advised that Tesla integrate ESR reporting within its yearly financial reports The

Impact Report that was published in 2019 is a positive move At the time of its release,

however, the document did not draw much interest from the press or business

observers ESR reporting has been demonstrated to be more successful when included

in annual financial reports (Dunn, 2017)

Although the board has recently made great progress toward diversity with the

nominations of Mr Larry Ellison and Ms Kathleen Wilson-Thompson (Hull,

2019)there is still space to increase board diversity by hiring directors with

backgrounds in risk management and CSR management The board should regularly

monitor and assess its CSR&S policies and strategies as the business develops, new

technologies become mature, and societal expectations change over time in order to

close the risk management loop

References

Ajanovic (2018) Electric Vehicles: Solution or new problem?

Bochove (2017) The Canadian ghost town that tesla is bringing back to life Bloomberg News

Dent, M (2008) Tesla aims to slash cobalt use in EV batteries Metal Bulletin Daily

Dunn (2017) Tesla aims to slash cobalt use in EV batteries

Environmental Implications Of Lead-Acid And Lithium-Ion Batteries (2020)

Hull (2019) Tesla Board Shakeup Seen as ‘Important Step’ in Governance Bloomberg News

Koetsier (2019) Tesla Spends Zero on Ads Here's Where BMW, Toyota, Ford, and Porsche Spend

Digital Ad Dollars Forbes.com

Newswire, P (2019) Electric Vehicle Market - Global Forecast to 2030: Market Volume is Expected to

Reach 26,951,318 Units PR Newswire US

Orazal (2020) Do board sustainability committees contribute to corporate environmental and social

performance? The mediating role of corporate social responsibility strategy Business

Strategy & the Environment

Rapier (2020) Environmental Implications Of Lead-Acid And Lithium-Ion Batteries Forbes.com

Sanderson, H (2018) Start-up see life in dead electric car batteries: Automobles Recycling Financial

Times

Scottberg (2020) Running on EV: The race to solve lithium-ion battery recycling before it’s too late

Forbes.com

Sovacool (2019) The precarious political economy of cobalt: Balancing prosperity

Tesla (2019) Investors Overview Tesla.com

Tesla Impact Report (2018) Impact Report Tesla.com

Tricker (2019) Corporate Governance: principles, policies, and practices, 4th edn

Ajanovic, A, Haas, R 2018, ‘Electric vehicles: Solution or new problem?’,

Environment, Development and Sustainability, 20(1), pp 7-22,

http://dx.do1.org.aib.idm.oclc.org/10.1007/s10668-018-0190-3