The dark side of ESG investing has the potential to undermine an entire generation of cleantech strategies.
Adam Matthews, director of responsible investments at the Church of England Pensions Board, said the risks posed to the renewable energy boom via the mining industry were not getting enough attention. The result, according to the 47-year-old, is that portfolios intended to uphold environmental, social or good governance principles can end up being exposed to human rights abuses and environmental damage through the chains of credit. ‘supply.
It’s an issue that led Matthews and other investors to form an alliance recently, in an effort to shine a spotlight on the topic to make it much harder for fund managers to plead ignorance. The Global Investor Commission on Mining 2030which is advised by the United Nations, plans to expose and combat what it calls the systemic risks that arise from the link between the mining industry and the clean energy industry.
“The automotive sector is massively exposed, as are wind turbine manufacturers,” Matthews said in an interview. There is also “tremendous demand” for minerals such as copper and lithium, which are “extremely important for low-carbon technology”.
But “we should be under no illusions” that these minerals and metals often come from areas where “unstable government structures” are the norm, and where the dynamics around mining “play a role.” in conflict,” he said. The renewable energy boom that is currently underway risks “igniting and exacerbating” such instability, he said.
The building blocks needed to develop wind, solar and electric vehicle generation will require many more minerals and metals as combustion technology. The World Bank estimates that by the middle of the century, the amount of raw materials needed for the green transition will increase by 500%. And with new legislation such as the US Inflation Reduction Act driving demand for clean tech, that pressure is set to skyrocket.
“We have some companies that are good practitioners, but that’s not representative of the whole industry,” Matthews said, declining to single out individual companies.
BloombergNEF analysts estimate that the path to net zero could require mining 5.2 billion metric tons of metals through 2050, which could be worth up to $10 trillion.
Some companies try to reduce their exposure to risk by looking for ways to bypass raw materials or by taking direct control of supply chains. You’re here Inc. is redesigning batteries to avoid cobalt and nickel. General Motors Co. recently invested $650 million in Lithium Americas Corp., which is developing a mine in Nevada.
Manufacturers in the renewable energy sector and their investors are already facing a stricter regulatory environment in some key jurisdictions. The European Union has made it clear that it does not want to fall victim to the same dependence on suppliers of raw materials such as lithium that it suffered with oil and gas. In September, the bloc unveiled the Critical Raw Materials Act, with the explicit goal of securing “sustainable access» the minerals and metals needed to achieve climate neutrality.
The EU’s Corporate Sustainability Due Diligence Directive is another route the bloc plans to ensure companies screen their supply chains for ESG risks.
Such initiatives follow shocking evidence of human suffering from mining. Last year, testimonies collected by the non-profit organization Human Rights Watch described the prevalence of child labor in the Democratic Republic of Congo’s mining industry, which spans around 70% of the world’s cobalt. Most of it is produced in industrial projects controlled by multinational corporations, including glencore Plc and CMOC Group Ltd.
Indonesia, which produces around half of the world’s nickel, recently said it had outmoded Russia and Australia will become the second largest source of cobalt on the planet.
In South America, meanwhile, mining has had a devastating impact on local populations. In 2019, a mining waste dam at one Valley The SA iron ore mine in the city of Brumadinho, Brazil, collapsed, killing 270 people. Vale then agreed to pay $7 billion to the state of Minas Gerais, which will be used in socio-economic and environmental programs to repair the damage caused by the dam collapse.
Meanwhile, China, which is the world’s largest refiner of battery minerals and metals, depends on coal to power the factories that do this work. And coal companies such as Thungela Resources Ltd. have even tried to present the most polluting fossil fuel as an essential ingredient of the renewable energy boom.
Matthews said miners clearly play a critical role in the transition to a more sustainable economy, so excluding them from portfolios is not sustainable for ESG investors. Sometimes, however, there is no other choice, and the Church of England Pensions Board vacated its entire stake in Vale as all the horror of the 2019 dam collapse became clear and launched a campaign to improving mine safety.
The goal is to expose and isolate bad actors, and enforce much higher standards of accountability as mining’s vital role in the green transition expands.
While “we need mining”, the process of extracting raw materials for the renewable energy revolution cannot be “a mad scramble to meet demands where there is no consultation with the community,” Matthews said. Otherwise, the industry will “lose the social license” to continue its work, he said.
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