Martin Wright reports on a host of new initiatives that are attempting to clean up the production of minerals critical to the energy transition, like lithium, cobalt, copper and gold
When the tailings dam at Vale’s mine in Brumadinho, Brazil, failed in January 2019, killing around 250 people, it unleashed a renewed torrent of concern over the human and environmental cost of the world’s extractive industry.
And it accelerated efforts to scrutinise and manage a supply chain which, while it may start deep in Brazil, Peru or Congo, often ends up, literally, in our hands – in the text I’ve just sent to my son, the laptop on which I type these words – and the device on which you’re reading them.
Because while the dam collapse may have been the most spectacular recent example of mining going wrong, it’s far from the only one. This year alone has seen a flurry of reports of human rights abuses in the extraction of everything from lithium and cobalt to copper and gold. The first three are among the so-called “energy transition minerals”, seen as vital to the emerging green economy.
The searing irony is that the powerhouse of a clean, green future is being driven in part by some distinctly dubious practices
There’s a searing irony here, and it’s one not lost on investors and activists: the powerhouse of a clean, green future is being driven in part by some distinctly dirty and dubious practices. And to add urgency to irony, if that economy is to fulfil its promise and transition us smoothly to a low-carbon future, our need for such materials is set to soar. The World Bank estimates a cool 1000% increase in consumption of key minerals used in energy storage under a 2-degree climate scenario. The World Economic Forum-led Global Battery Alliance suggests that in the next decade alone, thanks to the rapid rise in adoption of renewable energy and electric cars, demand for lithium and cobalt will balloon by a factor of six and four, respectively.
So it’s no surprise that, as reports mushroom of bad practice down and around the mines, investors who take sustainability seriously are getting increasingly anxious. “They realise they’re exposed to companies who are dependent on extracting resources from some very dodgy places in the world, and they’re not always managing that risk properly,” says sustainable finance specialist Sasja Beslik, currently managing director of the Zurich-based bank J Safra Sarasin. “That’s making them much more willing to start demanding hard evidence of more responsible practice.”
Such evidence isn’t easy to come by. Like many of the world’s supply chains, the one for transition minerals can be both convoluted and murky, particularly where small-scale, “artisanal” operations are involved. There are an estimated 18,000 tailings dams scattered across the world, and in many cases, their ownership is unclear.
One initiative that seeks to shed some light on the chain is the Transitional Minerals Tracker, a project of the Business & Human Rights Resource Centre (BHRRC), backed by the Ford Foundation. It covers the six minerals key to the production of solar photovoltaic panels, wind turbines and electric vehicle batteries – namely cobalt, copper, lithium, manganese, nickel and zinc. In each case, it identifies the human rights risks associated with their production, and the leading companies involved in their extraction. Then it tracks whether those companies have human rights policies in place, and pinpoints allegations of abuse against them.
It makes for rather grim reading. Take lithium. Each one of the five largest companies involved in its extraction (Albemarle, Jiangxi Ganfeng, Livent, SOM and Tianqi) have been accused of abuses in their South American operations, while only one (Livent) has a human rights policy. Even where such policies are in place, says the BHRRC’s senior researcher, Eniko Horvath, it’s no guarantee that abuse won’t occur. “All but three of the 23 leading companies in transition minerals have outstanding allegations against them, yet 14 have [decent policies on paper]. It just shows they are not strong enough to deal with the problem on the ground.”
The fact that reports of abuses continue to surface suggest there’s a long and rocky road ahead to genuinely responsible sourcing
A similarly disheartening conclusion comes courtesy of the Responsible Sourcing Network in its latest annual report, Mining the Disclosures 2019. It singled out 27 leading cobalt importers as particularly poor performers when it comes to exercising due diligence in their supply chain, accusing them of complacency and describing their attitude to corporate risk as “deplorable”.
To be fair to the industry, it hasn’t been idle. The last few years have seen a veritable plethora of schemes aimed at cleaning up the supply chain, such as the Responsible Minerals Initiative, which aims to “help companies make informed choices about responsibly sourced minerals in their supply chains”. Its members range from tech giants such as Apple, Facebook and Google, to automakers Renault, Tesla, VW and Volvo, and many more besides.
But the fact that reports of abuses continue to surface suggest there’s a long and rocky road ahead to genuinely responsible sourcing. And as demand for transition minerals rockets, that road won’t get any smoother.
So how are investors responding to it all? For the most part, the watchword is “engagement”. In the case of Stephen Barrie at the Church of England Pensions Board, it’s even in his job title: deputy director of ethics and engagement. “We’re grappling with the fact that these [extractive] industries are hugely important in terms of a transition … but also have a very high social and environmental impact,” he said. Like many in the sustainable finance world, the Church has decided that disinvestment is a stick to be wielded only as a last resort. Instead, it’s marshalling both its moral and financial influence in a drive to improve practice, particularly when it comes to tailings dams.
Like many, the CofE was shocked by the Brumadinho collapse – but sadly not that surprised. “We’d identified tailings dams and joint ventures as a major concern in 2017, and started engaging with the International Council on Mining and Metals [ICMM – a leading industry body] last year. So when the disaster happened, we at least felt we’d done our homework. We waited until the end of the official mourning period in Brazil, then issued a call on behalf of a group of investors saying there had, as a matter of urgency, to be much better standards on tailings management.”
It’s early days, but our intention is that today’s best practice becomes the minimum standard
The Church’s moral influence may be hard to quantify, but there’s no doubting the financial clout such influence can bring to bear. That call has now attracted the support of more than 100 investors, with a combined total of $12trn assets under management. The result has been the launch of a Global Tailings Review, co-convened with the UN’s Principles for Responsible Investment, the UN Environment Programme and – crucially – the ICMM, and led by a group of independent experts. It’s early days, admits Barrie, but “our intention is that today’s best practice becomes the minimum standard, because these are major dams, which have serious consequences when they fail – and there are so many around the world.” Once the review’s completed, that standard “will become a requirement for ICMM members”.
The CofE isn’t waiting to act, though. In April, it wrote to all publicly listed extractive companies and asked them to disclose all of their tailings dams, including those run under joint ventures, whether operating or not, and answer 20 questions on each dam, ranging from engineering issues to managerial oversight. It gave them 45 days to respond in the form of a letter signed by the chair or CEO. To date, says Barrie, 68% (by market capitalisation) of the sector has replied, which he regards as “a really good response”. Details of all the disclosures, along with lists of companies that have as yet failed to respond, will be published on the CofE’s Pensions Board website as a very public tool for other investors to use when making funding decisions.
The Church of England is far from the only investor getting stuck into the transition minerals issue. Spurred by an Amnesty International report into working conditions in cobalt mines in the Democratic Republic of the Congo (DRC), the UN’s Principles for Responsible Investment network targeted the cobalt supply chain. Specifically, it asked leading auto and electronics companies where they source their cobalt.
Initial responses varied. “Some of the more advanced ones had started to treat cobalt as a conflict mineral, and begun to carry out the same due diligence efforts they did with tin, tantalum, tungsten and gold”, says the PRI in its report Drilling down into the cobalt supply chain. But other responses stretched credulity, with some “claiming to rely on cobalt not sourced from the DRC. Given the amount of cobalt used in the companies’ products not only were these claims very unlikely, but they also failed to provide proof to back them up,” the report says.
Amnesty followed up with further research to allow investors to make a like-for-like comparison of companies. Some emerged with credit. These included household names such as Apple, praised for having 100% of the smelters in its chain audited by third parties, and BMW, for publishing the full list of smelters and refiners its suppliers use, and the countries of origin from which it sources. Samsung, too, drew praise for insisting on third-party audits.
Such engagement with the wealthier end of the supply chain, rather than producers further upstream, could exert considerable leverage. After all, the same tech and auto giants that are keen to trumpet their net-zero ambitions will hardly welcome exposure to allegations of human rights abuses. Hence, perhaps, Amnesty’s ethical battery campaign, launched in March 2019, challenging the leading carmakers to produce the world’s first completely ethical EV battery within five years’ time.
Regulations can only really have an impact if there’s true transparency in the supply chain
As well as the carrot of investor support, of course, there’s the stick of the law. Regulations such as the Dodd-Frank Act in the US, and the EU’s forthcoming Conflict Minerals Regulation (covering tin, tantalum, tungsten and gold), can help concentrate minds around the boardroom table. But as Beslik says, “they can only really have an impact if there’s true transparency in the supply chain”. And as a rule, the more disparate and fragmented the chain, the tougher it is to manage, let alone police. Barrie acknowledges that investor pressure stands a much greater chance of success with larger operators (rather than the artisanal sector since these, by definition, are entities that can attract direct investment).
So is such pressure having an effect? Yes, says Terry Heymann, CFO of the World Gold Council, which represents large-scale mining companies. It’s recently launched a set of Responsible Gold Mining Principles (RGMP), “in large part as a response to growing investor interest… We’re already seeing investors pulling back capital [from dubious operators], insurance providers taking a second look and customers increasing their scrutiny.”
The principles, announced in September this year, cover issues from labour conditions to environmental impact. They were drawn up after two years of consultation with more than 200 experts and organisations, ranging from industry bodies to civil society, including NGOs that have been quite critical of the sector, such as Global Witness and Earthworks.
There will be a three-year implementation period, after which council members will be expected to conform to the principles as a condition of business, says Heymann. Their greatest impact, he suggests, will be on the “investment community and customers, saying ‘we’re not going to provide you with capital or buy your products unless you conform’. And that would be a good place to get to.”
All such initiatives, of course, rely on transparency, and that means on-the-ground assurance. Quite how thorough that can be is a debatable point. The RGMP lay great stress on third-party assurance, although when I ask Heymann if this would include unannounced spot-checks, he demurs. “It’s possible that these may happen down the road, but for now, the whole area of non-financial assurance is still developing.”
Whether assurance can really be thorough without such uninvited swoops is a moot point, of course, although as technical solutions such as sensors, apps, and monitoring by drones and satellites improve so does the potential for more thorough scrutiny.
The sheer weight of demand for the minerals needed to drive the green transition should unleash greater research and development investments
The Church of England’s Stephen Barrie cites a project run by Fundación Chile, which monitors tailings dams using a mix of ground sensors and insights from local people, with the data uploaded to a website open to all.
As mobile phones become commonplace even in remote areas, the opportunity to enable mine workers and their surrounding communities report issues via secure apps is growing. Ulula, a Toronto-based social enterprise that harnesses technology to help organisations monitor human rights in their supply chains, has customised apps but also allows people to report issues via text or voice message, ensuring that a lack of access to the latest technology is no barrier.
Mobile phones can help ensure artisanal miners get the best price for their product, by providing them with the latest market information, and allowing them to seek alternative buyers who might offer them a better deal. Mobiles can also provide SMS warnings of unstable mine shafts, or the dangers of chemical processing, as well as links to the nearest health centres in case of emergency. And, of course, they can help miners band together to negotiate better terms. (See Can high-tech solutions work for artisanal mining?)
Ultimately, the sheer weight of demand for the minerals needed to drive the green transition should unleash greater research and development investments in both demand-reduction and alternative materials. There are promising signs here, such as the integration of EV batteries in the power grid to curb overall electricity demand, and improvements in the recycling and repurposing of both batteries and wider IT tech in general. There is even the more distant prospect of some of the more awkward raw materials, including cobalt and lithium, being reduced or replaced with the advent of technologies such as sodium-ion.
Such investments are, by their nature, riskier and longer-term. But it’s there, perhaps, that the greatest rewards lie – not just financial, but for people and the planet, too.
Martin Wright (@martinfutures) is a writer, adviser and public speaker specialising in environmental solutions and sustainable futures. He is a former Director of Forum for the Future.
This article is part of the in-depth Responsible Mining briefing. See also: