Investing sustainably in energy transition minerals

The global energy transition is driving the need for substantial investment into critical raw materials such as lithium, nickel, cobalt, copper, and manganese. Capital is required along the entire value chain to support the transition away from fossil fuels and the facilitation of the global electrification. However, significant barriers remain to responsible investment into the mining industry, such as regulatory uncertainty and standards divergence, a narrow set of financial instruments, historic distrust on environmental and social issues of mining, and limited traceability of critical minerals value chain.

Investing sustainably in energy transition minerals

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SLR has collaborated with the Green Purposes Company (GPC), which is a shareholder in the Green Investment Group, to collate a report recommending what is required to unlock private capital, while ensuring robust ESG standards and safeguards are integrated across the supply chain.

Read the full report

Following the launch of the report, SLR hosted a conversational webinar with Paul Ekins (Professor of Resources and Environmental Policy, UCL Institute for Sustainable Resources and Green Purposes Company Trustee) to discuss the findings.

The full webinar recording is available to view below, or read on for a summary of the question and answer session with Paul Ekins, capturing his insight into the report.

Investing sustainably in energy transition minerals – Q&A with GPC

What impact have the findings had for GPC and how will you use the output to move the agenda forward?

Paul Ekins: GPC was set up at the time when the UK Green Investment Bank was sold to the bank Macquarie, and the purpose of setting it up at that time was to ensure the Green Investment Bank continued to invest according to the five green purposes. That's why we're called the Green Purposes Company and our role is to ensure those investments go into five broadly environmental areas. We interact frequently with Macquarie on this. They report to us on the investments they're making under their Green Investment Team and another of our roles has been to encourage the financial community to make a wider range of green investments.

Soon, I'm going to make a presentation to the UNEP Financial Initiative which will have about 400 people there thinking about financing this, other areas of environmental significance, and the Net Zero Banking Alliance. So that is one of the ways in which we'll try to get the get the message out. We'll likely organise a round table with our contacts in order to propagate the report more widely and it'll be on our website. We hope it will catch on and the investment community in particular will find it useful.

Which do you think is the most critical barrier to investment?

Paul Ekins: I think the thing to stress is that mining is risky.

I now know much more about mining than I thought I ever would know from working on these reports, and it's a very long term and risky endeavour which requires quite a lot of money to be put up front. Then that money has to be recouped with a risk component over subsequent decades because very often these are 30 or 40 year projects and investors need to make money. So, the task of stimulating investors and encouraging them to make the very considerable investments that the IEA (International Energy Agency) has identified as necessary if we're to push the energy transition along is no mean task. If we want those minerals to be produced responsibly i.e. to high environmental, social and governance standards - and mining historically has had many problems across those domains - then there may need to be a green premium.

It's not entirely clear how much more expensive, and there are a number of surveys out there that suggest there may only be incremental costs. In fact, some suggest there may be innovation benefits that will enable companies to become more productive.

At the moment these markets are largely undifferentiated commodity markets and there's not a lot of movement for charging a green premium, let alone expecting people to pay it. Governments are going to have to help with that through public procurement, and the big companies that are making the technologies using these minerals also may be required to discriminate between the kinds of minerals they use.

I'm pleased to say there are signs that there are companies, such as big automotive companies and technology companies who want to be able to say they've used minerals that have been responsibly mined - so there will need to be a policy push. There is also consumer sentiment that will encourage companies to go on this route, and although the green premium may be substantial, by the time these companies have added all the other values of the products they produce the actual percentage increase in the final consumer price is likely to be very modest, so I'm hopeful that that kind of differentiated market will develop.

You’ve spoken about the need for more policy to facilitate a green premium. We’ve just had COP29 where there has been discussion around carbon markets. Do you think what has been discussed there is a step that will contribute towards the viability of green products and the growth of a market for them?

Paul Ekins: It’s a possibility, and it looks as if we’re going to be left with carbon markets. I'm less enthusiastic about carbon markets in principle because the opportunities for them to be simply fraudulent seem to be almost infinite. I read the news every day to see another scam has been perpetrated with carbon markets, where they have not delivered the emission reductions or avoidances which were promised to the people who invested in them, or there have been human rights abuses whereby large areas of land in developing countries have been effectively taken over for carbon sequestration.

There are lots of problems with carbon markets that are very far from being sorted out, but I think with minerals there are probably better opportunities in that if you're going to certify something as ESG, you're going to have to do a lot of monitoring and reporting. If you’re doing the difficult monitoring, reporting and verification to get your ESG credentials, in order to be able to charge a green premium, then there may be carbon benefits which attract investment from other sources. The most obvious example is when mines shift from fossil fuel-based extraction to renewable energy-based extraction. Where there are significant costs involved it will help if companies are able to generate some carbon credits as well, which could serve to offset some of the green premium which will otherwise need to be paid.

We have seen the energy transition requires a level of multi-sector and multi-discipline collaboration that is somewhat unprecedented. Which partners do you regard as the most important facilitators in this? Who does the onus fall on in order to really move this agenda forward?

Paul Ekins: The onus falls on all of us; all the facilitators. The companies need to step up, and I've really been very encouraged by the extent to which many of the major mining companies are stepping up. They recognise their responsibilities to do mining in a different way. I'm particularly impressed with the work the International Council on Mining and Metals is doing. Their biodiversity and nature statement came out earlier this year I thought there was a very strong statement on the rights of indigenous peoples as well, and that seems to me to be showing a real willingness to try to get things right. They won't always succeed and accidents will happen, but the first task is to try to make sure the systems are in place that they don't, and I do see many companies really trying to do that.

Then there are governments. Governments in the west seem to have woken up to the importance of mining and minerals. In Europe, generally we've been trying to get rid of mines and imagining that we don't need them, that these minerals can be produced by other countries. Well, we're recognising that's a pretty risky strategy. The country that has not taken that strategy and has been incredibly strategic with regard to these minerals, is China. China has a dominant position - both in the provision of those minerals that it's rich in, and in building up processing and refining capacity that is colossal, even where it doesn't have those minerals on its own territory. For example, with regard to cobalt - although China has no cobalt it processes about 70% of the world's cobalt.

As the technologies that require these minerals become more important, particularly electric vehicles and renewable energy technologies, I think all countries are recognising they need to build up their own capacities in this area, and that it doesn't do anyone any good for all countries to be totally dependent on a single source.

I think NGOs and consumers have their own responsibilities. The NGOs push very hard, and I think many mining companies recognise the NGOs will not let them produce minerals in the way they have produced them in the past.

There are also many original equipment manufacturers who are also interested in playing their part to get the minerals they need and want produced in the right way. So, I think there is potentially a general push. I don't want to be pollyannaish about this, because obviously there's lots and lots of problems out there. And there are plenty of people who don't want to do the right thing. But I think if all those who do want to do the right thing, push as hard as they can, we can make progress.