Critical Minerals: ESG Risks and Implications

Below are key takeaways from ISS ESG’s recently released paper on ‘Critical Minerals.’ To access the full paper, you can download it directly from the ISS ESG online library.

Climate change and the energy transition imperative have significantly changed market dynamics for numerous commodities, and these changes have important ESG consequences. As the world retires fossil fuels, greater quantities of metal will be needed to electrify large swaths of the economy. The following papers explore the ESG risks and opportunities associated with these new supply/demand dynamics. Increased demand and rising prices have brought to the forefront sustainability weak points in raw material supply chains as well as environmental issues of increased metals extraction. Each metal has its own set of concerns, with certain commonalities. Cobalt, nickel, and copper supply all rely heavily on specific countries or regions for future growth. However, concerns of labor abuse (e.g., child labor), are more pertinent for cobalt mining. Meanwhile, lithium mining presents potential water supply concerns as well as significant reliance on a specific region, Latin America.

Awareness of the issues and investment options are the start of the solution. The following collection reviews some of the most important potential problems. Investors will need to consider whether it makes sense to fund large new mines or expansions given the expected ESG profiles of such projects. Capital can be channeled to those companies and regions where ESG performance, particularly with respect to labor and environmental behavior, can be commensurate with financial performance rather than sacrificed for financial performance.

Key topics of discussion in this report:

• The Race for Critical Minerals.
• The Cobalt Conundrum: Net Zero Necessity vs Supply Chain Concerns.
• Lithium: Critical for Net Zero, Yet Facing Challenges.
• Copper or Robber: Supply Risks and ESG Issues.
• Nickel: Supply Risks and ESG Issues.
• Looking at Deep-Sea Mining through an ESG Lens.

Explore ISS ESG solutions mentioned in this report:

• Identify ESG risks and seize investment opportunities with the ISS ESG Corporate Rating.
• Access to global data on country-level ESG performance is a key element both in the management of fixed income portfolios and in understanding risks for equity investors with exposure to emerging markets. Extend your ESG intelligence using the ISS ESG Country Rating and ISS ESG Country Controversy Assessments.
• Assess companies’ adherence to international norms on human rights, labor standards, environmental protection and anti-corruption using ISS ESG Norm-Based Research.
• Access a holistic assessment of companies’ exposure to freshwater-related risks using the ISS ESG Water Risk Rating.