Net Zero and Ethical Supply Chains - An Urgent Issue for the Energy Transition
In our blog “Electrification and the Sustainability of Minerals” on 23 October 2020 we looked at some of the issues for ‘energy transition’ industries, from mining in the Democratic Republic of Congo to proposed mining on the seabed.
In this second article, we consider those issues further in the light of significant new developments. We argue that net-zero, the energy transition and addressing climate change are all essential and pressing issues, but that the enormous ‘gold rush’ for metals and minerals to support new energy transition technologies carries major risks for those technologies unless the need for ethical supply chains is addressed promptly.
The 2020 World Bank report “Minerals for Climate Action: The Mineral Intensity of the Energy Transition”, published as part of the Bank’s ‘Climate-Smart Mining Initiative’ estimates that over 3 billion tons of minerals and metals will be needed to deploy wind, solar and geothermal power, as well as energy storage, in order to meet the commitments to limit global warming to less than 2degC. Production of key minerals such as graphite, lithium and cobalt could increase by nearly 500% to meet the demand for clean energy technologies.
The ‘mineral intensity’ of some of these technologies is enormous. Daniel Yergin, in his book “The New Map – Energy, Climate and the Clash of Nations” gives an estimate for the tons of iron, concrete and plastic to make an onshore wind turbine, and says that about half a million pounds of raw materials have to be mined and processed to make a battery for an electric car.
As the drive towards Net Zero gathers pace, in response to the increasingly stark warnings from climate scientists, competition for key mineral resources is intensifying. Some of the ‘clean, green’ industries of the future are joining forces with the less clean, less green mining industry to try to secure access to key metals and minerals. On 5th March 2021 it was announced that Tesla was making an investment in a major nickel mine in New Caledonia.
The Financial Times recently quoted a mineral commentator’s prediction of a “gold rush on steroids” for electric car battery metals (12th March 2021). This is prompting heavy investment in mining projects in some of the most sensitive environments in the world, such as a $30 million investment in a graphite project in Madagascar, new copper mines in the Democratic Republic of Congo, and new interest in mining the seabed for minerals and metals.
It is, therefore, both important and urgent that energy transition industries, including manufacturers of wind turbines, solar panels, electric vehicles and batteries, should address the environmental and ethical issues in their supply chains. Experience from other industries including the metals and mining industries, from the EU REACH Chemicals Regulations, suggests that the key questions to be able to answer include “what is in it?” and “how was it produced?”
In this article, we suggest some key reasons why these industries should take action now to ensure full transparency and ethical supply chains.
Clean, Green industries and Reputational Risk
The mining industry has not always covered itself with glory in matters of environmental protection. There have been some major instances of its causing huge environmental damage, and then finding ways to make a payout, draw a line, and walk away, leaving the full responsibilities of clean up and costs to host governments. For example with the Ok Tedi mine in Papua New Guinea, years of environmental devastation from the dumping of tailings deposits directly into a river causing many billions of dollars worth of environmental damage have been bequeathed to the government of that state to address, with a complex wrangle over the allocation of responsibility for past and ongoing environmental damage,
Mining in the Democratic Republic of Congo is complicated by ‘regular’ mines subject to some regulation operating alongside unauthorised mines with little or no health and safety standards and supervision, with informal trading for cobalt mixing the two. This is brought out in Henry Sanderson’s report in the Financial Times on 7th July 2019 “Congo, child labour and your electric car”.
If in the future seabed mining is developed in response to the ‘mineral rush’ to supply the energy transition, there is a significant risk of major environmental damage. An editorial in Nature on 24th July 2019 urged:
“Write rules for deep-sea mining before it is too late. International Seabed Authority must commit the mining industry to a sustainable future.”
The Norilsk Nickel mine in the Russian arctic, already fined $2 billion for spilling 21,000 tonnes of diesel into rivers and lakes, was in June 2020 under investigation for further discharges of contaminated sediment and pollution from its tailings facilities into the tundra.
For a brand such as Tesla, close association with the mining industry carries the potential for reputational risk, as the company want to promote their electric vehicles as clean and green. Tesla will probably want to ensure that they are able to answer critical questions about where the metals and minerals in their vehicles come from and how they were produced.
Amnesty International drew attention to these issues at the Nordic Electric Vehicle Summit in Oslo in 2019. Its Secretary-General Kumi Naidoo stated that:
“Finding effective solutions to the climate crisis is an absolute imperative, and electric cars have an important role to play in this. But without radical changes, the batteries which power electric vehicles will continue to be tainted by human rights abuses.”
Amnesty went on to cite child labour in the Democratic Republic of Congo, health and safety risks from hand-dug cobalt mines, violations of the human rights of indigenous people living near lithium mining projects in Argentina, and a surge of interest in deep-sea mining for minerals like manganese. In response to calls such as these, Amnesty noted that some industries are already taking action to publish data about their supply chains, including Apple, BMW, Daimler, Renault and Samsung SDI. It urged other companies to follow their example.
There are also other initiatives such as Battery Associates Ethical Battery supply chain feasibility study, which is involving participants from companies including Jaguar Land Rover and Dyson and professional buyers from the mining sector:
“Specifically the project tackles supply chain tracking and raw mineral traceability by supporting the commercialisation of an affordable process and technology capable of tracing and certifying raw battery materials.”
Expectations of consumers and employees
In a report commissioned by Water UK Developing a 2050 Vision for the Water Sector, the authors commented that:
“Transparency and ethical standards: Gen Z (born between 1995 – 2010) are set to become the largest group of consumers globally in 2020. They want brands to be transparent, to know what is in their food, what country their clothes were made in, how employees are treated, and what company profits are being put towards.
Environment: Consumers are increasingly holding companies to account for their environmental performance, including their carbon footprint, use of electric vehicles, air travel and single-use plastics”
If that applies to the water industry, would similar considerations not apply to both consumers and the employees which a future energy transition industry will want to attract? Would they have confidence in an industry that turned a blind eye to ethical or environmental issues at the heart of the materials from which its products were made?
Ethical investors
The record of the mining industry on the maintenance and safety of tailings dams has seen a number of recent disasters resulting in great loss of life, for example at the Brazilian mine tailings dam at Samarco in 2015 and Brumadinho in 2019, in which at least 245 people died.
This, in turn, has attracted the critical scrutiny of some important ‘ethical investors’, including the Church of England Pensions Board and the Swedish Council of Ethics of the AP Funds, who have set up the Investor Mining and Tailings Safety Initiative, and secured the backing of the International Council of Metals and Mining (ICMM), Principles for Responsible Investment (PRI), and the UN Environment Programme (UNEP).
Mining is therefore firmly within the sights of major interests in the ethical investment community, at a time when ‘ethical’ investing is having a major impact on the expectations from all firms, insurers, banks, investment managers and listed companies, as funds and regulators demand clearer information on the climate risks of every single investment and financial transaction.
This is not the time for leaders of the ‘energy transition’ businesses to ignore the issues, but surely the time for them to redouble their efforts to ensure the ethical and environmental integrity of their supply chains. Effective voluntary action taken now would be the best possible way for the industry to anticipate future legislation.
Future regulation
On 12th March 2021, the European Parliament adopted a legislative initiative report (by 504 votes in favour, 79 against and 112 abstentions). This called for the urgent adoption of an EU law to ensure that companies are held accountable and liable when they harm, or contribute to harming, human rights, the environment and good governance.
The European Commission has said that it will bring forward a proposal for legislation on this later in 2021. This legislation will be negotiated and amended, but the current proposal from the European Parliament is that it should oblige companies to address and remedy aspects of their value chain that infringe human rights, the environment and good governance.
“Companies that want access to the EU internal market, including those established outside the EU, would have to prove that they comply with environmental and human rights due diligence obligations.”
Lessons from other industries
The situation facing the European chemical industry before the enactment of the EU REACH chemicals Regulation was that hundreds of chemical substances and mixtures were on the European market with little or no data about their properties and whether or how they could be safely used. The problem which the ‘REACH’ Regulation addressed was that if responsibility for safety is primarily left to regulators, those regulators are generally less well resourced than industry, build up a backlog of work and then face pressures for derogations from an industry keen to market its goods.
The REACH Regulation addressed this problem differently. It basically said that producers had to take the primary responsibility for what they put on the EU market. They were to do this by generating the data needed to support a Registration of chemical substances. Without the data, they could be denied access to the market – the “no data, no market” principle. This became more complex, but it started from these straightforward ideas.
One major effect of REACH has been to drive forward knowledge along the whole manufacturing chain that enables parties to address the question “what is in it?”. The metals and mining industries were initially slow to address the impacts of REACH on their own operations but soon came to see that they were considerable, and made large investments in catching up with the legislative developments.
Summary
It would be a huge advantage to ‘energy transition’ industries to give active consideration, now, to the questions of what metals and minerals are in their technologies, and what level of assurance they can provide as to where they came from and how they were produced.
These questions will not go away, and there is every indication that they will be of increasing interest to consumers, employees, ethical investors, regulators, development banks and legislators in the very near future. Initiatives such as Battery Associates’ Ethical Battery Review’ are asking the right questions, and some major corporations have begun the necessary work.
None of this is to question the pressing need for Net Zero commitments, or the vital importance of listening to the scientists on global warming. On the contrary, it is precisely because the world needs ‘energy transition ‘ industries to succeed and to prosper mightily, to create new jobs and to decarbonise whole societies, that we need them to do it in a way that protects the environment and human rights. We would not argue that engineers working on wind turbines or batteries or electric cars or solar panels should build weaknesses into their designs. It makes no more sense to accept that these industries of the future should be built on weakened foundations.