How to finance responsible transition minerals mining
Future demand for transitional minerals is only going to increase, so we need to rethink how we do it more responsibly
The market for minerals to support the energy transition, such as nickel, cobalt and rare earth metals, increased by between 8 and 15% in 2023 alone.
In the case of lithium alone, demand by 2050 will be equivalent to 9 times what was produced in 2022, according to the latest figures found in the report, Financing the Responsible Supply of Energy Transition Minerals for Sustainable Development.
Written under the auspices of the International Resource Panel (IRP) of the United Nations Environment Programme (UNEP), the report focuses on how financing of the extraction of transition minerals should be reformed to help bring about environmentally and socially responsible production and the equitable distribution of the resulting financial, economic and social benefits.
The report explores resource efficiency policies and the scale of the challenges – both from the perspective of increasing the supply of primary metals and the need to manage the demand for them through circular economy approaches.
Private sector finance for mining
Mining needs to attract very large amounts of capital to meet the projected demand for transition minerals and most of this will have to come from the private sector. But that will only happen if mining can offer the required balance between risk and return.
One of the most important factors influencing investment in mining is current as well as expected future mineral prices and these prices are largely set globally but influenced by a myriad of localised factors.
Factors influenching mineral prices include:
- Supply shocks,
- shifts in demand,
- macroeconomic conditions,
- currency fluctuations,
- geopolitical events,
- production and technology costs,
- government regulations,
- speculation,
- scams, and
- investment itself – in mineral exploration, mining, ore processing, metallurgy and in the required flanking sectoral public institutions, including those dealing with research and innovation.
How these factors on aggregate influence global prices as a whole is still not well understood.
Supply and demand fundamentals are very important, but these can be obscured by geopolitical issues and speculation in financial markets.
Demand for transition minerals
Long lead times from exploration to production, and possible shifts in technologies and therefore the demand for specific minerals, also increase the pricing uncertainties with which prospective investors and mining companies contend.
However, it seems certain that future demand for transition minerals is going to increase dramatically because of various countries’ increasing commitment to a low-carbon energy transition. And this creates the possibility of a significant price increase if supply of minerals does not keep up with demand.
Specifically in Africa, key issues for investment is
- the stability of governance and policy,
- regulatory capacity and
- the skills of the labour force.
“Artisanal and small-scale mining (ASM) contributes a significant proportion of Africa’s production of some important minerals. Illicit financial flows (IFF) are a key governance issue for many resource-rich African countries,” says UNEP in the report.
“These illicit flows rob many African countries of financial resources that should contribute to their sustainable development through investment in capacity-building, downstream industries and infrastructure.”
Setting up a sustainable development licence to operate
Mining companies have long understood that a succesful mining operation requires a “social licence to operate”. A previous report by the International Resource Panel in 2020 recommended that this should extend to a “Sustainable Development Licence to Operate”.
This would encourage mining to make a positive contribute across the social, economic and envronmental dimensions included in the Sustainable Development Goals (SDGs).
“Regarding economic development, mining can play a positive role by increasing local value addition, using local goods and services and employing local people, where possible, by driving technology adoption both in mining and beyond it, and by providing infrastructure that continues to be useful beyond the life of the mine.”
But, achieving such outcomes is not a straightforward path, often requiring commitment to capacity-building from local policy makers as well as international financial institutions.
From a social perspective, mining needs to pay attention to land rights and displacement issues, as well as equity issues, such as the substantial discrimination against women in mining.
The social cost of mining comes mainly from the disruption caused by forcing populations to relocate, from abuse of human rights and from conflicts caused by disruption of lifestyle and livelihoods, loss of rights to land and clean water, pollution and health concerns, and lack of representation.
Addressing these through proper consultation, considered compensation and corporate and public policy measures for greater gender equality would go a long way towards creating a sustainable development licence to operate from the people on the ground, if they are drawn into the overall process into a more robust and meaningful way.
“From an environmental perspective, an understanding of the potential environmental impacts of mining activities is of paramount importance for their technical management and reduction to a socially and environmentally acceptable level.”
The International Resource Panel’s Mineral Resource Governance report (IRP 2020) examined in detail the many environmental implications of mining, and measures to address them.
That report focuses particularly on mining’s impact on biodiversity, addressing which is most important when mining enters ecologically valuable and vulnerable ecosystems.
The January 2024 commitment to “naturepositive mining” by the International Council of Minerals and Metals (ICMM) illustrates how companies and industries can take responsibility to avoid degrading biodiversity and to restore ecosystems through their activities.
In conclusion
Sustainable finance, which takes social, environmental and financial outcomes into accout, could play an important role in promoting responsible mining.
Improving security, skills, working conditions, miners’ incomes and gender equality related to all mining and especially to artisanal and small-scale mining, all need to be prioritised.
Ultimately, mutually beneficial partnerships between the communities and countries that host the mines and the importing and processing countries – based on the equitable sharing of benefits – are essential to address concerns about geopolitical security of transition minerals supply chains.
The report concludes with specific recommendations for reforms – financial and otherwise – required to ensure that the production of metals and minerals contributes to sustainable development:
- Improve transparency, reporting and local engagement
- Incentivise higher mineral recovery and recycling rates as part of the circular economy
- Improve the management of mineral markets and build stronger national institutions
- Reform the financial system: Financial taxonomies, architecture and instrument
- Consider establishing international institutions
Cover photo: Neneqo Fotógrafo©pexels
