Navigating the Critical Minerals Challenge: The Case for Responsible Mining in the Energy Transition
Jamie Bonham, Head of Stewardship at NEI Investments, emphasizes the critical role of responsible mining in meeting the growing demand for minerals vital to clean energy technologies. The Initiative for Responsible Mining Assurance (IRMA) is a key standard to ensure sustainability and Indigenous rights.
Our political dialogue on climate has been dogged by fractious debates and an absence of common ground. While our leaders haggle over what should be a shared ambition, the transformation of the world’s energy systems is already underway. Oddly, almost everyone agrees on the inevitability of this transformation, either implicitly or explicitly, as evidenced by the global focus on the minerals needed to fuel the anticipated boom in electrification and the build-out of renewable energy sources like wind and solar. The IEA Critical Minerals Policy Tracker identifies nearly 450 policies and regulations around the globe that are focused on these “critical minerals”, a rare moment of consensus about the transition.
What exactly do we mean when we say critical minerals? Originally the phrase was intended to identify minerals that were scarce, had a unique use case (i.e. not easily substituted) and represented a material supply chain risk due in large part to where these minerals were found (i.e. unstable or unfriendly regimes). Today’s definition could more aptly be called transition minerals, since the focus is on the subset of minerals that are crucial to the development of key clean energy technologies – think lithium, cobalt and rare earth minerals, but also copper and nickel, two common minerals that are still central to the transition but could hardly be called scarce.
Since these minerals are “critical” to the production of climate solutions, logic tells us that the demand for these minerals will scale in tandem with the rapid scaling of climate solutions required to meet global climate commitments. According to the International Energy Agency (IEA), this means a 30-fold rise in demand for lithium and a 10-fold rise in demand for rare earth minerals by 2030. The growth of electric vehicles and the boom in solar development has already had an impact – the IEA notes that between 2017-2022 demand for lithium tripled while cobalt demand increased by 70%.
The success of the companies on which we are banking to lead the energy transition is in no small way dependent on the success of the mining industry to supply them with the materials they need. It is an enormous supply chain risk. And it is one that we are almost all exposed to – particularly those investors who are banking on the opportunities that the energy transition will bring. We have probably never been more dependent on the success of the mining industry, yet we spend relatively little time talking about what success, or failure, will look like.
“The success of the companies on which we are banking to lead the energy transition is in no small way dependent on the success of the mining industry to supply them with the materials they need”
-Jamie Bonham
The Global Investor Commission on Mining 2030 notes in its recently released landscape report, investment in the mining sector is not even close to meeting the expected increase in demand, leaving us dangerously short of the building blocks of the transition. For example, Tesla’s current market cap is equivalent to the market cap of the top eight largest miners in the world – combined! It now takes an average of 15 years to go from discovery to production, longer in certain jurisdictions (such as Canada), so this lack of investment is troubling.
We clearly need to plan for more mining. But this does not mean mining at all costs. On the contrary, if we have learned anything from the past 200-plus years of mining it is that how we mine matters. We know that mining has impacts regardless but doing it poorly can be hugely detrimental to the environment and society. It can undermine Indigenous rights, disrupt traditional local economies, pollute crucial water sources, lead to the violation of human rights, imperil the health and safety of workers and more.
Cutting corners on responsible mining practices may paradoxically not result in faster development. It increases the friction in host communities and subsequently increases the risk of permit delays, litigation, blockades, protests and outright cancellation of projects, not to mention the risk of nationalization of assets. There is a real business case to get this right.
The mistakes of the past have created a trust deficit that can only be overcome, if at all, by a genuine commitment to doing better. One visible way to address this deficit is to commit to following an independently audited, best practices mining standard.
The Initiative for Responsible Mining Assurance (IRMA) is one such standard. IRMA is voluntary but stands apart from other industry initiatives for several key reasons. Primary among them is its truly multi-stakeholder nature. IRMA is equally governed by six “houses” – civil society, labour, mining impacted communities and Indigenous rights holders, mining companies, purchasers of mined materials, and finance (full disclosure, I am one of the two finance representatives on the IRMA board). No decision on the standard moves forward without the full consensus of every house. In practice that means that the resulting standard, and its implementation, has the buy in of stakeholders that have traditionally been marginalized in the creation of industry standards.
Independent auditing and transparency are also core facets of building trust and accountability. Companies hire auditors to assess their mines against the IRMA standard, thus ensuring an independent take on performance, and communities have a chance to participate. The entirety of the audit result is made public. This is often not the case in the industry, where an asymmetry of information exists when it comes to assessed performance. This transparency allows stakeholders and rights-holders to leverage the information in their own relationship with the mine.
“Independent auditing and transparency are also core facets of building trust and accountability”
-Jamie Bonham
Finally, the standard contains expectations for the free, prior and informed consent (FPIC) of Indigenous peoples whose traditional lands the mine is found on. There is tremendous overlap between Indigenous territories and current/future critical mineral developments. Addressing the energy transition can’t come at the cost of further erosion of Indigenous rights, and ensuring the FPIC of communities should be table stakes for companies. To be clear, mines undergoing an IRMA audit have not all achieved FPIC, but the standard contains clear guidance on whether FPIC has been achieved, and how the mine should move forward in instances where FPIC was not achieved.
Critics of voluntary standards will point out that they are no substitute for robust regulations. They would be right. However, certain jurisdictions are a long way from having a regulatory environment that adequately addresses all the risks of mining, and a standard like IRMA can pave the way towards better regulations. Achieving the high bar of current best practices gives regulators and policymakers the confidence that they can be ambitious in setting expectations.
“Certain jurisdictions are a long way from having a regulatory environment that adequately addresses all the risks of mining, and a standard like IRMA can pave the way towards better regulations”
-Jamie Bonham
Right now, there are around 89 mining companies operating in 32 countries involved in some stage of IRMA, ranging from an initial self-assessment to the full independent audit. Key downstream buyers are members of IRMA, from the major auto manufacturers such as BMW, Mercedes, Ford, GM and Tesla, through to key technology players such as Microsoft, Cisco, Intel and HP. The presence of so many foundational players from the demand-side speaks to the potential they see in the IRMA model for addressing their supply chain risks.
A quick aside for the investment community. You have probably never been more invested in the success of the mining industry than you are now – even if you don’t own a single mining company. This is a massive supply chain risk that needs addressing.
Investors should push the mining companies they own to pursue responsible mining practices while engaging the downstream buyers of critical minerals on demanding IRMA audits from their upstream suppliers. It is through this lever that we can affect the change that will result in real benefits at the mine site level.
We all seem to agree that we need a critical minerals strategy. Hopefully we can also agree that our strategy needs to be responsible.
