Critical minerals: A critical threat for biodiversity?

Investors are becoming concerned that an energy transition mining boom will have adverse effects on nature.

The ‘clean’ energy sources of the future depend on an industry that has long been regarded as ‘dirty’. Huge volumes of the critical minerals that are needed for wind turbines, solar panels and electric vehicle batteries will need to be extracted from the earth if net zero is to become a reality.

Consulting firm Benchmark Minerals Intelligence estimates that 74 new average-sized lithium mines are needed by 2035 to meet the demand from electric vehicles. A further 97 natural graphite mines, 72 nickel mines and 62 cobalt mines will also be needed.

Growing demand for critical minerals will put sensitive ecosystems under greater pressure from mining. The world’s largest lithium reserves, for example, are found in the salt flats of the Atacama Desert in South America, while large deposits of rare earth elements have been discovered at sites in the Arctic. Globally, around 20 percent of mine sites are located in biodiversity hotspots, which are also often important areas for Indigenous communities.

Investor interest

As with other industries, investors in mining are beginning to focus on biodiversity. “Investors are becoming more aware of the risks associated with biodiversity loss and are building a better understanding of the impacts and dependencies of the sector,” says Gemma James, a member of the Global Investor Commission on Mining 2030’s secretariat, and head of biodiversity and nature at advisory firm Chronos Sustainability. “The sector needs to evolve to meet expectations and keep up with new developments.”

Rohitesh Dhawan, CEO of the International Council on Mining and Metals (ICMM), which represents 25 of the world’s largest mining companies, concedes the industry has a less than stellar reputation for protecting nature.

“I fully acknowledge that in the history of mining, you can probably point to more examples of biodiversity conservation and protection gone wrong than you can to conservation protection gone right,” he says.

Dhawan stresses that the largest players in the mining industry have been working for many years to improve their biodiversity performance. But while many companies have made progress in reducing negative impacts on biodiversity, a large share of prospecting for critical minerals is being carried out by less-experienced players. “Many of those operators will not currently be large organisations with the resources, capacity and public commitments to protecting and enhancing nature,” Dhawan warns.

Smaller companies that make significant discoveries are likely to become acquisition targets for larger players. Large companies must therefore “emphasise that we are much more likely to be interested in buying a project if it has been set up correctly from the start”.

Dhawan says investors also have a vital role in encouraging best practice. Investors, he tells us, should make it clear that they will not fund mining projects of any kind unless they can be confident that they are “compatible with a nature-positive future”.

There is an “uptick in the interest from the investor community” around how mining affects biodiversity. This may reflect requirements under the EU’s Sustainable Finance Disclosure Regulation for investors to report principle adverse impacts on biodiversity. Yet, most investors lack in-depth understanding of the issues involved, Dhawan says.

“The industry knows a lot more about nature and biodiversity than the investment community does. We’re having to educate a lot of the investment community as to why our work on nature and biodiversity is important.”

Many investors are still mapping where companies in their portfolios operate mine sites that are likely to impact areas of high importance to biodiversity.

The Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE) tool, developed by the Natural Capital Finance Alliance, provides high-level information to help investors screen portfolios for dependencies and impacts related to biodiversity. Several data providers have also developed geospatial tools to allow investors to overlay mine sites in their portfolio against biodiversity hotspots.

Digging for data

RepRisk launched a dataset last October in partnership with the Integrated Biodiversity Assessment Tool Alliance, which shows the proximity of extractive sector projects to environmentally sensitive areas.

Alexandra Mihailescu Cichon, RepRisk’s chief commercial officer, says the firm decided to develop the dataset in response to growing demand from clients for data on biodiversity impacts. “Especially in the last 12 to 18 months, it’s one of the number-one topics that we talk about with our clients.”

She describes RepRisk’s dataset as a “conversation starter” for investors to use for engaging mining companies. According to the dataset, 18 percent of UNESCO World Heritage Sites are within 1km of a mine, while almost 80 percent of mining projects are found within 30km of a key biodiversity area or protected area.

Emine Isciel, head of climate and environment at Storebrand Asset Management, says the availability of data has been a challenge for investors attempting to engage on biodiversity issues. She adds, however, that progress in recent years on developing tools covering issues such as deforestation has been “impressive”.

“You don’t always need the perfect data – you just need the right data to get started.” A lack of data, she cautions, can be used as an “excuse for inaction”.

Excluding and engaging

In a flap: the world’s largest lithium reserves are found in Chile and Bolivia’s ecologically sensitive salt flats

Storebrand has already sharpened its policies to exclude companies it deems to be linked to destructive activities. The firm announced last December that it was excluding four mining companies due to new policies against investing in companies that dispose tailings waste in rivers or seas, or are involved in deep-sea mining.

“There are certain biodiversity-sensitive areas where mining should not happen,” says Isciel. She describes the asset manager’s policy on deep-sea mining as a “moratorium”, based on the need for “more scientific knowledge on the impact of these activities”.

Meanwhile, investors seeking to understand best practices in how the mining sector manages biodiversity and other ESG issues could be forgiven for feeling confused by the plethora of standards and certification schemes in the industry. Bringing greater clarity is one of the aims of the Global Investor Commission on Mining 2030, which launched in January.

The commission, chaired by the Church of England Pensions Board, has identified biodiversity as one of 10 focus areas on which it will engage the mining industry.
James says it is difficult for investors to get their heads around the biodiversity data supplied by mining companies. “Investors ultimately want to report at a portfolio or cross-asset level, which runs counter to the reality that biodiversity is a site- and location-specific issue. Metrics, approaches and measurements used are not comparable for aggregated corporate-level disclosure.

“The challenge may be that while the industry has a long track record of managing biodiversity, new frameworks and the evolving landscape on nature mean that companies are having to adapt and translate existing site-level approaches.”

She points out that greater engagement can help investors to become better informed. “Engagement is also an opportunity for investors to learn about the nuances of measuring, monitoring and managing biodiversity for a global diversified mining company.”

Mitigation hierarchy

It is not just investors that face disclosing biodiversity impacts. Companies that use critical minerals in their products are increasingly required to conduct due diligence into environmental and social impacts in their supply chains. Electric vehicle manufacturers are set to face more stringent due diligence requirements under the EU’s planned Corporate Sustainability Due Diligence Directive and its revised battery regulation.

Scrutiny from investors, customers and regulators means mining companies are under growing pressure to demonstrate good performance. In response, some businesses have argued that, partly through the use of offsetting and post-closure remediation measures, they can ensure ‘no net loss’ of biodiversity, or even have a ‘net-
positive’ effect.

Global mining company Anglo American, for example, has set a target of achieving a net-positive impact on biodiversity by 2030.

Putting aside the debatable logic of such pledges, most experts agree that investors should focus on engaging with companies to address their negative impacts on biodiversity.

“Before you start to look at being net-positive, there’s so much work to be done in terms of avoiding the negative impacts, and reducing and minimising them as much as possible,” says Sonya Likhtman, associate director at Federated Hermes. “It’s important not to jump to that net-positive point before scrutinising all the actions that companies need to take to reduce the negative impacts.”

Dhawan agrees. The most important question that investors should ask mining companies, he says, is how they apply the mitigation hierarchy. This involves first seeking to avoid negative impacts; then minimising any impacts that cannot be completely avoided; restoring ecosystems after operations cease; and only turning to offsets as a last resort.

“The most important thing when it comes to offsets is to have them at the end of the queue of your mitigation hierarchy,” says Dhawan. He adds that, “to the absolute extent possible, offsets should be in the same region and ecosystem where the disturbance has taken place”.

It will be decades before the full impact of the critical minerals boom on nature can be judged. What is clear is that the mining sector’s claim to be at the vanguard of a ‘green’ transition will ring hollow unless the industry can demonstrate a strong capability to minimise damage to biodiversity.

Investors have plenty of work to do to fully understand the complexities of mining’s relationship with biodiversity, and to engage with companies in granular detail to ensure that best practice is followed at the hundreds of sites where critical minerals will be mined.