Investment dilemma: what about raw materials in the energy transition?
The transition towards clean energy requires significant amounts of raw materials for electrification and clean energy production. Many of the raw materials needed for the energy transition are being imported from abroad. China, for example, controls 80% per cent of the world’s production of rare earth materials and produces 75% of all lithium batteries needed for electric vehicles.
Due to geopolitical tensions and disruptions in global supply chains, European policymakers have been rethinking their dependency on other regions when it comes to raw materials. Europe will need to ensure its sovereignty by diversifying its supplies of critical raw materials and develop its own mineral resources. But here lies a dilemma: to reach carbon neutrality without being overly reliant on other regions, Europe will need to reshore mining activities at the expense of increasing ESG risk.
If we take the example of lithium: last year, the French company Imerys announced it will start mining lithium in France. This project is one of the largest lithium extraction programmes in Europe to date. Within a few years, the mining project will enable the production of 700,000 electric vehicle batteries per year, significantly reducing the need to import of what is called ‘white gold’. However, reshoring such mining activities also involves a higher risk of ESG-related issues closer to home, such as water supplies depletion and air pollution.
Yet, should we refuse mining companies to extract raw materials on our continent while continuing to import from regions that may have fewer environmentally-friendly measures in place? Instead of relying on foreign mining operations where we wield relatively little influence, we could consider possible long-term environmental benefits of reshoring such activities to Europe. Admittedly, we would have to accept that in the short term such projects would lead to higher ESG risks within Europe. But both the EU, which is already developing a strong regulatory framework for corporate sustainability, and ESG investors could encourage companies to adopt mining techniques that are less harmful to the environment.
Sandra Saïdi - Portfolio Manager Sustainable Equities