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Client Case Study: Critical Minerals Supply Chain – An ESG Review of Nickel, from mine to EV
Updated: Mar 23
The supply of important energy transition minerals like cobalt, nickel and lithium are now a common discussion topic in the clean energy debate. These minerals, and many others, are essential components in renewable and "clean" energy tech, such as computer chips, electricity networks, wind turbines, batteries, and electric vehicles.
Example of minerals used in selected "clean" energy technologies
(Source: IEA, 2020, The role of critical minerals in Clean Energy Transition. All rights reserved. International Energy Agency. Website: www.iea.org).
The impact on society and the environment of extracting and processing these minerals as the world tries to accelerate the energy transition is also receiving much more public attention. Now many of us are more critically evaluating both sides of the ledger when reviewing the various energy transition technologies.
Just because the technology is touted as “green”, "clean", or “renewable” doesn’t mean it comes at zero impact to the environment and society.
Renewable energy and tech companies need to have a good understanding of their supply chain. But how do the likes of Tesla, with their mission statement of “Accelerate the world’s transition to sustainable energy” reconcile this with their requirements for finite mineral resources and the huge impact they have on the environment and communities in which they are extracted from?
We worked with a technology start-up in the mining sector who are assessing the environmental and economic feasibility of large-scale carbon dioxide removal via alternative processing techniques of magnesium silicate nickel-bearing ores.
We were able to help our client understand the ESG aspects of critical mineral supply chains by assessing two points in the nickel supply chain.
We looked at:
ESG performance of large and small (local) mining companies extracting the nickel ore, and
ESG supplier requirements of the Electric Vehicle (EV) auto-manufacturers receiving the nickel.
The key questions we wanted to assess were:
what checks and balances are EV manufacturers putting on their critical mineral supply chain?
are they encouraging their suppliers to improve their ESG practices?
what are the mining companies doing to improve their practices and reduce their impacts?
and are they meeting the requirements specified by their customers?
All of our research was based on publicly available information on the companies’ websites and annual reports, industry associations, research papers and government websites. Because of this we were solely reliant on what the companies published and said they did, without being able to assess their level of compliance.
From the auto-manufacturers perspective
The large auto-manufactures we reviewed all had extensive, publicly available supplier documentation stipulating their expectations of suppliers across the range of governance, compliance, health and safety, and environmental management.
We noted some regional variation between US and European companies in the details of specific guidelines or frameworks referenced, but where the schemes are international in application (e.g. ISO certification), there was consistent reference made to these by all auto-manufacturers.
Specific to the mining industry, all required conformance with the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas [1].
The two main mining industry-specific frameworks they required compliance with were IRMA (Initiative for Responsible Mining Assurance [2]) and RMI (Responsible Mining Index [3]).
From the mining companies’ perspective
As you might expect, for all but the smallest mining companies we reviewed (where there was very limited information available publicly), there appears to be good general alignment with the auto-manufacturers supplier requirements on corporate governance, health and safety and environmental management systems.
Interestingly though, we noted a distinct difference in the specific mining industry reporting and compliance frameworks specified by the auto companies, compared to the frameworks being used by the mining companies.
As has happened with the proliferation of the “alphabet soup” of ESG frameworks (GRI, SASB, TCFD, SBTi, etc.), there are a similar number of frameworks for the extractives industry. Luckily, a comparative review of the main frameworks was published by The International Institute for Sustainable Development, which compares 15 of these frameworks [4].
The conclusion from this comparative study is not that some schemes are better or worse, but that each is designed for a different purpose, and they vary in how completely they address all of the social, environmental and business practice issues assessed.
You can see in the figure below, of the various schemes assessed some are specific to coal, aluminium, precious stones, or gold and silver. However the key ones we saw most commonly referenced in our study were applicable to general, large-scale mining operations.
Modified from Figure 3.1 in State of Sustainability Initiatives Review – Standards and the Extractive Economy [4], showing the most common frameworks specified by the auto-manufacturers, compared to the most common schemes adopted by the mining companies.
The supplier requirements of the auto-manufacturers stipulated compliance with IRMA (Initiative for Responsible Mining Assurance) and RMI (Responsible Mining Index). However, only 2 mining companies (one large and one medium-sized company) stated compliance with these schemes.
The commonly adopted frameworks by the mining companies were TSM (Towards Sustainable Mining, Mining Association of Canada [5]), ICMM (International Council on Mining and Metals [6]) and EITI (Extractive Industries Transparency Initiative [7] – which was not included in the comparative study above).
Based on the assessment in the State of Sustainability Initiatives Review, the IRMA and RMI schemes are more comprehensive in the ESG issues they address than ICMM or TSM. How the auto-manufacturers are evaluating and accounting for this difference in their supplier due diligence is not clear.
Additionally, the very small, local mining companies didn’t report adoption of any of these frameworks.
With no oversight from industry bodies, and combined with limited publicly available information, it is very difficult for these small mining companies to be held accountable for their performance by the wider community.
Voluntary adoption by mining companies of these reporting frameworks and compliance schemes to improve measurement, recording and transparency of their operations is good progress and all mining companies reviewed showed at least some awareness of the importance of addressing ESG issues.
Our conclusion is that far greater scrutiny and impetus to conduct mining operations in a much more socially and environmentally sensitive way than in the past is needed if we are going to successfully navigate a rapid energy transition that is so reliant on these finite mineral resources.
We are increasingly being asked to review and advise on the ESG credentials of supply chains; from supply chain emissions to governance policies, ESG ratings to social impact, and supplier compliance processes to local environmental impacts.
What questions do you have around your supply chain?
rachel@esgable.com or rosalie@esgable.com
References:
[1] OECD (2016), OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas: Third Edition, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264252479-en
[2] Initiative for Responsible Mining Assurance (2018), IRMA Standard for Responsible Mining IRMA-STD-001 June 2018. https://responsiblemining.net/
[3] https://2020.responsibleminingindex.org/en
[4] Potts, J., Wenban-Smith, M., Turley, L., Lynch, M. (2018) State of Sustainability Initiatives Review – Standards and the Extractive Economy. The International Institute for Sustainable Development. ISBN: 978-1-894784-79-5
[5] https://mining.ca/towards-sustainable-mining/