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25/06/2024
Mining News

Sustainable and Responsible Critical Mineral Supply Chains

Critical mineral supply chains cannot be truly secure, reliable and resilient unless they are also sustainable and responsible. Growing demand for critical minerals arising from the clean energy transition will mean new mines, processing facilities and refineries, which can bring attendant risks of harm to the environment, workers, communities and societies. These harms, if not adequately prevented, reduced or mitigated, can disrupt supply and hinder the rapid scale-up of clean energy technologies.

The first and foremost reason to address the environmental, social and governance risks in the mineral supply chain is to protect people, communities and the environment. Addressing these risks allows for the development of sustainable and responsible supply chains, which can help communities more fully capture the benefits of mineral development and ensure that clean energy transitions are people-centred. Growth in the critical minerals sector can lead to investment, tax revenue, and jobs.

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At the same time, adopting sustainable and responsible practices bolsters security of supply. For example, comprehensively addressing community concerns about water use and biodiversity impacts makes projects less likely to encounter local opposition that can halt project development or disrupt operations. Similarly, eliminating or reducing the incidence of corruption can help avoid delays and increased project costs associated with instances of bribery. On the other end of the supply chain, if companies are unable to demonstrate that they have taken a risk-based approach to prevent human rights violations such as child and forced labour, they may face regulatory barriers or reputational risks.

Governments and companies alike have a role in driving improvements against environmental, social and governance standards. Companies are likely in the best position to expand sustainable and responsible practices and to transparently report on progress. In parallel, governments can ensure that companies have the right incentives to act and create an enabling environment that facilitates improved performance.

Considering the available levers for action, we have identified five key recommendations for policy makers to ensure that critical minerals value chains are sustainable and responsible:

First, ensure robust legal and regulatory protections for the environment, workers and communities. Most countries have existing regulatory frameworks targeting mining and processing. As the critical minerals landscape changes, there may be a need to revisit these frameworks to reduce permitting lead times and to ensure adequate regulatory protections are in place. Water and greenhouse gas emissions targets, where they exist, can be made to improve over time. Enhanced requirements for meaningful and continuous engagement with local communities and using free, prior, and informed consent as best practice for Indigenous Peoples can facilitate a social license to operate. Adequate investment in enforcement and implementation is also needed.

Second, channel public spending to encourage the development of better practices and to reward good actors. Initiatives to bolster security of supply are being backed with public money, and governments can tie these expenditures to sustainability and social responsibility requirements. For example, public procurement and investment decisions can be conditioned on high sustainability performance. Innovation funding can be directed towards technologies that improve operational efficiency, reduce emissions, or facilitate mapping and tracing of minerals through the supply chain.

Third, strengthen the collection and reporting of granular and standardised data to enable benchmarking and progress tracking across the industry and throughout the supply chain. Governments have the capacity to influence industry-wide performance by issuing methodological guidelines and recommendations for sustainability and social responsibility metrics drawing on industry best practice. Further, publicly disseminating such data is a critical lever that can equip stakeholders with the requisite information to make sustainability-focused sourcing and investment decisions. For smaller enterprises, technical assistance may be needed to guarantee robustness, accuracy and representativeness of data monitoring.

Fourth, encourage or require companies to improve transparency throughout the supply chain, including by undertaking due diligence and reporting publicly on risks and mitigation actions. Greater transparency, alongside efforts to mitigate identified risks, can alleviate environmental, social and governance risks while ensuring that purchasers, customers and policy makers have better information on potential bottlenecks. Governments can do more to encourage transparency in critical mineral supply chains, including by incorporating due diligence into legal requirements based on responsible business conduct standards such as those published by the Organisation for Economic Co-operation and Development (OECD). Particular attention should be paid to the smelting and refining sector, where greater transparency is needed.

Fifth, support the development of credible voluntary sustainability standards and encourage harmonised approaches consistent with international standards. Sustainability standards and other sustainability initiatives can play a complementary role to legal and regulatory requirements. These systems provide avenues to improve the performance of companies beyond regulatory requirements, provided that they align with international frameworks and credibility criteria. By supporting the adoption and improvement of standards, governments can help drive up environmental and social performance without displacing the role for legal and regulatory protections.

These five recommendations are cross-cutting and apply to all types of environmental, social and governance risks. Some of these risks are especially likely to hinder supply, with implications for the viability of realising clean energy transitions. In this report, we have identified six priority areas that have important implications for supply security: water, greenhouse gas emissions, biodiversity human rights, communities, and corruption.

Improving water stewardship can reduce supply risks, especially for critical minerals with high water requirements. Lithium and copper mines are often situated in regions characterised by elevated water stress, necessitating a heightened commitment to water stewardship. Developing infrastructure that ensures secure water access for local communities can help companies prevent conflicts where water access is limited. Policy responses that can encourage better water stewardship include conditioning public investment on achieving specific targets for water use efficiency and quality and supporting research and development on water-efficient technologies.

Reducing greenhouse gas emissions from mineral development activities can increase social acceptability of mining projects and prepare the industry for the proliferation of carbon pricing. Mining emissions are likely to be increasingly scrutinised and companies that do not reduce and publicly report on supply-chain emissions are likely to face market access and reputational risks. Governments can incentivise emissions reductions by improving or expanding greenhouse gas reporting requirements to ensure that data on emissions is publicly available, while supporting industry initiatives that seek to harmonise reporting methodologies.

Addressing impacts to biodiversity can help mining operations meet increasingly stringent regulatory requirements. Operations that fail to address these impacts may face regulatory barriers and reputational and investment risks as more attention is paid to the increasing loss of biodiversity due from new mining projects in undisturbed areas – especially for mineral deposits located in key biodiversity areas.

To encourage improved biodiversity practices along the supply chain, governments can strengthen biodiversity protections in mining regulations and permits and improve monitoring and disclosure of biodiversity data.

Enhancing the implementation of human rights standards in mining operations can mitigate operational disruptions and reduce divestment that can result from human rights violations, including child labour and forced labour. Critical mineral suppliers with inadequate human rights records may face reputational damage and legal consequences as well as community opposition in the form of labour strikes, protests and blockades.

To foster responsible critical mineral operations governments can develop legal and other regulatory frameworks that enable supply chain transparency by embedding human rights risks in due diligence systems, while supporting the continued implementation and enforcement of regulatory protections. Governments can also develop metrics to assess human rights risks and integrate transparency requirements into trade and investment agreements.

Meaningful engagement with local communities and Indigenous Peoples can help projects obtain and maintain a social license to operate. Local communities and Indigenous Peoples are directly impacted by mining, with much of the world’s production, reserves and resources located on or near Indigenous land. Opposition from these communities can lead to protests, litigation, and permit denials, which can hinder new developments and disrupt operations at existing facilities. Governments can facilitate meaningful consultation by supporting the monitoring and reporting of site-level data on engagement and using consultation processes based on free, prior and informed consent of Indigenous Peoples as a best practice.

Reducing corruption and governance risks can facilitate investment and improve public confidence in mining operations. The growing demand for critical minerals could exacerbate incentives for corrupt practices, which can lead to legal liability for companies, introduce permitting or operational delays, and contribute to instability and lead to long-term disruptions.

Governments can improve governance and reduce corruption risks by, for example, ensuring that transparency provisions in mining codes in line with the Extractive Industries Transparency Initiative Standard that require disclosure of public permits, licenses, and contracts, company beneficial ownership, and payments to governments are effectively enforced.

It is imperative for governments and industry alike to do more to avoid the mistakes of this past. There are myriad examples where development of resources has not led to sustainable economic growth or has caused corresponding environmental and social harm. Mitigating these pitfalls of the past will be necessary to ensure that clean energy transitions are equitable and people-centred and to avoid supply disruptions that can slow clean energy deployment.

As consumers and investors are increasingly demanding that companies take these issues seriously, industry has a clear business case to pursue better environmental and social performance to maintain a social licence to operate. Governments can play an important role in promoting improvements by incorporating the recommendations of this guidance into their policy and investment decisions.

 

Source: iea

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