Build strong ESG performance in the critical minerals supply chain

Economic growth, modern lifestyles and the net zero transition will increase global demand for critical minerals six-fold by 2050, according to the International Energy Agency.

As competition for critical minerals intensifies, ensuring access to sustainably sourced supplies will become a priority for all businesses. Therefore, business strategies aimed at enhancing environmental, social and governance (ESG) performance should also look at approaches to reduce risk associated with critical minerals in the company’s supply chain. Robust ESG strategies can minimize critical mineral supply chain disruptions, reduce the cost of supply and meet current and forthcoming regulatory requirements. Strong ESG strategies will also have a positive impact on stakeholder engagement. In this article we recommend three ways to build strong ESG performance in the critical minerals supply chain to mitigate risk and develop resilience. They are:

1. develop an ESG data strategy to enhance transparency
2. collaborate to innovate
3. embrace a circular business model.

But first, let’s understand the risks.

ESG risk in critical minerals supply chains

Critical minerals are vitally important to the economy, cannot be easily substituted and can experience risk to security of supply. They are used in sectors ranging from renewable energy generation to the military.
The main risks associated with critical minerals supply chains are:

  • lack of visibility and complexity of supply chains as resources are often found in remote locations
  • concentration of extraction and processing in a small number of countries. Just three nations control three-quarters of the global cobalt, lithium and rare earth elements output
  • association with wider ESG-related challenges, such as environmental degradation and water stress, as well as forced labor, corruption, and financial crime
  • difficulty of recovery, redistribution and reuse as they are often used in small quantities in devices not designed for recycling
  • susceptible to non-compliance due to lack of global, ESG-wide standards and a complex mining process and policy landscape.

Improve ESG in the critical minerals supply chain now

The rapidly growing demand for critical minerals will increase exposure to ESG challenges. This will have profound consequences for businesses that operate across economies due to their complex supply chains.

While implementation of our three recommendations could incur short-term costs, their long-term benefits will provide competitive advantages, helping companies avoid supply shocks through building resilience, and meet existing and forthcoming regulation.

Better mitigation of ESG risks also helps develop trust among key stakeholders such as regulators, financial institutions, and local communities.

This article was written by Andrew Bax, Neelam Melwani, Emily Richards, Marcus Shonfield and Ben Reeves.

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