The increasing demand for rare earth metals is bringing new risks. Companies that do not properly address the social and environmental issues related to the mining of these metals could face detrimental effects. But there are solutions. Group Sustainable Finance at Nordea outlines the implications of rare earth metals on finance in this white paper (pdf, 4 MB).
Rare earth metals, which are used in everything from consumer electronics and electric vehicles to renewable energy and computers, are crucial to modern technology. These metals are valued because of their ability to reduce weight and size, improving performance and efficiency.
Technological innovations, the increasing use of electronics and a rise in automation have helped spur an era of digitalization, resulting in many benefits to the climate and the environment. For example, almost all major auto manufacturers now have electric vehicle targets and some have very aggressive ambitions. Electronic devices such as cell phones are becoming lighter and smaller thanks to many of the qualities of rare earth metals.
While this is a positive development, there are also many new risks related to the increasing demand for these metals and, as a result, an expected increase in the mining of such critical metals. These risks include supply shortages, labour violations, worker security issues, financing of armed groups and environmental hazards. This is largely because the quarrying and processing of these metals are concentrated in areas with cheap labour in countries with weak or non-existent regulations.
In fact over 50 per cent of the global supply of cobalt comes from the Democratic Republic of Congo (DRC). In DRC, 40,000 children are involved in the cobalt mining process, making a mere USD 1-2 per day. More than 1 million children are estimated to work in mines worldwide. Over the past two years, prices of cobalt have tripled and demand is expected to double in another two years.
In addition to these poor labour conditions, the supply is forecast to be in deficit for cobalt by 2021, lithium by 2024, nickel by 2025 and graphite by 20273. Hence, it is expected that more mines and projects will be developed.
There are solutions, however. In recent years, companies have begun to realise that responsible sourcing from high-risk countries is possible, and at significantly lower costs than expected. The five-step due diligence process established by the OECD for Responsible Supply Chains of Minerals was adopted in 2011. Hundreds of companies have implemented this framework, but many still have a long way to go.
The solution to climate change should not come at the expense of others. Not least because it is wrong, but also because it makes no economic sense to long-term investors and financiers. True success in the transition to a low-carbon economy lies in making green products and renewable energy sustainable at every step of the process. The Nordea Group has significant indirect and direct financial exposure stemming from the mining activities of rare earth metals and other critical metals. Therefore, Nordea has initiated a two-year engagement with leading auto manufacturers to address these concerns. We are also developing a benchmark on companies that are particularly exposed to the risks of negative community impact.
This is one example of how Nordea adapts to challenges around us and engagements like this also helps us mitigate risks. Together with customers and partners, Nordea enables the transition to a sustainable future.
Read our full white paper (pdf, 4 MB) to get a deeper understanding of the dilemmas of rare earth metals.
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