Can mining be a responsible investment?

However, society is increasingly reliant on the sector’s outputs as we seek to accelerate the energy transition, which is already driving increased demand for “transition metals” like copper and lithium.

Energy transition is driving copper demand growth

As we seek to mitigate the climate crisis and move to a lower carbon economy, an enormous expansion of low carbon technologies like renewable energy and electric vehicles (EVs) is needed, bringing an accompanying growth in demand for the metals these technologies require.

Solar PV, onshore wind and offshore wind require roughly 2.8, 2.9, and 8 tonnes of copper per MW of new capacity in comparison to the 1.15 tonnes/MW needed for conventional coal-fired power generation^[1].

On the transport side, full battery EVs require around 2.5 times more copper per vehicle than a traditional internal combustion engine. They also require new extensive charging networks, ideally powered by renewable electricity.

Copper for “green uses” only makes up around 6%^[2] of current consumption, with construction (29%), “legacy” electrical networks (27%) and consumer products (22%) having the largest shares^[3].

However, demand for copper in electromobility and renewables is expected to account for nearly 40% of total growth over the next 20 years^[4], with Wood Mackenzie estimating that global copper demand will be 50% higher in 2040 than today^[5].

Should the world pursue the more challenging decarbonisation pathway required to bring us into alignment with a 1.5C scenario these figures will only increase.

Copper supply will not keep pace

New mining capacity is needed but there is decreasing public and political support for the new projects needed to feed demand, particularly in developed markets. A focus on higher grade deposits is also required, as extracting metal content from lower grades is more energy intensive, costly and polluting.

Estimates vary, however there is consensus that underinvestment in supply combined with growth in demand will lead to a shortfall of around 10% of annual copper demand by 2030^[6].

Fortunately, copper can be infinitely recycled without diminishing its chemical or physical properties. As prices rise and technology improves we are likely to see an increase from today’s 15-20% recycle rate^[7], which could somewhat offset the need for new mines and the issues that accompany them.

Resource efficiency will also play a part, as we saw when the reduction in silver and silicon content of solar cells over the past decade enabled increased solar deployment.

Overall, we expect “green demand” for copper to nearly quadruple throughout this decade, to over 17% of total copper demand.

Other transition metals

The trends seen in copper are amplified for other transition metals with fewer alternative uses. EVs and battery storage are already the largest consumers of lithium, and the IEA’s Sustainable Development Scenario forecasts that clean energy will account for 60-70% of nickel and cobalt demand by 2040.

A concerted global effort to achieve net zero globally by 2050 would require six times more mineral inputs in 2040 than today^[8].

Unfortunately, issues associated with some of these metals are also far more material than for copper, making their inclusion in ESG portfolios harder to justify to responsible investors. For example, half of today’s lithium extraction is in areas of severe water stress, with mining and processing consumption impacting local communities and biodiversity.

Is it possible to be a responsible miner?

Despite the challenges any mining operation poses, the sector has steadily improved its practices, even if action in some areas has been driven by disasters or controversies.

The development of the Global Industry Standard on Tailings Management was driven by investors in the wake of the Brumadinho disaster.

This steady improvement in standards has enabled a limited number of transition metal miners to warrant consideration as responsible actors. Identifying these leading responsible miners with the highest ESG standards, and encouraging improvements in laggards, is one way of facilitating the energy transition.

Responsible miners can fit into an ESG focused approach

It is an inescapable fact that decarbonising the global economy requires significant quantities of copper and other transition metals. We must balance local socio-environmental impacts of mining operations with this need.

Investors can support responsible miners in developing the new projects needed to fuel the transition, whilst making certain management are well aware of the need for high standards at every stage of the project lifecycle.

From maintaining ongoing Free, Prior and Informed Consent to responsible waste management practices and site rehabilitation guarantees, there are multiple ESG standards for miners to maintain.

It goes without saying that whilst mining can enable the transition, the sector must also find ways to decarbonise itself and is a key component of any global pathway to net zero.

We must continue to be guided by data and science in order to make decisions in the long-term best interests of society and the planet. As investors, a combination of research and stewardship activities are key to ensuring a responsible and balanced approach.

Responsible Investments Team, Columbia Threadneedle Investments

^[1] IEA, 2021

^[2] Wood Mackenzie, Goldman Sachs Investment research, 2020

^[3] Wood Mackenzie, 2021

^[4] Antofagsta, 2022

^[5] Wood Mackenzie, 2021

^[6] Wood Mackenzie, Bloomberg, ICSG, Morgan Stanley Research estimates

^[7] Antofagsta, 2022

^[8] IEA, 2021