The climate crisis is back at the forefront of political discussions following COP26 and several initiatives aiming to reduce carbon emissions have been announced. Decarbonising our economy is a difficult but urgent task and continued technological innovation will help. Although new technologies will aid the reduction of carbon emissions, the sheer volume of raw materials required to innovate are significant. Is investment in decarbonisation a reasonable excuse to further dig up the planet?
‘Cleantech’ (often used interchangeably with ‘climatetech’) refers to innovative solutions to address the challenges of climate change. These solutions help to achieve the goals of environmental sustainability by storing or generating energy with limited carbon emissions, thus assisting decarbonisation efforts. Investors are recognising the importance and potential longevity of this industry and investment is pouring in.
Electric vehicles (EVs) are one of the leading technologies required to reduce the emissions of the transport industry, but the transition to renewables and EVs will require an abundance of materials and extraction rates are rising.
Investment floods in
While there was a boom in cleantech investment in 2005, it began to be seen as a risky choice and interest dwindled due to investment failures in areas such as biofuels and solar. The investment bubble then burst. However, the urgency to reach net-zero has reignited interest in cleantech and, as innovations in areas such as agriculture and batteries are announced, investors are scrambling for their share. This investment boom is spurring an increase in the number of start-ups, driving the much-needed innovation required to help solve the climate crisis.
Mining activity is on the rise
To deal with the growing number of clean technologies, mining extraction rates are also growing. Various metals and minerals are required in the transition to decarbonisation and minerals such as cobalt and lithium are the building blocks of cleantech. As the world attempts to reach net zero, demand for critical minerals will skyrocket.
According to a 2020 World Bank Report, a low-carbon future will be more mineral intensive as clean energy requires more materials than fossil-fuel-based technologies. The International Energy Agency estimates that EVs require six times the amount of minerals as a typical car and nine times more minerals are required for wind energy plants than gas-fired equivalents. However, ESG concerns around the traditional heavy industry are so far causing investors to look the other way.
ESG in mining
There are several ESG concerns tied to mining, notably, the environmental degradation caused by the erection and operation of mines to meet the growing demand for materials. Social and governance concerns are becoming increasingly apparent and stories of dangerous working conditions, artisanal miners and child labour are common. ESG funds often exclude mining as a result. To counteract this, the mining sector is beginning to show signs that it is taking ESG seriously. A leading example is Glencore, who GlobalData classifies as a climate leader. Glencore has pledged to reach net-zero carbon emissions by 2050. Its carbon reduction strategies include the electrification of mining fleets, which has been pioneered by companies such as Newmont and Boliden.
As investors are increasingly becoming more climate aware, mining companies are recognising the potential upsides of taking ESG seriously. This will drive companies to innovate to establish how they can decouple their growth from emissions.
Investors need to think about the future
A boom in green investment has begun again but shifting investment away from mining will undermine the green energy transition. Mining companies should further implement ESG principles and demonstrate that they are serious about ESG. Green funds should also include these mines in their portfolios instead of blacklisting them. Without the mining industry, the energy transition is not possible and investors should stop shying away from this heavy industry by focusing all their investment on renewable technologies. Currently, the production of these technologies cannot be achieved without mining and the resources it produces. Investors should instead use the power they possess to exert pressure on mining companies to consider ESG strategies. They would then need to prove that they are more sustainable and innovate their techniques to achieve this. Therefore, the boom in green investment can be used to tidy up the mining industry and keep the cleantech bubble afloat.