What you need to know about the critical minerals race

The Republican crusade against environmental, social and governance investing is taking another step forward. Later today, the House of Representatives will hold a hearing to scrutinise financial institutions’ approach to ESG. Though we have seen congressional ESG hearings before, this gathering will be the first held by the House Financial Services Committee, which is led by Republicans with solid financial backgrounds — rather than noisy Trump loyalists. We can expect a much more thoughtful discussion of ESG than we have seen previously. The hearing will consider a lot of anti-ESG legislation that is destined to die on the vine. With Democrats in control of the Senate and White House, any legislative attacks on ESG will languish. I will have a full report about the developments from Washington — as well as look into the ESG lobbying machinations behind the scenes — for Friday’s newsletter.

Today, Simon digs into the International Energy Agency’s latest report on critical minerals. Meanwhile, Kaori investigates how shareholders are increasingly worried about antibiotics resistance and are voicing their concerns at companies.

Finally, for those of you in New York this week, Gillian and I are speaking at a Nikkei event about the UN Sustainable Development Goals. On Friday, I am moderating a panel about potential greenwashing problems as the SDGs have been embraced by ESG investing.

And on Thursday, I am joining the law firm Ropes & Gray for a webinar about the ESG backlash and what investment funds can do about it. (Patrick Temple-West)

Our key takeaways from the IEA’s new critical minerals report

As regular Moral Money readers are all too aware, one of the biggest challenges in the energy transition is securing the critical minerals needed to power it. That was the subject of a major report yesterday from the International Energy Agency, which will be widely read across the clean energy space. Here are our five key takeaways:

1. The project pipeline looks promising

When it comes to the potential for supply of critical minerals to meet demand, this report struck a more optimistic tone than the IEA’s previous study of this area two years ago. If all the world’s planned mining and processing projects in this space came to fruition, the IEA said, that would provide two-thirds of all the critical minerals needed for the world to meet its net zero targets. The current pipeline would be enough to get us on the right trajectory until 2030 (when more projects would need to be brought online). But of course, as IEA executive director Fatih Birol said yesterday, this is “a big if”: approval delays and cost overruns could easily hamstring many planned projects.

2. The lithium rush is in a league of its own

The IEA is forecasting continued strong market growth for all critical minerals, from copper and cobalt to manganese and rare earth metals (this is in contrast to a relatively stagnant outlook for metals less important to the energy transition, like zinc and lead). But the growth in the lithium market is extraordinary, far outstripping most other critical minerals. Demand for the metal rose nearly sevenfold between 2017 and 2022. Spending on lithium exploration grew by 90 per cent last year alone. And if the world was to get on track to reach net zero emissions by 2050, the IEA said, lithium demand would rise roughly another seven times from 2021 levels by 2030.

3. Critical mineral supplies are worryingly concentrated

A major area of concern, said Birol, was the extreme concentration of mining and refining of many critical minerals in a handful of countries. Over 70 per cent of the world’s cobalt comes from the Democratic Republic of Congo. More than two-thirds of global rare earth metal extraction is in China, which also accounts for the vast bulk of processing of minerals including lithium, cobalt and copper. On the extraction side, there were some signs of increasing diversification, with new production projects being rolled out as countries tried to shore up their security of supply, said IEA chief energy economist Tim Gould. But when it came to processing, he warned, the concentration was set to persist. Half of all the world’s planned lithium chemical plants are in China; 90 per cent of planned nickel refining capacity is in Indonesia, the dominant supplier of that metal.

4. Miners are struggling to clean up their act

A second key concern flagged by Birol was the lack of progress on the sustainability of critical mineral production. The emissions intensity of production at 20 major companies studied by the IEA showed no meaningful decrease between 2018 and 2021 — not helped, Gould observed, by the declining resource quality of some mines. Meanwhile, water withdrawals at critical mineral production sites nearly doubled in the same period. It’s not clear, the report noted, how seriously companies that use critical minerals — and the end consumers who buy their products — are taking these issues. “This is an area where [buyers of critical minerals] can play their part,” Gould said. “If they prioritise high standards in their sourcing decisions, that provides a strong impetus for producers to act.”

5. Start-up funding in this space is heating up

Venture capital investment suffered a painful decline last year, but young companies in the critical minerals space bucked the trend, raising $1.6bn. That might not sound like a huge number, and it accounted for only 4 per cent of all VC funding for clean energy last year. But this represented a 160 per cent increase from 2021, and the strong investment flows into start-ups focused on critical minerals have continued into the first quarter of this year. The most popular subsector? Battery recycling start-ups such Singapore’s Green Li-ion, which has raised $35mn over the past year. (Simon Mundy)

Shareholders seek antidote to antibiotic resistance

Not even Madonna is immune to the threat of bacteria. Recently, the superstar was forced to postpone the North American segment of her tour, due to a serious bacterial infection that landed her in the hospital.

The rise of antibiotic resistant bacteria means that common procedures such as C-sections or other surgeries could potentially become life-threatening, an issue we’ve covered previously.

In this most recent annual general meeting season, antimicrobial resistance (AMR)-related shareholder proposals gained “incremental increases in support” Dr Emma Berntman, senior engagement specialist at the FAIRR Initiative, told me. Fast-food companies in particular came under pressure by investors to step up their commitments to addressing AMR, and were pressed to disclose information on their antibiotics usage as well as adhere to World Health Organization guidelines.

In the case of McDonald’s, the world’s largest purchaser of beef, support rose from between 13 per cent and 14 per cent to 18 per cent, which is a “good level of support . . . for a shareholder proposal that is not intrinsically linked to climate change,” said Berntman.

Investors are now going further — a group of 71 investors representing $15.2tn in combined assets are dialling up the heat on 12 fast-food restaurants including McDonald’s and the owners of KFC, Pizza Hut and Burger King.

The initiative announced today, led by the FAIRR investor network, aims to push these companies to disclose “the quantity and type of antibiotics used, and progress towards antibiotics reduction targets.” FAIRR plans to publish company assessments in 2024.

Until now, systemic risks posed by AMR had been the focus for diversified investors pushing action on the issue. But investors were now moving to “get ahead of upcoming regulations,” said Katie Frame, social engagement lead at Schroders.

Recently, the EU prohibited routine antibiotic use on animals, which successfully reduced the drugs’ usage in meat imported into the bloc. With more regulation likely, investors were increasingly “wanting to understand how companies are seeking to meet the requirements of regulation,” Frame said.

But challenges remain. “Over two-thirds of the global antibiotic supply is used in animals, and some of these are for unnecessary cases,” Bruce Duguid, head of stewardship at Federated Hermes Limited, told me.

While there had been progress on poultry, “changing the beef and pork industries [has been] very slow,” said Andrea Ranger, shareholder advocate at Green Century Capital Management. Unlike poultry, in which chicks hatch and grow up in the same location, with pork and beef “it’s a more difficult supply chain to control” because the farms where cattle and pigs were born often differed from where they were raised and slaughtered, said Ranger. (Kaori Yoshida, Nikkei)

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