The industrialised world seeks sustainable, ethically sourced critical minerals, but faces challenges without global ESG standards. Competing against lower-cost, lower standard producers is tough, notes Ian Satchwell of the University of Queensland, as Australia leads in advocating for responsible supply chains and ESG market recognition.
IF AUSTRALIA and like-minded nations want secure, sustainable critical-minerals supply chains, they must tackle the interrelated challenges of price premiums and global environmental, social and governance (ESG) standards.
Australia and its miners are leaders in ESG performance in mining. Meeting high standards, however, costs more than working to lower ones.
Without minimum production standards, it’s hard, nigh impossible, to compete in critical-mineral markets flooded with products that are cheaper but come with inferior ESG compliance. This is not an argument for a reduction in Australian standards but for treating products that don’t meet minimum benchmarks as inferior and to be sold at a price discount.
Many agreements have been signed by like-minded nations to build more diverse supply chains than those currently dominated by China. Australia and its allies have committed to promoting high ESG standards for supply chains and agreed to explore how to achieve market price differentiation. For example, a May 2024 agreement between Australia and the European Union includes provisions for supply-chain transparency and promoting ‘market recognition for high ESG standards’.
As a recent ASPI report explained, there’s no common global standard for the sustainability of minerals supply chains or the ESG performance of miners. A recent proposal by several global companies for the London Metals Exchange (LME) to introduce a ‘green premium’ for nickel produced under high ESG standards failed for want of agreed standards and industry consensus.
The LME noted there were no common industry views about what should constitute ‘green nickel’ and that any standard to underpin premium pricing would have to cover everything from carbon footprints to labour rights. But why would there be such agreement when low standards are part of the business model for critical-minerals production in some countries, such as China and, for nickel, Indonesia? Buyers tend to be swayed by price as a primary consideration for supply.
Meanwhile, the suspension of much of Australia’s nickel production due to undercutting in the market by Indonesian production, backed by Chinese capital, has concentrated global supply while worsening environmental and social impacts.
Indonesia’s own attempts to diversify minerals investment away from China appear to be coming unstuck due to market conditions and poor ESG standards. In June, German company BASF and French company Eramet abandoned plans to develop a nickel–cobalt refining complex in Indonesia’s Weda Bay, North Maluku, citing availability of alternative supply chains to access ‘a secure, responsible and sustainable supply of critical raw materials for the production of precursor cathode active materials’.
So far, governments have largely left the development of ESG standards to industry, implicitly recognising that it’s the mining industry and downstream processors that have the incentive and expertise to develop standards.
While global consensus on standards will be difficult to achieve, more challenging will be establishing assurance mechanisms that critical-minerals supply chains meet the standards. Standards require government endorsement, but effective and trusted assurance mechanisms will need government-backed oversight and warranties.
Multiple global mining industry standards have been developed since 1997, when the Minerals Council of Australia (MCA) issued its Code for Environmental Management. (I was a co-author of the code). Those standards tend to apply to upstream extraction and primary and secondary processing, however. Few apply to the full minerals supply chain.
Several processes are underway to rationalise minerals supply standards, but not all appear to be coordinated, potentially continuing current fragmentation.
The Consolidated Mining Standard Initiative seeks to combine five mining industry standards into one global standard: the copper industry’s Copper Mark, the Mining Association of Canada’s Towards Sustainable Mining (also adopted by the MCA), the Mining Principles of the International Council on Mining and Metals, and two standards of the World Gold Council.
The Initiative for Responsible Mining Assurance is revising its 2018 Standard for Responsible Mining and Mineral Processing and a separate chain-of-custody standard for release by the end of 2024.
The Responsible Minerals Initiative, which has members from manufacturing, mining and processing, has developed the Global Responsible Sourcing Due Diligence Standard for Mineral Supply Chains, as well as standards for the processing and refining of several minerals.
The principal government-linked processes to facilitate the development of standards are conducted by the Organisation for Economic Co-operation and Development, which in May 2024 held its 17th Forum on Responsible Mineral Supply Chains, bringing together 1300 global industry, community and government representatives to discuss policy cohesion and responsible business conduct.
In 2016, the OECD issued the third edition of its Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, which has great relevance due to the rapid development of critical-minerals mining operations in several such African and Latin American nations. The OECD has also produced guidelines on environmental due diligence in mineral supply chains and on responsible business conduct.
How those OECD discussions and guidelines are to be translated and articulated with industry initiatives to produce globally accepted standards is unclear, but it needs to happen to achieve the critical-mineral supply-chain objectives of like-minded nations.
If new standards are agreed and recognised by governments, assurance mechanisms must be implemented with government backing and oversight.
Common standards and assurance mechanisms will provide an essential foundation to achieve differential pricing for responsibly produced minerals.
However, it will be very difficult to gain price premiums or to impose discounts for minerals not produced sustainably. Government subsidies via concessional loans or production tax credits are short-term and inadequate substitutes for market-driven pricing that meets full costs and margins. In any case, countering China’s willingness to manipulate markets that it dominates by withholding and dumping supply requires systemic global responses. For Australia, out-subsidising United States domestic production of minerals such as lithium is unlikely to be economically feasible and in any case is pointless.
It remains to be seen whether and how industry and governments can achieve differential prices for sustainably produced critical minerals that are needed to support their often higher costs. One thing that’s certain is that, without market demand for ESG standards, neither industry nor government will have much sway in promoting sustainable supply chains.
+++
Ian Satchwell is an adjunct professor at the Sustainable Minerals Institute at the University of Queensland and a senior fellow at ASPI.
This article first appeared in The Strategist, published by ASPI
