Bottom Line! is a partnership from IUCN NL that focuses on combating deforestation and biodiversity loss through mining in Indonesia, Ghana and the Philippines. VBDO is part of this alliance.
(Ir)responsible mining & the energy transition
In order to tackle climate change, we need an energy transition which involves a switch from fossil fuels to renewable sources of energy. To undergo this transition, we require an enormous amount of raw materials, such as nickel, copper, lithium and bauxite/aluminium. These raw materials are sourced from around the world, with particular concentrations being found in a number of specific countries, such as Indonesia, the Philippines, or Ghana. The use of these materials is not new, but the scale at which we will need them in the near future is unprecedented. Take nickel, for instance. Nickel is currently mainly used for stainless steel. However, the increasing demand for the transition at hand (inter alia for electric cars) is leading to an exponential call for more nickel.
The mining being undertaken to meet this vastly increasing demand for raw materials is in places already resulting in widespread biodiversity loss, ever-increasing deforestation and the destruction of other ecosystems such as wetlands, which in turn are crucial to addressing the climate, water and biodiversity crises. We must ensure that it does not contravene international policy agreements and commitments such as those recently laid down in the Kunming-Montreal Global Biodiversity Framework (GBF) and in the promises made at the Glasgow Climate Conference (COP26) to protect forests, and that is does not violate the rights of indigenous peoples and local communities.
We urgently need to accelerate the sustainability and processing of raw materials. We need a drastic change towards a circular economy, in which we use less materials and reuse the minerals and metals.
Role of the financial sector
The financial sector has a key role to play in facilitating and guiding corporates towards more responsible practices in mineral and metal extraction, production and processing. Financial actors enable investments and finance to realise the necessary infrastructure, logistics and innovation for the energy transition. They can leverage their influence to enhance due diligence processes, embed responsible sourcing practices and engage with portfolio companies to prevent and mitigate (potential) negative impacts on human rights, the environment and climate. Financial actors can set minimum safeguards as criteria for new investments and take escalatory measures with current portfolio companies when these safeguards are not met.
Striving for responsible mineral supply chains
Simultaneously, portfolio companies should be engaged to ensure their supply chains (both upstream and downstream) strive to embed policies on responsible sourcing and processing of minerals and metals, for instance by introducing actions to avoid, minimise and remedy negative impacts. If this is not done proactively, it could fuel the growing concern of the financial sector, that the social and environmental risks, such as biodiversity loss, climate change, pollution, ecocidal harm and human rights violations, will jeopardise long-term value creation and investment returns. Risks such as these may translate into financial, operational, and reputational risks for companies and investors, particularly in view of the new regulatory frameworks such as the EU Battery Regulation, the EU Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Corporate Sustainability Reporting Directive (CSRD).
Non-financial and environmental data
The Sustainable Finance Disclosure Regulation (SFDR) and the Corporate Social Responsibility Directive (CSRD) demand that financial institutions disclose non-financial and environmental data on their investment/financing portfolio. To report under the SFDR, financial institutions make use of the Pathway Adverse Impact (PAI) indicators. The summer of 2023 marked the first deadline for financial institutions to disclose information under the SFDR, and several have indicated that they are struggling to gather the data required. The Taskforce on Nature-related Financial Disclosure (TNFD), that recently published guidance and a tool for non-financial reporting, equally acknowledges that “data remains a huge challenge”. The struggle to obtain the necessary non-financial data to comply with existing and upcoming regulations, is mainly due to a lack of data being provided by the portfolio companies. As a consequence, financial institutions currently have limited insight into the level of compliance concerning regulations.
There is a clear need (on a per-company level) for a data-gathering framework that is more focused on environmental and social impacts, dependencies and risks. One way of gathering more on-the-ground and contextual data could be by working more closely with local stakeholders. Several instruments exist to guide companies in doing so, for instance the Initiative for Responsible Mining Assurance (IRMA) standard, and the upcoming GRI Mining standard (or existing ones like GRI: 303 and GRI: 304) which both incorporate a multi-stakeholder approach to data gathering.