14.06.2024

ESG requirements make metal production more sustainable

Metals producers operating globally are facing a changing regulatory landscape around environmental, social and governance (ESG) criteria. New demands for transparency from governments, shareholders, investors and consumers are having an increasing impact on the operations and decision-making of metals producers worldwide. Euractiv.

The changes have brought significant red tape that the industry says still needs some ironing out. But overall, experts say these new transparency requirements are working to make metals production more sustainable.

It is already a fact that the industry is investing in cleaner technologies, improving energy efficiency and implementing measures to reduce waste and pollution in response to changing environmental regulations and consumer expectations.

Strict regulations

The European Union recently introduced strict requirements to ensure that companies prioritize ESG considerations in their operations. These new requirements cover a range of factors aimed at minimizing negative environmental impacts, meeting social responsibility standards and maintaining strong corporate governance practices.

"The first and foremost priority and obligation for a business is to comply with legal requirements," says Suzanne McLaren, Head of Responsible Sourcing and Sustainability at the Cobalt Institute. “Combating forced labor has become an increasing international priority, new and emerging regulations have begun to influence global compliance. In the US, Canada and now in the EU, we are seeing the emergence of import bans as they prevent foreign goods from entering a country if it is suspected that forced labor was used in their production,” she further commented.

In the EU, other applicable legislation includes the Battery Regulation, the Critical Raw Materials Act and the Corporate Sustainability Reporting and Due Diligence Directives.

“Disregarding ESG can have far-reaching and damaging impacts. From a business perspective, access to markets, particularly in Europe and North America, can be hindered – and this can reduce the share value and reputation of a business,” continues McLaren.

For battery regulation, nickel and cobalt are in particular focus, as they underpin the production of electric vehicles on which the EU has placed so much hope for decarbonisation. Much of this material is sourced from countries that have historically been plagued by environmental and labor problems such as Indonesia and DRC Congo.

"Indonesia has become the subject of great attention from the media and civil society. "Reputational risk is a key driver for companies and investors, but also for other important stakeholders such as politicians," McLaren points out.

The case study "Indonesia"

In Indonesia, environmental groups have expressed concern that increasing demand for nickel is causing environmental and climate damage. Last year, 16 groups, including Greenpeace and the Sierra Club, wrote an open letter to US President Joe Biden expressing concern about the new critical minerals deal with Indonesia.

"Nickel mining in Indonesia takes place in a biodiversity hotspot, home to numerous endemic species in a transition zone between Eurasian and Australian flora and fauna," they wrote.

Here's what else they note:

“Since 2000, between 76 and 031 hectares of forest have been cleared for nickel mining in Indonesia, and another 153 hectares of forest are currently threatened by the expansion of the nickel industry. Demand for nickel and other critical minerals is growing to provide the raw materials for batteries that power electric vehicles.”

Still, conservationists acknowledge in the letter that electric cars are more efficient than internal combustion engines and securing critical minerals is important to ensure a just transition. However, they say there is a risk that these goals will be undermined by Indonesia's current mining and refining practices for critical minerals. They cite as an example coal plants that they say are used to process nickel mined in Indonesia, thereby generating more CO2 emissions than in other countries.

Mark Mistry, senior manager of life cycle assessment and sustainability at industry association Nickel Institute, says the industry needs to take such ESG concerns seriously, especially in countries like Indonesia.

"This is a reflection of the sensitive environment in which nickel mining takes place in Indonesia, with several thousand islands in one of the most biodiverse regions," Mistry said.

“ESG standards can help address these concerns. Applying them requires companies to go through more than 30 different environmental, social and governance issues and identify potential risks, which are then addressed and managed,” he adds.

Mistry also notes that the drive to implement these standards comes not only from new regulation passed over the past five years in Europe and North America, but also through industry-led initiatives such as Responsible Steel and partnership initiatives such as the Global Battery Alliance.

Regardless of the future regulatory landscape, experts agree that ESG criteria are already having a significant impact on metals producers around the world. Companies that prioritize environmental performance management, social responsibility and good governance are not only in a better position to address regulatory challenges and stakeholder scrutiny, but also to take advantage of the opportunities available in the rapidly evolving is a global market.