The House of Representatives, led by financially sound Republicans, is set to hold a hearing on financial institutions’ approach to environmental, social, and governance (ESG) factors. Previous ESG hearings in Congress have been led by vocal Trump loyalists, but this hearing promises a more thoughtful discussion. However, with Democrats in control of the Senate and the White House, any legislative attacks on ESG are unlikely to succeed. Meanwhile, the International Energy Agency (IEA) has released a report on critical minerals, highlighting key takeaways. The report suggests that the project pipeline for critical minerals looks promising, with enough supply potential to meet net zero goals until 2030. However, concerns remain about the concentration of mining and refining in a few countries, as well as the sustainability of production and the need for diversified investment in the sector. In another development, shareholders are increasingly concerned about antibiotic resistance and are pressuring companies, particularly fast food companies, to disclose their use of antibiotics and work towards reduction goals. A group of 71 investors representing $15.2 trillion in assets is urging fast-food restaurants to take action on this issue.
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The Republican crusade against environmental, social and governance investments is taking another step forward. Later today, the House of Representatives will hold a hearing to examine financial institutions’ approach to ESG factors. While we’ve seen ESG hearings in Congress before, this meeting will be the first held by the House Financial Services Committee, led by financially sound Republicans, rather than vocal Trump loyalists. We can expect a much more thoughtful discussion of ESG factors than we have seen previously. The hearing will consider many anti-ESG regulations destined to die on the vine. With Democrats in control of the Senate and the White House, any legislative attacks on the ESG will languish. I’ll have a full report on developments from Washington — as well as looking into the behind-the-scenes ESG lobbying machinations — for Friday’s newsletter.
Today, Simon delves into the latest International Energy Agency report on critical minerals. Meanwhile, Kaori investigates how shareholders are increasingly concerned about antibiotic resistance and are voicing their concerns to companies.
Finally, for those of you in New York this week, Gillian and I are speaking at a Nikkei event on the United Nations Sustainable Development Goals. On Friday, I’ll be moderating a panel on potential greenwashing issues as the SDGs have been embraced by ESG investing.
And on Thursday, I’m joining law firm Ropes & Gray for a webinar on the ESG backlash and what investment funds can do about it. (Patrick Temple West)
Our key takeaways from the new IEA Critical Minerals report
As regular readers of Moral Money know all too well, one of the biggest challenges in the energy transition is securing the critical minerals needed to fuel it. This was the subject of an important relationship yesterday by the International Energy Agency, which will be widely read across the clean energy space. Here are our five key points:
1. The project pipeline looks promising
When it comes to the supply potential of critical minerals to meet demand, this report has taken on a more optimistic tone than the IEA’s previous study of this area two years ago. If all of the world’s planned mining and processing projects in this space come to fruition, the IEA said, that would supply two-thirds of all the critical minerals the world needs to meet its net zero goals. The current pipeline would be enough to get us on track until 2030 (when more projects 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 hamper many planned projects.
2. Lithium racing is in a league of its own
The IEA expects 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, such as zinc and lead). But the growth in the lithium market is extraordinary, far outpacing most other critical minerals. Demand for the metal increased nearly seven-fold between 2017 and 2022. Lithium exploration spending grew 90 percent last year alone. And if the world were on track to achieve net-zero emissions by 2050, the IEA said, demand for lithium would increase about seven more times from 2021 levels by 2030.
3. Stockpiles of critical minerals are worryingly concentrated
One major area of concern, Birol said, has been the extreme concentration of mining and refining of many critical minerals in a handful of countries. Over 70% of the world’s cobalt comes from the Democratic Republic of the Congo. More than two-thirds of global rare earth metal mining takes place in China, which also accounts for the majority of processing of minerals including lithium, cobalt and copper. On the extraction side, there were some signs of increasing diversification, with new generation projects launched as countries looked to bolster their security of supply, said IEA chief energy economist Tim Gould. But when it came to processing, he cautioned, the focus was bound to linger. Half of all planned lithium chemical plants in the world are located in China; 90% of planned nickel refining capacity is in Indonesia, the main supplier of that metal.
4. Miners are struggling to clean up their act
A second key concern reported by Birol was the lack of progress on the sustainability of production of critical minerals. The emissions intensity of manufacturing at the top 20 firms the IEA studied showed no significant decline between 2018 and 2021, not helped, Gould noted, by declining resource quality at some mines. Meanwhile, water withdrawals at critical mineral production sites nearly doubled over the same period. It’s unclear, the report notes, 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] they can do their part,” Gould said. “If they prioritize high standards in their sourcing decisions, that provides a strong impetus for manufacturers to take action.”
5. Seed funding in this space is heating up
Venture capital investments took a painful decline last year, but young companies in critical minerals have reversed the trend, raising $1.6 billion. That might not seem like a huge number, and it accounted for just 4% of all VC funding for clean energy last year. But this represented a 160% increase over 2021, and strong investment flows into start-ups focused on critical minerals continued into the first quarter of this year. The most popular sub-sector? Battery recycling startups like Singapore’s Green Li-ion, which raised $35 million in the last year. (Simon Mundy)
Shareholders seek an antidote to antibiotic resistance
Madonna recently postponed part of her tour due to a bacterial infection. © Getty Images for MTV/ViacomCBS
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 caesarean sections or other surgeries could potentially become life-threatening, a problem we have previously covered.
In this most recent annual general meeting season, shareholder proposals related to antimicrobial resistance (AMR) have gotten “incremental increases in support,” Dr. Emma Berntman, senior engagement specialist at the FAIRR initiative, told me. Fast food companies, in particular, have come under pressure from investors to step up their efforts to address antimicrobial resistance and have been urged to disclose information about their use of antibiotics and adhere to the Organization’s guidelines world of health.
In the case of McDonald’s, the world’s largest buyer of beef, support has dropped from 13% to 14% to 18%, which is a “good level of support. . . for a shareholder proposition that is not intrinsically linked to climate change,” said Berntman.
Investors are now taking it further: A group of 71 investors representing $15.2 trillion in combined assets is turning 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 amount and type of antibiotics used and progress towards antibiotic reduction goals.” FAIRR expects to publish company valuations in 2024.
Until now, the systemic risks posed by AMR had been the focus of diversified investors urging action on the issue. But investors were now moving to “get ahead of upcoming regulations,” said Katie Frame, head of social engagement at Schroders.
Recently, the EU banned routine use of antibiotics on animals, which successfully reduced the use of the drugs in imported meat in the bloc. With more regulation likely, investors were increasingly “wanting to understand how companies are trying 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 that is for unnecessary cases,” Bruce Duguid, chief management officer 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, where chicks are born and raised in the same place, with pork and beef “it’s a harder supply chain to control” because the farms where cattle and pigs were born often differed from where they were raised and slaughtered, Ranger said.Kaori Yoshida, Nikkei)
Smart reading
Last year’s heat wave in Europe it appears to have caused more than 60,000 excess deaths, according to a new study published in Nature Medicine that highlights the lethal danger of rising temperatures. Italy, Greece, Spain and Portugal experienced particularly high mortality rates.
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