Demand for low-carbon metals heats up

Before Nornickel (Norilsk Nickel) became globally infamous for the Russia-Ukraine war profiteering of its largest shareholder, Vladimir Potanin, the company had a reputation as a leader in the emerging market for low-carbon nickel. Its green Class 1 nickel fetched a 4% premium on LME prices in November because it boasted an 8 mt/CO2 per mt carbon footprint versus an industry average of 13 mt/CO2 per mt, according to S&P Global. Nornickel also committed to using carbon offsets to produce at least 8,000 mt of zero-carbon nickel in 2022.

Nornickel’s pioneering low-carbon offers are part of a sustainable and low-carbon mining trend. The trend is driven by increasing demand from OEMs for metals produced without detriment to the atmosphere, local environments, workers, and mining communities. “Pressure is building on mining companies to deliver compelling and measurable results on environmental, social, and governance (ESG) imperatives,” wrote Bain & Co. analysts recently.

In addition to large OEM customers, social justice activists and investors are pressuring mining and metals companies to green up and clean up. “Activists are launching sophisticated and effective campaigns with social media and public support,” wrote Bain analysts, citing campaigns by ESG investment advisory firm Glass Lewis, shareholder engagement company Proxinvest, and Australian ESG pressure group Market Forces. “Combined with support from traditional institutional investors, such actions are leading to broad investor backing for bold sustainability targets and progress [in mining and metals].”

As covered previously on Resilinc’s blog (see Driving domestic production of critical minerals and Ethical sourcing risks pose challenge to electric vehicle market), the ESG concerns of activists and investors dovetail with the security worries of bipartisan leaders in the White House and Congress. Supply chains for cobalt, copper, nickel, lithium, graphite, manganese, and rare earth elements are particularly concerning. This is due to their importance for manufacturing advanced batteries, electric vehicles, wind turbines and other green technology, and because of the extent to which China, Russia, and countries with poor ESG regulations—like the Democratic Republic of Congo, the largest source of cobalt—dominate mining and production of these materials. The International Energy Agency forecasts demand for these materials to grow by between 1,000% and 3,000% by 2040.

Given this burgeoning demand and the parallel requirements for ethical and environmentally responsible production, market participants and industry groups call for rigorous global reporting and verification of green and ESG claims by metals suppliers. “A governance framework will be critical, along with responsible sourcing and circularity through verified data and digital traceability systems,” wrote Benedikt Sobotka, co-chair of the Global Battery Alliance and CEO of Eurasian Resources Group in a statement to S&P Global Platts. “To realize ambitious climate goals, policymakers—in alignment with the private sector—need to agree on harmonized principles.”

The green trend also extends to aluminum, with Alcoa, Century, Norsk Hydro, Rio Tinto and Rusal (En+) carving out market share as leaders in low-carbon aluminum production, according to S&P Global.

The metals trade is still largely unaffected by Western sanctions on Russia (the UK’s June sanctions on Potanin targeted the oligarch, not companies he invests in), so Nornickel’s pioneering market offers will likely continue.

The extent to which Western and democratic countries can scale up their critical minerals industries remains to be seen. But market demand for green and low-carbon metals is not going away. While most OEM supply chain and procurement specialists don’t purchase these materials directly, their suppliers of items ranging from advanced batteries (made with cobalt) to sheet metal (made with manganese) do. And it may be time for OEMs to initiate conversations with their suppliers on their metals sourcing policies and how they intend to meet the climate and ESG demands of the OEMs’ large investors and other stakeholders.

For a deeper diver on the topic of ESG and best practices to tackle ESG risk download our Spotlight on ESG Risks.