ESG requirements are making metals more sustainable, industry says

New metal production practices prompted by revised expectations from governments and investors are already affecting countries like Indonesia. However, there are concerns about rising costs and a lack of regulatory coordination.

Metals producers operating globally are facing a shifting regulatory landscape regarding Environmental, Social, and Governance (ESG) criteria. New transparency requirements from governments, shareholders, investors and consumers are exerting a growing influence on the operations and decision-making of metals producers worldwide.

The changes have come with significant paperwork and bureaucracy, which the industry says still needs some ironing out. But overall, experts say these new transparency requirements are working to make metals more sustainable.

Metals producers are investing in cleaner technologies, improving energy efficiency, and implementing measures to reduce waste and pollution in response to evolving environmental regulations and consumer expectations.

Tough regulations

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

“The first and foremost priority and obligation for a business is to meet legislative compliance,” said Susannah McLaren, head of responsible sourcing and sustainability at the Cobalt Institute, in a recent webinar.

McLaren commented that “combating forced labour has become an increasing international priority, new and emerging regulations have begun to impact global compliance. In the US, Canada and now in the EU we are seeing an emergence of import bans, as they prevent foreign-made goods from entering a country if forced labour is suspected to have been used in their production.”

In the EU, other relevant pieces of legislation include the Battery Regulation, the Critical Raw Materials Act, and corporate sustainability reporting and due diligence directives.

“Ignoring ESG issues can have broad and detrimental impacts,” said McLaren. “From a business perspective access to markets, particularly in Europe and North America could be hindered – and it could lower the stock value and reputation of a business.”

For the battery regulation, nickel and cobalt have come into particular focus because they are core to the manufacturing of electric vehicles on which the EU has pinned so much decarbonisation hope. Much of this is sourced from countries that have historically been plagued by environmental and labour problems such as Indonesia and DRC Congo.

“Indonesia has come under a lot of attention from the media and civil society,” observed McLaren, adding that: “Reputation risk is a key driver for companies and investors, but it’s important to note that the stories that people are exposed to about the products they buy and what’s in them are also read by other important stakeholders such as policymakers.”

Indonesian concerns

In Indonesia, environmental groups have raised concerns that the increase in nickel demand is driving 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 a new Critical Minerals Agreement with Indonesia.

“Nickel mining in Indonesia is taking place in a biodiversity hotspot, home to an array of endemic species in a transition zone between Eurasian and Australian flora and fauna,” they wrote.

They remarked in the letter: “Since the year 2000, between 76,031 and 153,364 hectares of forest have been cleared for nickel mining in Indonesia, and another 500,000 ha of forest is currently threatened by the expansion of the nickel industry.”

“Demand for nickel and other critical minerals is surging to provide the raw materials for batteries that power electric vehicles,” they said, adding that: “EVs are more efficient than internal combustion engines, and securing critical minerals is important to powering a just transition.”

Captive coal plants

They said that those goals are at risk of being undermined by current Indonesian practices in extracting and refining critical minerals while pointing to the captive coal plants they say are being used to process nickel mined in Indonesia, generating more CO2 emissions for nickel than in other countries.

Mark Mistry, Senior Manager for Lifecycle Assessment and Sustainability at the Nickel Institute, an industry association, says the industry needs to take such ESG concerns seriously, especially in countries like Indonesia.

“It’s a reflection of the sensitive environment where Indonesian nickel mining takes place, with several thousand islands in one of the most biodiverse regions,” said Mistry.

ESG standards can help deal with these concerns, he said, explaining: “Applying an ESG standard requires companies to go through more than 30 different environmental, social and governance issues and to identify potential risks which then are addressed and managed.”

Mistry notes that the incentive to apply these standards isn’t just coming from the 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.

Conservation of resources

Septian Hario Seto, Indonesia’s deputy of investment and mining coordination, said at the webinar that producers in Indonesia are responding to the new requirements and expectations. “We know we have risks about the conservation of resources, waste disposal and carbon emissions,” she said.

Indonesia has recently become the world’s largest nickel producer, and she said the country is on a learning curve when it comes to ESG.

Seto remarked: “We still need to learn from expertise, how to make best practices and how to make assessments for the environmental [impacts] from upstream to downstream.”

She said they are most concerned about ESG relating to waste management, which is proving to be very expensive. “If we put on another ESG cost, I’m not sure the nickel miners will accept it,” explaining that “this depends on the regulation.”

Meydi Katrin, Secretary General of the Indonesian Nickel Miners Association, agreed. “The Indonesian government is very open to collaborating on ESG…to support the nickel processing industry,” he said.

Several nickel mining companies in Indonesia are already using the Initiative for Responsible Mining Assurance’s mine measure tool, in preparation to participate in the IRMA’s independent assessment process. They are also implementing a new traceability and transparency system for nickel production for monitoring and evaluating ESG implementation, which Katrin expects to be in place within the next two months.

Policy help, sound science

The nickel industry is looking for three key things from policymakers, particularly in the next EU term: cross-recognition of due diligence and responsible production standards, criteria recognised on sound science, and carbon footprints measured in the same way everywhere.

But at the same time, they point out that health and environmental criteria and limit values are specific to certain regions and can’t be universally applied Rather, they’re calling for available scientific tools designed specifically to evaluate community and environmental impacts of metals to be used.

A combination of convergence and cross-recognition of standards and carbon footprint assessment should be based on methodologies that still consider regional specificities, says Mistry.

In short, it boils down to the specificities for the assessments, but not for the recognition.

“The aim of these initiatives globally is more or less the same, but they tend to differ when it comes to the details,” he notes, adding: “It would be important that there is more coordination taking place and that regulators or customers do not specify additional or specific requirements that require companies to do the job several times for different stakeholder groups. That would not improve things on the ground but only lead to additional burden.”

Regardless of the regulatory landscape to come, experts agree that ESG criteria are already exerting a significant impact on metal producers around the world.

Companies that prioritize environmental performance, social responsibility, and good governance are not only better positioned to navigate regulatory challenges and stakeholder scrutiny but also to capitalize on emerging opportunities in a rapidly evolving global marketplace.

[By Dave Keating I Edited by Brian Maguire | Euractiv’s Advocacy Lab ]

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