Global fund managers should push producers of lithium, cobalt and copper - key metals used in electric vehicles (EVs) and other decarbonisation equipment - for greater transparency on environmental and social issues arising from their operations, a responsible investment adviser said. All three metals are crucial in EV batteries, whose demand has surged as decarbonisation and climate-change initiatives accelerate the adoption of EVs. Copper, for example, is used in electric motors, busbars and charging installations, and also forms an integral part of power-grid infrastructure and wind turbines. “Single-source supply chain risk, environmental impact, human rights abuses and labour practices are all significant concerns present in the lithium mining and battery production industries,” said ISS ESG, the responsible investment arm of Institutional Shareholder Services. Money managers can demand better transparency and practices” from weaker environment, social and governance (ESG) performers, it added. ISS offers services to global investors seeking to elevate corporate governance and improve ESG practices among corporate boardrooms. The US-based firm is majority-owned by Deutsche Borse Group. The global lithium production sector caused some 36 incidents that broke international norms on environmental protection between June 2019 and November 2022, according to ISS research. It also created 35 cases on human-rights issues during the period. Extraction of lithium brine in Chile, Argentina and Bolivia, which together have 56 per cent of the world’s known reserves, has been linked to the lowering of groundwater levels and desertification, ISS said, citing findings by the London-based Business and Human Rights Resource Centre. Chinese lithium plants halt production amid river water quality investigation In a recent case in Yichun, China - dubbed the lithium capital of Asia - several listed firms halted production, according to stock exchange filings, to facilitate investigations possible pollution in a rive that is a key source of water for nearby residences. China, Australia and Chile accounted for around 95 per cent of global lithium output in 2021, according to the US Geological Survey. The top four global miners, including Chile’s SQM Lithium and China’s Ganfeng Lithium Group, accounted for more than 70 per cent of global supply, according to ISS. Many artisanal producers in Congo, which contributes over 70 per cent of global cobalt supply, operate without adequate safety standards and labour protection, according to a 2020 white paper published by the World Economic Forum. For the world to have a 66 per cent chance of restraining global warming to 1.8 degrees Celsius, industries need to produce US$161 billion worth of minerals essential to an energy transition in 2030, and rising to US$264 billion in 2040, according to the International Energy Agency (IEA). That would require a major step-up from the US$41.7 billion spent in 2020. ESG investing: why it works and how some smaller ETFs outgun market titans The IEA projected that demand for copper will grow by 25 per cent between 2020 and 2030. Mining for the metal also faces various environment, social and supply-chain challenges, ISS noted. Half of the top 20 mines are in high or extremely high-water stress areas, a source of potential conflicts with local communities. To be sure, ESG issues also affect other extractive industries. Some 198 complaints in the oil, gas and mining sectors were filed between late 1999 and early last year to various independent accountability mechanisms, according to the Accountability Counsel, a US-based nonprofit organisation that seeks redress for affected communities. They included health and safety, displacement, livelihoods and pollution, policy director Margaux Day said. State Street Global Advisors can take voting action against company directors when they fail to respond to requests to improve their social risk management pertaining to human rights issues, said Xinting Jia, the firm’s ESG investment strategist. This is sometimes a multi-year process, she added. In recent years, rising awareness of environment and social issues means mining firms have had to spend many more years of regulatory and community engagement to secure mining permits, said Tim Gerrard, a portfolio manager focusing on natural resources at Janus Henderson Investors. “However, they do always seem to lag expectations,” he said. “Pressures are intensifying to meet increased community needs such as health and welfare, biodiversity, tailings disposal and remediation.”