Sustainable finance paper 2
Executive summary
The demand for several minerals in the battery storage market will continue to increase throughout the transition period. This presents a great opportunity to invest in these minerals to 1) mitigate the relevant financial risks associated with supply shortages; 2) anticipate a future increase in the prices of these minerals.
There are 3 major risks that will be covered:
Environmental risks in mining critical minerals
Increase in critical mineral prices leading to volatility
Supply shortages with the drastic growth in demand
Introduction
There has been rapid growth in critical mineral markets due to the large demand from clean energy technologies, such as EVs, solar PV, and battery storage. All sectors, including financial institutions, governments, and industries, are going to face significant challenges from the critical mineral market because the price is going to increase with limited supply, and social and environmental risks are to be addressed with the enormous mining activities associated with meeting the demands of critical minerals in the future. Three major risks are assessed here before investing in the critical mineral sector.
Environmental risks in mining minerals
Mining metals is often associated with major environmental impacts, including habitat destruction, water pollution from toxic runoff, soil erosion, biodiversity loss, and air pollution from dust and emissions. These activities can also contribute to climate change by releasing significant amounts of greenhouse gases and lead to long-term ecological and health consequences for surrounding communities. Battery production is critical to transition into a sustainable economy and society, while at the same time, the mining process will create considerable environmental negative externalities.
Increased price on critical mineral
Examining the current year, the most costly mineral is copper, which requires a large quantity in battery production, although its singular mineral price is not the highest. The second is then nickel, which, although its quantity demanded is not as high, the price itself is especially high.
Among all the minerals, manganese and silicon are both low in quantity demanded and in their prices. So far, there has been no demand for vanadium at all. However, in the next section, the “Net Zero Emission by 2050 Scenario” has predicted that there is going to be a massive quantity demanded in the future.
To mitigate these risks, mining operations can implement sustainable practices such as using cleaner technologies, recycling water, restoring mined land, adopting renewable energy sources, and conducting thorough environmental impact assessments. There can be potential investment opportunities that will be critical in the future.
Short on supply with the drastic growth on demand
The most used critical minerals for battery storage include the following: copper, cobalt, graphite, lithium, manganese, nickel, silicon, and vanadium.
The graph shows the overall growth in demand for minerals. It is interesting that not all minerals show an increase in demand, but only graphite, nickel, silicon, and vanadium. These are the commonly known battery metals. However, they are also the most expensive minerals among the metals. The current price of graphite is 1750 USD/Metric ton, Nickel is 17951 USD/Metric ton, Silicon is 2184 USD/Metric ton, and Vanadium is 13228 USD/Metric ton.
Conclusion
Environmental risks associated with mining activities should be considered in terms of mitigation. In comparing all the critical minerals’ demand for the current and in the future under different scenarios, currently, copper, graphite, and nickel are the most important minerals, while there will be possible volatility on copper, graphite, and vanadium in the future. There exist different investment opportunities in the critical mineral market, such as investment in mining the critical minerals, technology, and equipment providers, and several critical minerals including copper, graphite, and especially vanadium.