Widespread responsible and sustainable financing for the mining industry is integral to achieving net zero and facilitating a successful clean energy transition.
Mining is a capital-intensive and high-risk industry that relies on varied sources of finance for each stage of a given project, including mine closure and upstream activities such as mineral processing, metallurgical plants, and metal refineries.
The market for key transition minerals continues to grow, driven by increasing investment and exploration spending. However, supply and investment in new projects are expected to fall short of meeting market demand in the mid-term, let alone fulfilling net-zero requirements.
To reach net zero, it is estimated that about US$1.7 trillion of mining investment will be needed over the next 15 years.
A report by the Global Council for Responsible Transition Minerals noted that mining finance was driven by specialist capital concentrated in a small number of financial centres led by Canada, Australia, the United Kingdom, and China.
The authors added that western mining finance has shrunk considerably over the last decade. They said: “Mining specialist capital is estimated to have fallen by 60 per cent in the UK and 80 per cent in Canada between 2010 and 2022, and many financial institutions significantly decreased or even closed their mining debt portfolio over the same period.
“Although alternative finance is more available and has now integrated the mining landscape, it has not filled the gap.
“Attracting non-specialist finance to mining is proving extremely difficult, considering some of the key challenges of the sector compared to other asset classes.”
These challenges include cyclical and volatile prices, lengthy and uncertain project lead times, rising production costs, and geopolitical uncertainties that heighten the risks associated with highly concentrated mineral reserves.
As the global mining industry seeks to secure responsible investment and establish resilient supply chains, a variety of diverse financing mechanisms have emerged.
Green bonds are one example, with US$4.5 trillion issued from 2007 to the first quarter of 2024. However, mining has contributed only US$12.5 billion of this total, highlighting its significant potential.
Increasing the issuance of green bonds could aid the mining industry by stimulating the transition and reducing the social and environmental impacts associated with mining.
Private equity and venture capital investments in critical minerals projects have been on the rise in recent years. In 2023, US$4.2 billion (3.1 per cent) of the US$156.6 billion in global capital was allocated to metals and mining, marking the second-largest share since 2008.
Grants, subsidies and incentives are a promising financing source as they reduce financial risks and foster the development of domestic supply chains.
Australian examples include critical minerals development and international partnerships programs, while internationally, India’s National Critical Mineral Mission aims to boost domestic production and reduce import dependence, and Canada’s Strategic Innovation Fund boosts critical mineral manufacturing, processing, and recycling.
Public-private partnerships are another strategic tool mining companies can use to source capital and drive sustainable resource development.
Chile has mandated that all new lithium projects operate as public-private partnerships, with the government holding a majority stake to maintain national control while leveraging private sector expertise.
Another example is France’s 2030 investment initiative, which allocates €500 million in public support for critical minerals. This funding is split equally, with half provided as loans and grants and the other half through a dedicated public-private equity fund aimed at enhancing domestic supply chains.
A fifth financing mechanism is green and sustainability-linked loans, which have emerged as attractive financing tools for critical minerals as commercial banks shifted away from funding traditional resource projects.
Additionally, blended finance is an effective strategy to derisk mining investments by combining public, private and philanthropic capital, and the government can also use sovereign wealth funds to finance projects to ensure long-term resource security.
A new report by the UN Environment Program’s International Resource Panel has called for reforms in the financial system, governance, and regulation of mineral exploration and mining. These changes aim to ensure greater capital flows and facilitate a clean energy transition.
Mineral extraction now makes up about half of annual global raw material extraction – up from 31 per cent in 1970 – making responsible mining investment critical to a successful and fair energy transition.
Demand is also projected to keep rising, with the need for minerals such as nickel, cobalt, graphite, and rare earths increasing by between 8 and 15 per cent in 2023 alone.
Additionally, lithium demand by 2050 is expected to reach levels equivalent to nine times the world’s production in 2022.
Janez Potočnik, Co-Chair of the International Resource Panel, said the demand for minerals and metals needed for the energy transition required a mining industry that contributed to sustainable development while respecting human rights and the environment.
He said: “Through sustainable finance, responsible mining can become the default, not the exception.”
A survey conducted for the report among large mining-related companies confirmed that maintaining environmental standards is perceived as expensive. However, most companies believe that this would add less than 25 per cent to their operational costs.
Nevertheless, most respondents indicated that they believe environmental, social, and governance reporting would attract new investors.
The report also highlighted that enhancing circularity in the sector could reduce the demand for additional mineral extraction. It pointed to measures such as recycling targets, government-backed financing, extended tax provisions for recycling infrastructure, incentives for eco-design, and green bonds to fund recycling facilities, all of which can help lessen the reliance on virgin materials.
The report’s authors said: “Public-private partnerships, public awareness campaigns, and the creation of a global database for former and operating mining tailings facilities are also part of the recommended approaches.
“Still, even with far-reaching circularity measures, the scale of investment required is significant – according to the International Energy Agency, achieving net zero
by 2050 would require investments in mining energy transition minerals of up to US$450 billion by 2030 and US$800 billion by 2040.”
A notable point highlighted by the report was the importance of rewarding responsible mining practices, not only for companies but also for the communities that hosted them.
Current ESG efforts often go unnoticed or uncompensated in global markets. To address this, the International Resource Panel recommended government-backed certification and incentive schemes, including favourable fiscal policies and improved market access.
Other recommendations to encourage ESG performance included strengthening financial institutions’ capacity to recognise and finance ESG-aligned mining operations; developing a digital product passport for all minerals and their value chains; reporting financial and ESG outcomes on a site-by-site, gendered, and ‘shared value’ basis; and including mining that met high ESG standards in the list of sectors that qualified for sustainable and climate finance.
