In the last issue of “Investing With Intent,” Brady Quirk-Garvan and James Frazier wrote about cryptocurrency for socially responsible investors. In this article, Ryan Jones-Casey articulates the myriad considerations associated with the rise in demand for electric vehicles, and the parallel rise in demand for the minerals required in current battery technology. While the mining practices for obtaining these minerals including lithium, nickel, cobalt, manganese, graphite, and copper may be easier to understand than the complex algorithms required for cryptocurrency mining, the environmental and social impacts are no less complex. Both demand serious scrutiny from socially responsible investors.
Current demand for electric vehicles, from both consumers and state legislators, is far outstripping supply. While Ford Motor Company ceased taking preorders for its new F-150 Lightning electric pickup truck in December 2021 after receiving more requests than the company could possibly fulfill for model year 2022, California passed legislation in August requiring all cars sold in the state be either plug-in hybrid or entirely electric by 2035.
Plus, 17 other states which already have vehicle emission standards tied to rules established in California, are currently weighing whether to follow a similar mandate: New York, Massachusetts, Vermont, Maine, Pennsylvania, Connecticut, Rhode Island, Washington, Oregon, New Jersey, Maryland,
Delaware, Colorado, Minnesota, Nevada, Virginia, and New Mexico are currently weighing whether to follow a similar mandate.
The recently passed Inflation Reduction Act is also accelerating the development of electric car battery factories and other renewable energy infrastructure. If automakers want their electric cars to qualify for the generous tax credits offered in the Act, the batteries must contain at least 40% of their materials sourced from North America or a U.S. trading partner by 2024 and be 100% made in North America by 2029. This will almost inevitably increase pressure on U.S. federal and state lawmakers and environmental regulators to make it easier for proposed mines to proceed forward.
All these developments wedge environmentalists and socially responsible investors between a literal and figurative rock and hard place. On the one hand, a transition away from fossil-fuel powered vehicles will play an important part in reducing greenhouse gas emissions associated with transit. On the other hand, the environmental and social track records of virtually all mining corporations and their operations are checkered at best, and in many instances utterly alarming.
Take for example, the proposed PolyMet copper-nickel mine in northern Minnesota. This proposed mine is majority owned by the Swiss mining conglomerate Glencore—the same Glencore that operates a cobalt mine in the Democratic Republic of Congo where miners have reportedly been subjected to exploitive working conditions. Polymet proposes to use the same “upstream” mine waste dam technology that failed at mine sites in Canada in 2014 and Brazil in 2019 and is increasingly banned around the world.
The mining operations would require the destruction of 900 acres of wetlands with an additional 7,000 acres potentially drained— all upstream of the Fond du Lac Band of Lake Superior Chippewa, whose leaders have objected to the proposal for water quality reasons. If permitted, the project would be the largest permitted destruction of wetlands in the state’s history. The project would emit 700,000 tons of greenhouse gas per year, and by the company’s own admission, fail to capture, and instead release, 16 million gallons of polluted water every year into local groundwater.
At the moment, this PolyMet proposal is subject to various lawsuits on the issuing of environmental permits required for the project. These lawsuits have been filed by the Fond Du Lac Band, whose primary concern is the water quality impacts on their tribal hunting and fishing grounds, and a coalition representing nearly all major environmental groups in Minnesota. Any mine waste releases could eventually flow downstream into the Saint Louis River watershed, ultimately emptying into Lake Superior which contains 10% of the world’s fresh surface water, and causing further problems in local communities including Duluth.
Even if the mine is ultimately approved and comes online, the estimated copper production from the mine would equate to less than 1% of current forecasted copper demand, a percentage that could easily be reached simply through modest gains in copper recycling rates which currently sit at just 33% in the U.S. and 60% in Europe.
One of the leading environmentally focused mutual fund families, Green Century Funds, has been scrutinizing extractive industries since their founding more than 30 years ago by a group of environmental and public health nonprofits. They pay particular attention to the environmental, social and corporate governance (ESG) risk ratings of all the companies in their funds. While one might expect a mutual fund family founded by environmentalists to draw a firm line in the proverbial sand when it comes to extractive industries, they have taken a slightly more nuanced approach.
Their Balanced Fund does not have any exposure to mining companies, but their Equity Fund does hold one mining company: Newmont, which at the time of this writing had an ESG risk rating that is considered “medium” by Sustainalytics, one of the leading ESG ratings providers. This means the company is doing a better job managing its environmental, social and corporate governance risks compared to industry peers. This stands in contrast to the aforementioned Glencore, which has a risk rating considered “high” which automatically disqualifies the company from inclusion in Green Century Funds.
By owning less than perfect companies, Green Century Funds can engage the companies in shareholder advocacy, and push them to improve environmental and social policies and practices.
For example, Green Century Funds pressured Chemours, the only company that mines titanium in the U.S., not to get involved in a proposed titanium mine that threatened to drain the Okefenokee Swamp within the Okefenokee National Wildlife Refuge, the largest national wildlife refuge east of the Mississippi. In exchange for Green Century withdrawing what would have been an embarrassing shareholder resolution for the company, Chemours agreed not to acquire the mine project, purchase from it, or do business with the project owner. A true advocacy success story!
Meanwhile, Ford Motor Company has said it has enough batteries to produce EVs through 2023 and 70% of what’s required through 2026, while companies like Form Energy in Minnesota work around the clock to replace copper and nickel-based batteries with substitute technologies that have less serious environmental consequences.
While there is significant urgency to address the climate crisis, it is imperative that socially responsible investors critically analyze the myriad impacts of extractive industries and take a nuanced approach to investing in the solutions.