The hidden risks behind critical mineral extractions for investors

As the energy transition accelerates, demand for critical minerals is soaring. However, mining activities can pose "significant" sustainability and financial risks for investors, a new report said.

Published by the Asian Investor Group on Climate Change (AIGCC) and ISS STOXX, the Stewardship in the Critical Minerals Value Chains report assesses sustainability performance and risks across different parts of Asia, focusing on the extraction and manufacture of three critical minerals of nickel, cobalt, and copper.

The report noted that the life cycle of a mine and its product vary significantly depending on the type of metal and mine location, and significant environmental and social challenges can emerge from multiple stages in the process of manufacturing.

"In the case of heavy metal contamination or acid mining drainage, can last centuries, through to failed reuse and waste at the end of the life cycle," the report said.

"Common sustainability issues include contamination from wastewater, greenhouse gas (GHG) emissions from energy-intensive extraction and refining, and biodiversity loss caused by land use changes for mine development.

"Additionally, mining activities pose long-term risks to communities and ecosystems. At the same time, labour-related concerns such as forced and child labour combined with unsafe working conditions remain prevalent in high-risk regions."

Engagement remains an investor tool to assess and manage portfolio companies' risks related to pollution, Indigenous rights, community consultation, and climate-related governance, it said.

Based on the Initiative for Responsible Mining Assurance (IRMA) standard, most companies have human rights, labour, and environmental policies, but fewer demonstrate robust human rights due diligence, credible targets, or consistent operational practices, the report highlighted.

Further, the physical climate risks to mining assets are set to intensify under high-emissions scenarios.

According to ISS STOXX models, water-stress and heatwave exposure across Asian mine assets will increase significantly over the next 15-30 years, threatening operational continuity and cost structures.