Fair Finance Asia (2024, December), Unearthing the hidden costs: Social and environmental considerations in Asia’s transition minerals mining and supply chains
On December 19, Fair Finance Asia (FFA) published a new report, Unearthing the hidden costs: Social and environmental considerations in Asia’s transition minerals mining and supply chains, which reveals that banks based in Japan and the Association of Southeast Asian Nations (ASEAN) are financing United States (US), European, and Asian downstream electric vehicle (EV) manufacturers who have indirect supply chain links to three nickel mining sites: PT Vale Sorowako and PT Weda Bay Nickel mines in Indonesia, and the Nickel Asia Corporation Rio Tuba mine in the Philippines. EV manufacturers may face varying levels of exposure based on their status (e.g., current indications or expected flows from Memorandums of Understanding or planned joint ventures) and the concreteness of these links. All three mines continue to face allegations from communities around them and civil society organizations (CSOs) of serious human and environmental rights violations.
The report highlights the urgent need to identify, mitigate, and address human rights and environmental risks and impacts in transition minerals supply chains in Indonesia and the Philippines, both of which dominate the global market for nickel, cobalt, and other transition minerals critical to the global energy transition towards renewables. This report was developed in collaboration with Fair Finance Guide Japan (FFGJ), ResponsiBank Indonesia, and Fair Finance Philippines (FF Ph), research partner, Profundo, and Richard Kent, Independent Researcher on human rights, anti-corruption, environment, responsible sourcing, and the energy transition.
The report shows that across the different stages of Asia’s transition minerals supply chains – upstream (extraction/mining), midstream (processing and refining the minerals), and downstream (battery manufacturing and sales) – there are distinct human rights and environmental impacts, with the most serious harms usually occurring in and around mining sites or the ‘upstream’ stage. There are also serious impacts on the ground, especially on Indigenous communities, in the minerals smelting and processing stage, known as the ‘midstream’, usually because of high levels of pollution and poor environmental safeguards.
Mining companies are merging, buying subsidiary companies, and participating in joint ventures with smelters and refiners, cathode precursor manufacturers, and battery manufacturers, making the transition minerals value chain more integrated between the upstream, midstream, and downstream stages. This presents a historic shift in the responsibility and due diligence practice of downstream manufacturers. Rather than focusing on supply chain due diligence through industry schemes and audit programs, manufacturers are becoming more directly involved at the mine and refinery level. This means that investors of battery manufacturers have a more active role and greater responsibility to identify, mitigate, and address human rights and environmental harms across all stages of the value chain particularly, and ensure rights-based considerations are integrated across policies and practices, failing which financial institutions and investors face material financial, operational, and reputational risks.
The indirect supply chain links between the three mines in Indonesia and the Philippines to US, European, and Asian EV manufacturers refer to existing product flows, while others are linked to projects under construction or in planning for the coming years.
Seven EV producers, Ford Motor Company (Ford), Mazda Motor Corporation (Mazda), Stellantis Subaru Corporation (Subaru), Tesla, Inc. (Tesla), Toyota Motor Corporation (Toyota), and Volkswagen, were selected for additional analysis of their financial relationships. In terms of credit financing, the report found that, from 2022 and 2024, financial institutions based in Japan and the ASEAN provided between USD 5 million to USD 6 million yearly to these companies. Furthermore, most of the credit financing provided has been via loans instead of the underwriting of shares and bonds. Such results were driven to a great extent by Ford Motor Company, which received sixty per cent of the total financing. In terms of the financial institutions providing such financing, this research finds that it was mainly provided by Japanese financial institutions such as Mizuho Financial, Mitsubishi UFJ Financial (MUFG), and Sumitomo Mitsui Banking Corporation (SMBC).
In addition, by 2024, the seven companies received more than USD100 billion in investment financing from Japan and ASEAN based financial institutions, especially through shareholdings. The company receiving most of such investment is Toyota Motor Corporation, which received more than eighty per cent of the total investment financing. In terms of the financial institutions providing such financing, this research finds that the main investors were Japanese financial institutions such as the Government Pension Investment Fund, Nippon Life Insurance, and Sumitomo Mitsui Trust, which provided more than USD 50 billion between the three.
The report’s supply chain analysis drew on a range of information sources, including company publications (by the mining companies, their major shareholders, and leading global EV manufacturers and their suppliers), shipment data, industry media, and other relevant resources from 2022 to 2024. The findings of the supply chain research are impacted by the fact that none of the EV manufacturers provide full transparency on their supply chain relationships. For the selected mines, more information on expected future supplier relationships for processing projects under development is available than data on already existing relationships. This is related to the ongoing development and expansion of capacities and processing facilities and the interest of EV manufacturers in tapping into these resources.
The financial analysis utilized databases Refinitiv, Bloomberg and IJGlobal, as well as company reports such as financial statements, annual reports, company registries, and media archives. Nonetheless, there are still several limitations: for example, financial databases do not have data on bilateral lending, while bonds and shareholders identified during the course of this research may have changed (sold or bought bonds or shares) their positions or otherwise changed the composition of their investment portfolios.
To access the full report, click here.