Fair Finance Asia (2024, December). Unearthing the hidden costs: Social and environmental considerations in Asia’s transition minerals mining and supply chains.
PHNOM PENH, CAMBODIA, December 20, 2024 – Fair Finance Asia (FFA)’s new report, Unearthing the hidden costs: Social and environmental considerations in Asia’s transition minerals mining and supply chains, 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.
Launched on December 19, 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.
“We can no longer turn a blind eye to the negative impacts of Asia’s transition minerals supply chains, such as high levels of deforestation; toxic waste pollution; biodiversity loss; threats, forced evictions, and displacement of communities, especially Indigenous People/s; loss of land and livelihoods; and heightened risks of overwork and gender-based violence (GBV) for women. Financial institutions and companies linked to these supply chains must ensure that energy transition does not come at the cost of human rights. Otherwise, we risk repeating the mistakes of the fossil fuel industry,” said Bernadette Victorio, Program Lead, Fair Finance Asia.
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.
“Critical minerals are essential commodities for driving the energy transition, yet the business practices surrounding critical minerals often tend to be exploitative, resulting in severe environmental and social harm. The objectives of the energy transition must not be undermined by irresponsible practices, which risk turning it into greenwashing. Critical minerals must be integrated into an energy transition ecosystem that prioritizes justice, including social, economic, and gender equity. This means addressing the disproportionate impacts of mining on marginalized communities, particularly women, who often face increased vulnerability to economic exploitation, health risks, and social exclusion. A just energy transition must ensure that the extraction and use of critical minerals not only safeguard environmental sustainability but also promote gender equality and social inclusion at all stages of the value chain,” said Herni Ramdlaningrum, Program Manager, The PRAKARSA.
“Energy transition minerals—such as cobalt, nickel, and lithium—play an important role in the shift from fossil fuels to clean energy. These minerals are essential components in clean energy technologies. However, the massive increase in mining metals and minerals raises serious concerns about displacement risks and human rights abuses for local communities. Thus, there is an urgent need for better consultation and regulation to carefully manage the transition to prevent its adverse impacts on people and the environment. We don’t want a ‘solution’ (this transition) to breed new problems,” said Dr. Genalyn G. Aquino-Arcayera, Program Manager, Fair Finance Philippines, Initiatives for Dialogue and Empowerment through Alternative Legal Services (IDEALS).
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 USD 100 billion in investment financing from Japanese and ASEAN 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.
“Minerals mining is a capital-intensive industry that requires big investments or loans upfront. It is an industry that cannot go on without the financial institutions. That gives banks the leverage to be agents of change. But it is disappointing that major Japanese financial institutions are forfeiting their power and allowing human rights abuses and environmental destruction to take place. This has got to change,” said Shigeru Tanaka, Executive Director, Pacific Asia Resource Center (PARC), member of Fair Finance Guide Japan (FFGJ).
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 report, click here.
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Kyle Cruz
Knowledge and Communications Manager
Fair Finance Asia
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About FFA
Fair Finance Asia (FFA) is a regional network of Asian CSOs committed to ensuring that financial institutions’ funding decisions in the region respect the social and environmental well-being of local communities. For more information about FFA, visit: https://fairfinanceasia.org/