Banks and investors funding the extraction of raw materials that are needed for the clean energy transition are failing to address the social and environmental risks of mining, an analysis of financial flows to the sector has found.
The assessment by a coalition of campaign groups and research organisations, published on Wednesday, looked at the policies of 30 major financial institutions on their clients’ management of the environmental, social and governance (ESG) risks of mining.
It found widespread gaps and loopholes in policies to mitigate the risks of mining for deforestation, water protection, waste management, human rights and ensuring a living wage for workers along the supply chain.
Just 13% of financial institutions had clear zero-deforestation policies for funding mining clients and their supply chain. Some banks have zero-deforestation policies that do not include the mining sector.
None had requirements for mining companies to manage the risks associated with storing mining waste.
The findings come as rural communities in Zambia are demanding a Chinese company pay billions of dollars in compensation and environmental reparations after a dam holding its mining waste collapsed, causing one of the country’s worst environmental disasters.
“This [review] should be a wake-up call for every policymaker, banker and investor: you cannot build a just energy future by trampling rights, displacing communities and torching biodiversity,” said Stephanie Dowlen, a campaigner with Rainforest Action Network and the report’s coordinator.
“A just transition needs finance that no longer rewards bad behaviour and corporate impunity,” she said.
The ESG policy gap
The assessment was carried out by the Forests & Finance Coalition, an alliance of 11 campaign and research groups working to prevent financial institutions from funding activities that threaten tropical forests.
The report’s authors looked at ESG policy requirements set by financial institutions for mining companies and their suppliers.
Banks and investors were selected based on their size and relevance for funding mining activities in tropical forest regions. The assessment covered the policies of Bank of America, BlackRock, BNP Paribas, HSBC, JP Morgan Chase and Santander among others.
The financiers’ policies were scored against 34 criteria aligned with international laws and best practice such as the UN Declaration on the Rights of Indigenous Peoples, the UN Guiding Principles on Business and Human Rights, and the International Labour Organization’s core standards.
On average, the report found financial institutions’ policies scored just 22%, falling short of basic social and environmental safeguards – which require a score of 50%. 100% characterises best-practice policies for mining companies and their supply chains.
American investment management company Vanguard and China’s state-owned investment firm CITIC received the worst scores with just 3%. The Norwegian Government Pension Fund topped the list with 48%.
Only four of the 30 banks and investors assessed responded to the authors’ findings: Australia’s ANZ, Japanese banks Mitsubishi UFJ Financial and Mizuho, and South Africa’s Nedbank. Their responses were included in the final assessment.
Finance can help improve mining standards
Dowlen said she was “surprised” and “disappointed” that the overall score was so low given the high environmental risks associated with mining and the industry’s history of conflict with communities.
As countries race to secure the minerals and metals required to manufacture solar panels, batteries and EVs as well as other strategic digital and military technologies, “we see it as a very important time to try and intervene,” she told Climate Home News.
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“Banks and investors can really contribute to moving that whole sector forward and improving the standards across the board,” Dowlen said.
“We want governments to be stepping up. We want financial regulators, supervisors and central banks to be really engaging with the financial sector in a more meaningful way, because these risks will hit the real economy,” she added.
Weak environmental and social safeguards
The report found that policies ensuring environmental protection and social safeguards were particularly weak. This is despite analysis showing that more than two-thirds of all transition mineral mines are located in significant biodiversity hotposts.
Nearly two-thirds of the financiers assessed made general commitments for companies to seek Indigenous Peoples’ free, prior and informed consent ahead of a mining project.
But no institutions had policies to protect the rights of uncontacted tribes or Indigenous Peoples living in voluntary isolation, despite more than half of energy transition mineral resources being located on or near the lands of Indigenous and peasant peoples.
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Equally, 80% of them had no policies to protect human right defenders. NGO Global Witness has previously identified mining as the biggest industry driver for the killing of environmental defenders. And 40% had no policies requiring mining companies and their supply chains to remedy harms they cause to communities.
In addition, few institutions required mining clients to develop climate transition plans aligned with limiting warming to 1.5C.
Only two of the 30 institutions assessed – the Norwegian and Dutch government pension funds – required mining companies to disclose tax payments and refrain from aggressive tax avoidance. This lack of transparency risks undermining resource-rich developing countries’ efforts to use mineral revenues to fund sustainable development, the report said.
Main image: Workers at the Sabi Star lithium mine in Zimbabwe. Photo: REUTERS / Philimon Bulawayo
