As in many of this blog’s previous articles, the ‘E’ in ESG has been heavily linked to policies and solutions concerning the electrification of vehicles. An important step in maintaining a more-or-less equal way of life for the average consumer would be to ensure a price parity (or better) between traditional vehicles and EVs, such that even a student looking for their first car would be able to ponder between a beat-up 2007 Toyota Corolla or an equivalently priced EV.
All the way through from 2017 to 2021, annual price changes in critical minerals used to make lithium-ion batteries (used in anything from your phone to your car) have averaged -15%. However, recent price spikes from 2022 have reversed this trend, and may well completely overturn it if we do not find a solution. If only we had continued on this trend – I really wanted that EV for my first car…
Aside from supply concerns exacerbated by limitations on Russian supply, there are significant ESG risks in this industry, including human rights violations, corruption, and water stress. Mining and excavation processes often encounter groundwater aquifers, and the low-cost environment of the industry poses contamination risks with these aquifers, resulting in a decrease in water supply and quality in water-scarce areas.
Liabilities associated with ESG risks can divert investment into this critical industry as well, risking the future of the electronics, vehicular and chemical industries. Primary sectors need to thrive to enable secondary, tertiary and quaternary industries to prosper, yet these risks are slow to be addressed and firms are often not held accountable. It may be unfair to place all the blame on corporations, though they do carry their fair share. Bribery and corruption are rampant in the areas in which these corporations conduct their activities and may result in political bias away from these problems, as well as resistance from corrupt officials themselves.
Governance risks associated with workers' rights can be swept under the rug in such situations, where child labour, forced labour, and human rights abuse can be found. Safety and health incidents that accompany such working practices can often result in further supply disruption, leading to a volatile minerals market.
Just as it may have been unfair to place blame solely on corporations themselves, it may also be unfair to associate all risk with the industry itself. Natural resources have the fortune (or misfortune) of being distributed randomly across the world, resulting in some countries having larger endowments than others. Some of these endowments land in conflict-affected areas, meaning that there is a high risk of clashes with armed groups and theft in lawless conditions.
With so many issues concerning the supply chain of batteries, as well as other critical products, a pertinent question remains: what can we do about it? There have been and will be efforts to address these concerns, especially at the supra-national levels, to ensure a just transition. However, only time will tell if international organisations and committees can successfully institute enough change to give another student their dream of buying a first (EV) car.