The global pursuit of a cleaner energy future is accelerating demand for critical raw materials. Elements such as copper for electrical wiring and lithium for electric vehicle batteries are at the heart of the energy transition. However, investing in this ‘materials transition’ in a responsible manner presents complex challenges, including geopolitical tensions and dependence on a small group of resource-rich countries. To explore these challenges and uncover potential opportunities, APG Asset Management US Inc. (APG US) hosted a roundtable featuring experts from across the critical minerals ecosystem.
To explore these challenges and uncover potential opportunities, APG Asset Management US Inc. (APG US) hosted a roundtable featuring experts from across the critical minerals ecosystem. Ronald Wuijster, CEO of APG Asset Management, and Matilde Segarra, CEO of APG US Asset Management, talked to key specialists in the industry: Brian Menell, Chairman and CEO of TechMet; Jörgen Sandström, Head of the Transforming Industrial Ecosystems Program at the World Economic Forum; and Erica Westenberg, Director of Governance Programs at of the Natural Resource Governance Institute (NRGI). The discussion offered a candid look at the barriers to scaling the materials transition while highlighting actionable strategies for investors to make a lasting impact.
Understanding the challenges
A fragmented policy landscape
One of the most significant hurdles is the disjointed global policy environment. With over 200 new unilateral critical minerals policies, investors must navigate an increasingly complex regulatory maze. There’s a pressing need for international coordination.
Underinvestment
Outside of China, which dominates the critical minerals supply chain, there are significant underinvestment issues. Earlystage innovations often go unfunded, there is a huge variety in supply chains, and the perception of mining as ‘dirty’ discourages much-needed capital. Furthermore, China's head start— buoyed by government support and less stringent labor practices—creates fierce competition that the rest of the world struggles to match.
Lack of an enabling ecosystem
The sustainable sourcing of critical materials requires collective action and systemic change akin to broader energy transition efforts. However, collaboration within countries and regions remains low, as the materials transition is not yet perceived as a crucial part of addressing climate change. Additionally, there’s limited supply of engineering and technical talent with few good educational options to grow a strong next-generation talent pipeline.
Financing and perception challenges
Many institutional investors lack the expertise or capacity to assess the environmental, social, and governance (ESG) risks as well as the reputational risks associated with mining. The sector’s history of unsustainability and corruption further deters potential capital, which is aggravated by the inadequate level of analysis of metals markets available. Most established global mining companies are not focused on transition minerals, leaving investors with smaller, less experienced players that carry higher risks.
The ESG premium dilemma: downstream brands hold the key
Despite their huge influence over global supply chains, many downstream players are reluctant to pay a premium for sustainably sourced materials. Currently, there is no widespread movement advocating for ‘conflict-free’ products, such as phones or electric vehicles. While the cost of incorporating more sustainable sourcing could be minimal— for instance, adding just $5 to the price of a $1,000 smartphone—brands have shown little appetite for such initiatives.
Consumers remain largely unaware of the origins of the materials in their devices, and their purchasing decisions tend to be largely price driven. For brands operating in fiercely competitive markets, introducing even a nominal premium could risk alienating cost-conscious buyers. Many downstream companies are already under pressure to compete with companies that do not adhere to these standards. Finding a path to collective action, boosting execution power and data sharing, is required.
An equitable transition
The energy transition must be equitable—both across the global North and South and for underserved communities within countries. Approximately 50% of transition minerals are located on indigenous land, underscoring the need for inclusive governance and a voice and leadership role for developing producing countries. Without a fair distribution of benefits, political and social momentum for the materials transition will remain limited.
The Global Investor Commission on Mining 2030, a multi-stakeholder initiative supported by APG, recognizes four key elements for the socially and environmentally equitable mining sector of the future - it:
- has a clear social license to operate;
- can meet the needs of society in a responsible manner without driving conflict or corruption;
- operates in a way that respects planetary boundaries;
- positively contributes to long-term social development.
Seizing the opportunities
Despite these challenges, the materials transition offers compelling opportunities for institutional investors to make a meaningful impact:
Driving the energy transition
Investing in critical minerals is essential to achieving global climate goals. By scaling production responsibly, institutional investors can enable the clean energy transition while transforming an industry historically plagued by ESG shortcomings.
Building a resilient supply chain
Investors have a chance to strengthen supply chain security, reducing reliance on China while boosting industrial competitiveness in Europe and the US. A responsible supply chain can create jobs and foster long-term economic growth.
Deploying patient capital
The long-term nature of the materials transition aligns well with pension investors’ horizon. The next decade presents a strong business case for deploying capital into critical minerals, generating substantial value as the energy transition accelerates.
Actionable steps for investors
Champion innovation and collaboration
Investors can drive innovation by partnering with responsible actors and engaging in collective action. This way, they can raise awareness of the untapped opportunities that are there. Establishing clear ESG key performance indicators (KPIs) and ensuring transparency in the use of proceeds are critical to winning stakeholder trust.
Reimagine investment structures
The materials transition requires patient capital and creative financing solutions. The involvement of offtakers as equity partners, public-private partnerships, and risk-sharing mechanisms with development finance institutions can help get large-scale projects off the ground.
Address negative perceptions
Mining’s reputation as a ‘dirty’ industry can be mitigated by focusing on initiatives that meet stringent ESG standards. Moreover, institutional investors can reduce risks by:
- prioritizing investments in lower risk regions with strong governance frameworks Many OECD countries have critical mineral resources that need to be developed. Investors can gain experience there and subsequently add investments in the global south. Legislation, ESG frameworks and assurance frameworks are available.
- selecting responsible, experienced partners There are very good Development Finance Institutions, who will work together to take risk in syndication. They have done this for decades and introduced ESG standards 25 years ago. Investors can rely on their underwriting of ESG and reputational risk. They have rigorous standards and the capacity to oversee and audit those standards.
- picking large projects with proper governance and oversight to reduce reputation risks.
- clearly defining what ‘dirty’ means to various stakeholders and address those concerns systematically In broad outline there are three interpretations of ‘dirty’: the prevalence of ESG issues in the operational production; the project not being fair and equitable; and doubts about the sustainability of the use of proceeds. Each concern requires its own approach.
A call to action
The materials transition offers opportunities to combine attractive long-term returns with societal impact. However, achieving meaningful progress requires bold action from institutional investors. APG’s clients have a genuine ambition to do the right thing and have earmarked capital for impact investment. However, the complexity of this space, combined with a tendency to strive for perfection, can lead to inaction. To make an impact, we need to make sure that our clients understand the risks and make a conscious decision as to which risks they are willing to accept. Together, we need to rethink investment mandates and build internal capacity for direct investments in large projects. All this starts with a conversation to address perception issues. Only then can we chart a path toward sustainable, large-scale projects that fuel the clean energy transition.
This article is part of a report in which APG shares its research and learnings about the materials transition. It is intended for research purposes only and should not be interpreted as investment advice.