The question is not whether the raw materials transition is necessary, but what it will look like

Geopolitical challenges, Europe's dependence on a small group of resource-rich countries and an increasingly loud cry for help to achieve the climate goals. Three developments that make one thing clear: the raw materials transition is a dire necessity. All stakeholders - public and private – will need to be on board to make it work.

The global shift to clean energy technologies is pushing up demand for critical raw materials significantly. From copper, essential for electrical wiring, to lithium, indispensable in electric vehicle batteries: these raw materials are the building blocks of the energy transition. Looking ahead, global demand for lithium alone is expected to exceed 2.4 million tons of lithium carbonate equivalent by 2030, doubling the 2025 number.

Geopolitical challenges and risk of supply chain disruptions

The increasing demand for critical raw materials comes with complex challenges, including geopolitical tensions and the risk of disruptions in supply chains. In the West, we are dependent on a limited number of resource-rich countries. China alone has a 15 to 20-year lead over the rest of the world in refining and smelting capacities and fully controls the supply of ores. In addition, the country is a major producer of solar panels and batteries. Turkey supplies 98% of the EU’s boron, and South Africa fulfills 71% of the EU’s needs for platinum. Europe plays a dominant role in the final production phase, such as in electric vehicles, solar panels and wind farms, but catching up in the production stages at the beginning of the chain is no small task.

Resource nationalism

On top of that, we see that globalization is reaching its limits. Over the past decade, the OECD has reported a five-fold increase in export restrictions on industrial raw materials. Growing resource nationalism poses a major challenge to global supply chains and the transition to cleaner energy sources. At the same time, we are seeing trends such as 'friendshoring' to make supply chains less vulnerable. Strategic alliances are crucial in this regard.

Economic and strategic independence

In March 2023, the EU Critical Raw Materials Act was adopted: a strategic response to the EU’s increasing dependency on critical raw materials. This legislation aims to ensure a reliable and sustainable supply chain for critical raw materials, which is crucial for achieving the European climate goals. With the ambition to extract at least 10% of Europe's critical raw materials by 2030 – significantly more than the current 1% – this law plays a key role in ensuring Europe's economic and strategic independence.

A dirty business

There are several projects underway in Europe to achieve this goal, but it takes time: making a mine operational takes six to ten years or more. Moreover, mining by definition is a polluting business. No one wants a mine in their backyard. But if Europe wants to rely less on other countries, we cannot avoid getting our hands dirty. The challenge is to do the mining in a way that meets Europe’s strict requirements for nature and human rights. It will be a balancing act between securing a reliable supply chain for critical raw materials and upholding high environmental, social and governance standards.

A responsible transition

This is by no means an easy task. Responsible long-term investors have a role to play here. By engaging with the users of raw materials, such as manufacturers of electric vehicles, we need to make sure they uphold high environmental, social and governance standards in their supply chain. Best practices would include responsible waste management, compensating for biodiversity loss and making sure local communities benefit.

Acting on behalf of our pension fund clients with their long-term horizons and ambitions to make a positive impact, I believe we are in an excellent position to do so. But we will only achieve the best results if we cooperate with like-minded long-term investors, aligning on what we think is a responsible critical raw materials transition.

Making the materials transition work is no walk in the park. Everyone needs to be on board, from governments to manufacturers, and from long-term responsible investors to NGOs. I call on all of us to take up our role.

Ronald Wuijster is member of the Board of Directors of APG and CEO of APG Asset Management.