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Climate security and critical minerals mining in Latin America: How can business help?

Chuquicamata, Chile

The amount of critical minerals required to develop low-carbon energy technologies is predicted to be six times higher than what is needed today. Yet meeting this demand is necessary to enable a global transition that will address climate change and comply with agreements such as the European Green New Deal.

This increase in demand for minerals can be a curse or an opportunity for some regions of the global South. This is especially true in Latin America and the Caribbean (LAC), a region which boasts high production levels and a significant global share of transition minerals such as lithium, copper and cobalt. However, mining operations in the region have been linked to water, air and soil pollution, deforestation, and loss of biodiversity, as well as conflicts over water and land use or lack of community participation. And all of these negative outcomes are exacerbated by climate change.

So, how can the risks associated with increased critical mineral production be addressed in LAC? As outlined in a recent report published by the OECD and co-authored by adelphi, Responsible Business Conduct (RBC) is paramount to this end: extractive businesses need to step up their game to integrate and consider environmental and social issues within their core business activities.

                              Access the report here

A Sector Brimming with Opportunities and Challenges

The extractive sector clearly plays a critical role in the development strategies of LAC nations. Governments in the region have sought to attract investment by granting extractive firms low tax and royalty rates and favourable mining permit conditions. As a result, energy, mineral, and metals represented 24.3 percent of the region’s commodities exports in 2021—with the associated national economic growth that comes with such enterprise.

A greater availability of resources for states that accompanies extractive activity also brings more possibilities for budgetary spending on social policies. Consequently, there have been advances in some social indicators in countries in the LAC, including  poverty reduction and increases in local infrastructure.

Initiatives aimed at investing the benefits derived from the extractive economy in higher value-added sectors are also part of the picture. Programs such as The Fund for Innovation and Competitiveness (FIC) in Chile, or the 10 percent of mining royalties earmarked for research and development in Colombia, are only two examples of such attempts to use the extractive industry as an engine for development. The 20 percent  of the “mining canon” that is reserved for regional universities in Peru is another example.

Yet despite these positive developments, social inequality and poverty remain prominent in the region. LAC’s excessive dependence on minerals and metals makes its economies vulnerable to global price volatility. And the LAC extractive sector also has been wrought with environmental and social challenges.

For example, many Latin American countries are home to vital biodiverse areas and ecosystems that are now at risk because of the adverse ecological consequences of extractive industry. Mining and its consequences pose a threat to water, and create air and soil pollution, deforestation, and loss of biodiversity. Local communities have also been adversely impacted by extraction, despite the fact that their health and livelihoods depend on these ecosystems.

This is especially the case for Afro-descendants and Indigenous peoples who often live in or near biologically sensitive areas where extractive activities are located. Mineral extraction has historically led to conflicts with these communities, which have both collectively resisted the social and environmental impacts of extractive operations and questioned the distribution of benefits derived from them.

The consequences of these fractures are widespread. As of July 2020, the Environmental Justice Atlas recorded 310 conflicts linked to the extraction of mineral ores and coal, a total that represented 35 percent of all environmental conflicts in the region. Most of these conflicts occur along the Andes Mountains and are linked to water issues.

In Perú, Southern Copper’s long-delayed US$1.4 billion Tia Maria copper project offers another example. The initiative was deemed socially and politically unviable due to conflict around its potential environmental impacts and communities’ concerns regarding water contamination. A further element that exacerbated this conflict was an insufficient consultation with affected districts in line with the Indigenous and Tribal Peoples Convention 169 (ILO 169)—and especially their right to free, prior and informed consent. 

Increasing violence against human rights and environmental defenders fighting to prevent the adverse socio-environmental impacts of extractive activities is also a concern. Given how mining plays a role in financing conflict dynamics, this is particularly the case in regions with illegal armed groups. These attacks predominantly target those who speak up on the effects of industrial large-scale extractive projects on human health, biodiversity loss, land grabbing and water pollution. Members of Indigenous communities are especially susceptible to this violence.

The Tangle of Climate Security and Mining

Addressing climate change at the global level implies transitioning from fossil fuels towards less carbon-intensive forms of energy production, such as solar and wind energy. The extraction of a large amount of critical minerals is essential to this task.

The LAC has an outsized role to play in this effort. An estimated 60 to 70 percent of identified lithium is found in Latin America, with most of it located in Argentina, Bolivia and Chile. (This cluster of nations is also known as the “Lithium Triangle.”) Copper is integral for renewable energy sources, with demand for this metal predicted to grow nearly 600 percent by 2030. Chile, Peru and Mexico possess roughly 40 percent of global copper reserves. Nickel, too, will be essential in the transition, with Brazil holding 17 percent of global nickel reserves and additional reserves located in Colombia and Cuba.

Yet as the global green transition promises more mining investments for LAC countries, concerns are growing over the fact that many extractive operations there are located in areas characterized by water scarcity, or in places that have essential water and biodiversity sources such as glaciers in the Andes or the Amazon. (Indeed, both of  these regions are already impacted by climate change.) And because mining these critical minerals comes with high water requirements, climate change also affects the entire mining lifecycle from exploration to production. Without due environmental management systems, climate change risk awareness, and water governance structures, mining operations can diminish water quality and exacerbate existing pressures on impacted communities, impeding them from sustaining their livelihoods.

Many LAC countries already are experiencing moderate to high degrees of water stress, as well as competition over scarce water resources due partly to climate change. It is a problem that affects predominantly agricultural livelihoods and Indigenous populations.  All of these factors increase the risk of conflict, thus disrupting production and affecting stable mineral supplies.

In Bolivia, for example, lack of community acceptance and local opposition successfully stopped a high-profile lithium project deemed crucial to meet the demand for lithium batteries for electric power vehicles. The inability to identify and prevent environmental and social harms of extractive projects can make it difficult to obtain and maintain a social license to operate. This not only leads to community tensions, adverse regulatory and publicity issues, and short-term supply disruptions, but also threatens long-term investment and could derail energy transition. 

How can the LAC continue to play its critical role in fuelling the green transition? Additional investment in sustainability standards and ensuring social benefits for the local populations will be integral to capitalizing on the region’s potential to supply critical minerals for a just global energy transition. As the many conflicts we have seen all around the region demonstrate, if mining is not done with a positive peace focus, progress can be stalled. This would be a missed opportunity—both for the world to address the climate crisis, and for the region to grasp the many benefits that the green transition could bring.

RBC’s Potential for Climate and Conflict-Sensitive Support

To successfully capitalize on Latin America’s potential to supply critical minerals to meet the demands for the global energy transition, governments within the supply chain, together with the extractive sector, need to acquire adequate tools to identify, assess and address the challenges that underpin mining-conflict dynamics exacerbated by climate change.

The OECD report that examines this crucial question concluded that while the primary responsibility of preventing conflicts, protecting people and regulating environmental protection falls on governments, there also is a growing recognition that companies and stakeholders engaged in the extraction of critical minerals should address the potential adverse impacts created by production, trade and procurement through responsible business conduct (RBC).

The practices envisioned by RBC are an important tool to do so. For instance, risk-based due diligence is a cornerstone of RBC, and its adoption would push businesses to identify, prevent and mitigate their potential adverse impacts and account for how those impacts are addressed. RBC also can help align corporate policies and management systems to human rights and environmental standards so that avoiding harmful effects is at the heart of decision-making and risk management.

Creating a framework that facilitates transparency and accountability of extractive operations is another benefit of RBC, which also can be used as a critical tool for dialogue between the mining industry and climate and environmental activists. One goal of such a dialogue would see the mining sector significantly step up its contributions to local economies and environmental performance. Additionally, adopting RBC as a practice might mean that local environmental defenders and international activists could support swifter consent processes for genuinely responsible projects.

A spate of recent corruption cases in the region, as well as the drastic and increasing impacts of climate change, make the adoption of RBC (in conjunction with locally-based climate security risks assessments) essential to ensure that critical mineral extraction is an engine for sustainable and inclusive development. Using an RBC approach and other tools of conflict sensitivity might prevent actors operating in critical mineral extraction from generating the sorts of unintended consequences that deter investments, bring harm to affected populations, and limit the supply of minerals and metals integral to the clean energy transition.

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