Harm in the Extractive Sector: the Case of Energy Transition Minerals (ETMs)

Projects in the extractives sector – which include oil, gas, and mining projects – have long been associated with many environmental and social issues. These issues include pollution of air, soil, and water; intensive use of energy and water; child labor; sexual abuse; and corruption (Marín and Goya, 2021). According to data from the Accountability Console, the extractives sector has the third most complaints (excluding the ‘unknown’ category) submitted to independent accountability mechanisms (IAMs) of major development finance institutions (DFIs) about the effects of internationally financed projects (Figure 1).

These complaints are more likely to satisfy IAM-specific eligibility requirements and continue to substantive stages of the complaints process than other sectors (Figure 2), perhaps because of the clear harm associated with extractive projects. 

The 199 complaints in the extractives sector span across Africa, Latin America and the Caribbean, South Asia, East Asia and the Pacific, and Europe and Central Asia. The most common issues raised in these complaints are due diligence, community health/safety, and consultation/disclosure (Figure 3).

What are Energy Transition Minerals (ETMs)?

The extractive sector, traditionally known for its role in extracting fossil fuels, is crucial for extracting the minerals and metals needed for the transition to renewable energy. The global shift toward renewable energy has increased demand for renewable technologies that require copper, zinc, cobalt, nickel, lithium, and other minerals. These are called energy transition minerals and metals (ETMs) or ‘transition minerals.’ According to a 2023 report by the International Energy Agency (IEA), the market for ETMs has doubled in the past five years. Demand for lithium is projected to grow by over 4,000% before 2040, and the demand for cobalt and nickel is expected to grow by approximately 2,500%. The World Bank estimates the need for a 500% increase in lithium and cobalt production by 2050. Another estimate by the Center for Strategic and International Studies (CSIS) states that over 300 new ETM mines will need to become active by 2030 to prevent a supply shortage.

To keep up with rising demand, governments and mining companies are seeking ways to fast-track ETM projects. In some cases, this involves “identifying strategic projects and streamlining processes, such as the establishment of 'one-stop-shop' permits or reducing permit delays,” (see IEA 2023 report, page 29). Fast-tracking ETM projects would facilitate a rapid transition away from fossil fuels, but it could also create more problems in a sector that already lacks accountability and is associated with many social and environmental issues. The effects of ETM projects are felt at the individual and community levels, and can have long-lasting consequences on economic performance and human development outcomes. Of all the world’s ETMs, 54% are located on or near Indigenous lands and 33% are located on or near peasant lands. This suggests that the negative impacts of ETM projects are felt by the world’s Indigenous and rural communities the most. This raises a number of complex ethical issues around a just transition to renewable energy, and how communities should be fairly consulted and compensated. 

According to Owen et al. (2023), there are 5,097 ETM projects globally as of 2023. That number includes active and planned projects, and is expected to grow exponentially in the years to come. For comparison, there are 5,089 active oil and gas projects globally as of 2023. Given the rapid growth rate in demand for ETMs, active projects are on track to surpass oil and gas projects in the near future. But even with the number of ETM projects increasing, there have only been 16 complaints related to ETM projects submitted to IAMs out of 199 complaints in the extractive sector and over 1,800 in the entire complaints universe. This article questions the apparent lack of ETM complaints, theorizes why there are not more cases of ETM-related complaints, and offers suggestions for how to support accountability in the sector. 

Complaints related to ETM projects

Complaints related to ETM projects were identified using the DocSearch feature of the Console, which scans thousands of pages of complaint documents for keywords. The key words used to identify ETM projects were “lithium,” “copper,” “cobalt,” and “nickel.” There are other ETMs, but these are the most common and therefore offer a snapshot of harm associated with ETM projects. Because some IAMs are not searchable using the DocSearch tool, a scan of all complaints in the extractives sector was also conducted to ensure that all ETM complaints were counted. In total, there are 16 unique complaints about ETM projects in Sub-Saharan Africa, Latin America and the Caribbean, East Asia and the Pacific, South Asia, and Europe and Central Asia. The geographic spread of the complaints shows the broad scope of ETM projects. The ETM complaints were filed to the IAMs of four banks: the World Bank, the International Finance Corporation (IFC), Canadian Office of the Extractive Sector (COES), and the European Investment Bank (EIB). 

Of the 16 ETM complaints in the Console, the majority of them were for copper projects. Cobalt and nickel projects also have complaints in the Console, and some complaints alleged harm associated with more than one ETM. For example, the Tenke Fungurume Mining Project in the DRC involved copper and cobalt. Other ETMs like lithium and zinc were not present in complaints despite their global significance and harm associated with them. For example, lithium extraction in the Salar de Atacama has been linked to negative environmental effects and lack of consultation with the Indigenous communities living on the salt flat where most of the world’s lithium is extracted from brine. 

The Compliance Advisor/Ombudsman (CAO), which receives complaints about projects funded by the IFC or MIGA, has received the majority of ETM complaints. This is expected, given that the CAO has received the most complaints over time of any IAM. 

What Could Explain the Lack of ETM Complaints?

Based on what we know about the high volume of ETM projects and the harm associated with them, why are there only 16 ETM complaints in the Console? The following sections outline three theories that may help explain the lack of ETM complaints. Briefly, 1) an increased proportion of private financing of ETM projects, together with a lack of accountability for those financial flows, 2) a lack of accessibility in the complaints process for the communities most affected by ETM projects, and 3) direct community engagement with consumer-facing brands connected to ETM projects (less likely). It is also worth noting that complaint volume across all sectors has decreased since 2019 due to a number of unique challenges posed by the COVID-19 pandemic. Thus, the lack of ETM complaints may also be emblematic of a broader trend in the complaints landscape. 

The role of private finance 

Funding for ETM projects comes from a variety of sources including DFIs, commercial banks, private equity funds, and industry participants like car manufacturers.  The average mine costs between $500 million and $1 billion depending on the geological and geographical specifics. When mines are successful, they do not recoup the initial investment until approximately the fifth year of production.

To the extent that DFIs are financing ETM projects, complaints made to IAMs about the effects of those projects should be available on the Console. But when ETM projects are financed privately, evidence of community harm caused by those projects is not captured on the Console. Therefore, it is possible that the lack of ETM complaints on the Console could reflect that ETM projects are being financed privately at a higher rate than other projects in the extractives sector. Support for this theory can be found in an article from the Skillings Mining Review that discusses “project-focused private equity” as an emerging source of mining finance in the context of rising global demand for ETMs. Private finance can also be raised quickly – as opposed to slower-moving support from DFIs – to respond to rapidly increasing demand for ETMs. Furthermore, the IFC just recently invested in its first lithium project in 2023, according to a press release. The fact that one of the largest DFIs has only recently invested in a lithium project suggests that DFI support for ETMs may lag behind private financing in the sector. A deeper look into mining finance trends is necessary to determine whether this is the case. 

Although private sector and commercial financial institutions are increasingly creating accountability mechanisms – in response to global moves towards recognizing those mechanisms as a core tenet of good governance – the private sector still overwhelmingly operates in an accountability gap vis-a-vis its impact on communities and the environment. It is crucial that accountability mechanisms in the private sector are established and strengthened so that communities have an avenue to voice concerns about ETM projects moving forward. All international financing, public or private, should be accountable to the communities affected by it. Part of Accountability Counsel’s mission is to advocate for the creation of new accountability mechanisms where they do not yet exist. As such, Accountability Counsel is monitoring the implementation of private sector accountability standards to promote corporate accountability across the economic system. This includes areas such as climate finance, private equity, and impact investing among others.

A lack of accessibility for communities most affected 

As previously mentioned, 54% of the world’s ETMs are located on or near Indigenous lands and 33% are located on or near peasant lands, which suggests that the world’s Indigenous and rural communities are bearing the brunt of the harm associated with ETM projects. This is made worse by the fact that approximately two-thirds of global ETM projects are also “situated in jurisdictions with adverse conditions for human rights-compatible permitting, consultation and consent processes.” According to previous research at AC, the IAM complaints processes are often so complex and burdensome that even well-resourced communities struggle to navigate it without outside help. To the extent that Indigenous and rural communities lack knowledge of or assistance with IAMs, they may be unable to file complaints against ETM projects that negatively impact them. Thus, the lack of ETM complaints on the Console may reflect a severe lack of accessibility for the communities most affected by ETM projects. 

Communities may engage companies directly 

One of the most common uses for ETMs is in electric vehicles. Therefore, upstream users of ETMs include well-known, consumer-facing brands like BMW, Tesla, and BYD. To the extent that communities and civil society believe these companies will be responsive to advocacy, they may choose to directly engage with the companies instead of or before engaging with DFIs. It helps that the car industry has been exposed to significant advocacy (also see this article) in the last decade, and has a number of sustainability initiatives for their mineral supply chains as a result. Some of these include the Responsible Minerals Initiative (RMI), DRIVE Sustainability, and the Aluminum Stewardship Initiative (ASI). A few car companies have gone a step beyond this to adopt even higher standards. Although examples of car companies being complicit in community harm are still common, these developments in the industry suggest that car companies may be attractive options for advocacy and accountability. 

In our experience, direct engagement with companies does not obviate the need for investor-level accountability processes. The type of complex conflicts arising in and around mining projects require the involvement of skilled and well-resourced conflict resolution professionals. When engaging directly with companies, without facilitation or mediation by such professionals, many communities fear or experience: safety concerns, including retaliation; low trust; and inadequate response. Accordingly, while direct engagement with companies is almost certainly happening, this is unlikely to explain the lack of complaints at the level of investors.

Moving forward with Accountability for ETM Complaints

We know that the extractive sector is rife with social and environmental issues and that the rush to mine ETMs could decrease accountability in the sector while also disproportionately harming Indigenous Peoples and rural communities. However, given the high likelihood that ETM project-related harm is underrepresented by the data on the Console, much of that harm is taking place in the shadows. This article examines the 16 ETM complaints that do exist on the Console and posits three ideas for why there are not more ETM complaints. Briefly, the lack of ETM complaints could be the result of 1) an increased proportion of private financing of ETM projects, together with a lack of accountability for those financial flows, 2) a lack of accessibility in the complaints process for the communities most affected by ETM projects, and 3) direct community engagement with consumer-facing brands connected to ETM projects (less likely). 

Moving forward, DFIs must seek ways to support communities seeking accountability for ETM projects, especially Indigenous and rural communities. Private sector financial actors must also close accountability gaps by creating or strengthening their accountability mechanisms.  All stakeholders should be engaging in deeper conversations and analysis on accountability in the extractive sector in the context of the transition to renewable energy.