Batteries are a necessary answer to the green energy transition, but what are the questions?

Large scale batteries are an essential element for a greener global economy. But, addressing the environmental and social impacts of battery production in terms of CO2 emissions, resource depletion and ethical sourcing is key to sustainably decarbonising the economy through electrification. With a surging demand profile, the battery industry must carefully consider the impact of current lithium-ion battery production and avoid unintended ESG-related externalities.

As seen with the rise of sustainable investing over the past five years, investors are quick to take account of corporate ‘hidden’ ESG risks that turn into costs. To educate companies and investors on preparedness and resilience over emerging sustainability issues – and their possible price tag – thought leadership on this topic has evolved. In 2019, the World Economic Forum introduced the concept of “dynamic materiality” in a white paper. The concept of ‘double materiality’ (environmental impact in accounting) is also now enshrined in the EU’s new sustainable finance disclosure regime.

Both are relevant to closer scrutiny of the battery industry.

Batteries are a core technology to realise the energy transition.

Decarbonisation of global economies to combat climate change is at the heart of government policy today, particularly in the run up to the COP26 conference. Battery technology is cited as the key to pivot industries away from the use of fossil fuels towards renewables and to significantly reduce carbon emissions in both the transport and power sectors, which jointly are responsible for about 40% of the 50Gt of global CO2 emissions[i].

As a result, battery demand is growing rapidly and is expected to rise by 25% annually to reach 2,600 GWh in 2030. The main drivers of growth, electrification of transportation and the deployment of batteries in electricity grids, is global. By 2030, worldwide passenger cars will account for the largest share (60%) of global battery demand, followed by the commercial vehicle segment with 23%. Geographically, China is the biggest market with 43%. Consumer electronics, which account for more than 20% of the market today, will represent only a marginal share of the global battery market in 2030[ii].

So, batteries are a key technology to achieve the Paris Agreement and support the UN SDGs 12, but there are issues with scalability.

An opportunity that comes with challenges

Today’s key battery technologies – lead-based and lithium-ion – will remain the most important and will both undergo growth as we head towards 2030. While lithium-ion will likely be the exclusive technology for xEV (all electric vehicles) traction batteries, lead-based chemistries will almost entirely equip 12V starter and auxiliary batteries, as well as industrial batteries for UPS (Uninterruptible Power Supply) and telecom applications[iii].

To meet demand, supply and production capacities need to increase along all steps of the value chain, from mining through cell production and recycling. Battery mineral and material production is monopolised by a small number of suppliers, subjecting international markets to both political and economic risks around security of supply.

Poor institutional frameworks in several supplier countries can lead to many adverse social and environmental outcomes that undermine the sustainability credentials of an ostensibly ‘green’ industry. Existing value chains are not fit-for-purpose for 21st century battery needs[iv].

Adverse environmental and social issues

Scaling up raw material production for batteries over the next decade will come at an unprecedented pace. Four battery metals are impacted the most by this growth towards 2030: lithium by a factor of 6, cobalt by a factor of 2, class 1 nickel by a factor of 24, and manganese by 1.2[v].

Approximately 50% of global cobalt mine reserves are in the war-torn Democratic Republic of Congo (DRC), where nearly three-quarters of citizens live in extreme poverty. Around one-fifth of cobalt comes from small-scale artisanal mines where it is not uncommon to find children working, extracting the mineral by hand. Hazardous working conditions resulting in health risks are well documented. These social risks and in particular wider human rights abuses remain characteristic of the industry[vi].

In turn, almost all (99%) of lithium reserves are in Chile, Argentina, Australia and China, and there are question marks over existing supply volumes and extraction methods, which are often hugely water-intensive in desert regions. Traceability of chemicals and metals used in the production of lithium-ion batteries, is also one of the main sustainability challenges faced by automakers. Ethical sourcing of raw materials and CO2 footprint are two key supply side ESG risks.

The infringement of historic land rights is also an issue. In 2020, a coalition group protecting the rights of Indigenous Peoples in Siberia, and the Far East of the Russian Federation, released an open letter to Elon Musk, billionaire and CEO of Tesla Inc., concerning the mining company Norilsk Nickel. The group called for a ban on the purchase of Nickel from the miner until remediation and compensation for identified environmental damage had been addressed[vii].

Can a ‘Battery Passport’ offer a feasible solution?

To help address the challenges facing the global battery sector, the Global Battery Alliance, a private-public multi-stakeholder collaborative platform of around 70 organisations ranging from industry leaders, governments, NGOs, academic institutions and civil society entities, hosted by the World Economic Forum, has come up with a 2030 vision. Its Ten Guiding Principles and Battery Passport aim to encourage a global circular value chain, ethical sourcing and sustainable technology development. Both reflect global concerns. The International Energy Agency has called for immediate government action to ensure the reliable, sustainable supply of critical battery minerals that are essential for clean energy technologies[viii].

And global competition is charging up. In Asia, the South Korean government has backed a US$ 35 Billion public company industry initiative seeking to rival Japan and China and become a dominant player in the region[ix].

What do investors think? And what should companies do?

Demand for cobalt, nickel and lithium will increase related business opportunities for the metals and mining sector. Copper prices that have been high due to the rise of China during the last decade offer a blueprint to companies expanding both upstream, downstream and through M&A activity.

While revenues are attractive though, ESG risks that were previously given less prominence are now rising, and being given more prominence by investors in their decisions. Companies that exist within the battery value chain will need to take account of ESG factors in their business models today to avoid the pricing of these negative externalities in both environmental and social issues in the future.

related webinars

How can batteries enable a sustainable transition to a greener economy?

Oct. 2021 | This webinar will explore how batteries are a core technology in the transition to a greener and a more circular economy.

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