The Dark Side of ESG and the Energy Transition

As we approach the holiday season and the start of 2024, it is the perfect moment for reflection and forward planning. You might even be thinking of setting goals for the new year. Considering recent events, such as the Climate Summit in Dubai, the implementation of the Corporate Sustainability Reporting Directive, in the EU, the investigation into Blackrock’s ESG practices, and the European Parliament’s progress on the Corporate Sustainability Due Diligence Directive, your reflections and goals may focus on Environmental, Social, and Governance (ESG) issues and the ongoing Energy Transition. We expect 2024 agenda’s to be filled with ESG and Energy Transition related plans. This focus is a step forward towards sustainable and responsible practices. However, it is important to also consider challenges in these areas and not close our eyes for them.

This article sheds light on the less-discussed aspects of ESG and the Energy Transition, particularly the ethical concerns in cobalt mining for battery production. We do not intent to end the year negatively, but to highlight the importance of recognising and addressing the complex challenges of the transition, including supply chain and mining sector issues. By highlighting these concerns, we advocate for a holistic approach to sustainability that equally values environmental (E), social (S), and governance (G) factors, ensuring a more robust and fair energy transition.

The Energy Transition and Cobalt

When referring to ‘the Energy Transition’, we mean the global shift from fossil fuels to renewable sources like wind, solar, and the use of less damaging goods like electric vehicles. The purpose of this transition is reducing carbon emissions and combating climate change. Central to this transition is the need for materials like cobalt, vital for producing lithium-ion batteries used in electric vehicles and energy storage solutions. The focus on renewable energy sources is a response to the urgent need to combat climate change and reduce global carbon emissions.

Cobalt is at the heart of this Energy Transition as it is an essential part of the batteries that power our shift towards clean energy. Cobalt is predominantly mined in the Democratic Republic of Congo (DRC) and supplies a significant portion of the world’s cobalt and therefore the global Energy Transition. However, the mining of cobalt in the DRC comes with a price. One of the most pressing issues is the use of child labour, with children working in hazardous conditions for little to no pay. The health risks for them, and for mine workers in general, are considerable. These include exposure to toxic dust and the potential for long-term respiratory problems. The environmental impact of cobalt mining is also significant. Think of deforestation, soil erosion and water contamination. The mining industry is generally speaking a highly corrupt practice that often does not enrich locals, but (foreign) corporates.

An ESG Dilemma

These issues present a complex dilemma in the Environmental, Social, and Governance (ESG) context. On one hand, cobalt is essential for advancing renewable energy technologies. On the other, its procurement raises serious ethical, social and environmental concerns. In general, the environmental part (E) of ESG is well-represented in the push for renewable energy sources. However, the social (S) and governance (G) aspects get less attention. The social implications include the health, safety, and welfare of workers in the mining industry, while governance relates to the ethical management of supply chains and ensuring that human rights are upheld.

Europe, in response, is implementing measures like the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD). These regulations aim to ensure that companies are accountable for their supply chains, emphasising the need for ethical sourcing and transparency. As consumers and stakeholders in the global economy, we play a role in this transition. It is essential to support initiatives that promote not only environmental sustainability but also social justice and good governance. By demanding transparency and ethical practices, we can encourage companies to adopt more responsible sourcing policies.

While the energy transition is a significant step towards a sustainable future, it is crucial to consider its full impact. This includes not only the environmental benefits but also the social and governance challenges, particularly in the cobalt mining industry. A balanced approach to ESG considerations is essential for a truly sustainable and ethical transition to renewable energy.

Explore Cobalt’s Dark Side: our picks for you Christmas holiday

Interested in the topic and looking for a useful way to spend your holidays? We just finished watching a documentary on YouTube and reading a book about the cobalt-mining industry in Congo.

The documentary is made by the German public broadcaster DW and is titled “The cobalt challenge – The dark side of the energy transition“. As the title gives away, it shows the dark side of the Energy Transition – being cobalt mining in Congo. Aside from showing issues as child labour, contamination and corruption, DW shows that China’s market dominance is driving Europe into a dangerous dependency (where have we seen that before?!). Faced with the gigantic problems posed by the raw material, the EU is looking for other ways to get its hands on cobalt. Finally, DW asks whether mines in Europe should be reopened.

If you prefer reading, we recommend reading Cobalt Red. This book, published in January 2023, is written by Siddharth Kara (an associate professor at the University of Nottingham). Kara’s book also touches upon the Energy Transition and cobalt mining. The book emphasises the global (ESG) implications of this crisis, arguing for the need for collective responsibility and action towards what is happening in Congo​​.

Both resources provide valuable perspectives on the Energy Transition and related threats. We believe and hope that they serve as great conversation starters or educational tools. After exploring these, we invite you to share your thoughts and insights with us and others. Let’s spread awareness and foster discussions that can lead to positive change and corporate responsible behaviour.

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