The economic transformation needed to reach net zero emissions is precipitating a fall in demand for coal and setting off a dramatic acceleration in demand for energy transition minerals (ETMs). Both these processes involve important social impacts and opportunities. The decline of the coal sector will impact the livelihoods and regional economies that are dependent on it. Meanwhile, companies building new ETM mines must resolve the tension between expanding mineral production for global climate action and the protection of local people and ecosystems affected by mining. Worryingly, the global mining sector has a poor track record on human rights and environmental harm. To reduce the substantial social and environmental impacts of mining, mineral demand must be firmly managed and existing responsible mining laws and standards strengthened. Given the speed of the low-carbon transition needed to hold the global temperature increase to 1.5°C, action to make mining more responsible must take place in a time-bound and rapidly-evolving context.

Large investments are needed to build new mines but also to improve all mines to strictly align with best practice on harm reduction. Meanwhile, many asset owners and asset managers have announced net zero targets and just transition commitments. What role can they play in shifting the mining sector towards more sustainable and equitable practices?

Recognising the role of mining on the road to net zero, the UN Secretary General convened a Panel on Critical Energy Transition Minerals, which recently released a set of principles and recommendations to embed justice in the race to net zero emissions. The panel’s fifth principle calls for investments, finance and trade to be responsible and fair. Among the actionable recommendations, there are a number of calls to action for the financial sector. The panel recommends establishing an expert advisory group to accelerate benefit-sharing, economic diversification and responsible investment; a global traceability framework for due diligence and corporate accountability; and better financial assurance mechanisms for mine closures. Importantly, the panel also calls for concrete targets and timelines for material efficiency to manage the growth in global demand for minerals.

The scale and complexity of managing the mining sector’s transformations requires informed and proactive investor participation. In our recent report, we explore this challenge and set out a framework to help investors fulfil their role in aligning mining with just transition goals.

A just transition agenda for investors focused on mining would build on three priorities: respecting communities, protecting workers and developing local economies. With its vast impacts on land, mining must respect local communities, in particular through securing the free, prior and informed consent of Indigenous Peoples for its activities. These priorities are by no means new issues for the mining sector; they form part of its social licence to operate. But the scale and speed of change required to achieve climate goals in ways that also benefit people mean that all actors, including investors, need to explicitly place just transition considerations at the centre.

The spheres of impact relevant to investors are shaped by their interactions with the entities they invest in. Investors can hold equity shares in mining companies, and they can also hold the debt of sovereign governments or state-owned enterprises (SOEs). We developed a framework to illustrate how investor leverage points like dialogue and capital allocation can be used to encourage different entities to align with a just transition. As part of their own environmental and human rights due diligence, investors can pressure mining companies to develop robust access to remedy mechanisms and implement responsible mining standards such as the Initiative for Responsible Mining Assurance (IRMA). Such pressure can be applied during shareholder engagement meetings as well as through resolutions and voting at Annual General Meetings.

With governments, investors can advocate for stricter regulations and enforcement for responsible mining alongside policies that manage mineral demand, like public transport and circular economy mandates. They can influence SOEs operating in the mining sector through dialogue during bond roadshows and broader sovereign engagement with governments.

Interactions within supply chains between mining companies and the businesses that use minerals to manufacture end goods offer further opportunities for influence. For example, shareholders of an electric vehicle manufacturer can set expectations for the development of robust human rights and environmental procurement criteria for purchased minerals.

A framework of investor leverage points to drive a just transition in mining

To harness these levers, investors need a range of tools, both to understand best practice and to gather data. Robust responsibility standards, especially those with multi-stakeholder governance structures such as the IRMA, can help set aspirational criteria. Examining evidence of actual harm from irresponsible practices is a crucial complement; this is facilitated by databases such as the Transition Minerals Tracker. In combination, high-integrity standards and detailed records of harms can help investors to build data-informed engagement strategies with mining companies. Taking forward the principles and recommendations of the UN Secretary General’s Panel on Critical Energy Transition Minerals, the financial sector has a mandate to drive action by mining companies and governments towards a just transition.

Antonina Scheer - Policy Fellow – Research Project Manager | Transition Pathway Initiative Centre (TPI Centre) and Associate at the Just Transition Finance Lab | Grantham Research Institute on Climate Change and the Environment | London School of Economics and Political Science (LSE)