Weakening EU due diligence rules exposes European critical mineral investors to financial and reputation risks, report argues
European financial institutions are falling “significantly short” on addressing the environmental and social risks associated with their critical mineral mining investments. This is the conclusion of a report by non-profits Oxfam, Fair Finance International and Belgian activist coalition 11.11.11.
The report ranked eight of the largest critical mineral mining investors in Europe — including banks ING, Deutsche Bank and Santander — out of a total of 10 points on their environmental, social and governance safeguards.
This included their reporting requirements for investee companies, approach to waste and pollution, and policies on consent for mining projects. The scores ranged from 2.6 to 4.
The assessment considered the public policies of eight of Europe’s largest financiers of critical mineral mining. It tracked how they are financing the sector and whether they are using their influence to prevent and mitigate against negative environmental and social harm.
The institutions’ policies were assessed against a framework based on international sustainability standards. These included industry initiatives such as the Initiative for Responsible Mining Assurance and the Responsible Mining Index Framework, as well as the UN Guiding Principles on Business and Human Rights, the OECD Guidelines for Multinational Enterprises, the International Finance Corporation Performance Standards, and the Fair Finance Guide International Methodology.
Dutch pension fund ABP scored the highest with 4 points, while all the others scored below 3 points.
As of November 2024, European financial institutions held a total of $16bn in bonds and shares in companies involved in critical mineral production, says the report.
Between 2016 and 2024, EU-based banks provided $69bn in loans and underwriting services to 93 companies extracting and processing copper, cobalt, graphite, lithium and nickel.
French bank Crédit Agricole held the largest amount of bonds and shares in critical mineral producers, as of November 2024 (circa $1.7bn). It was followed by German investor Allianz ($1.3bn) and ABP ($1.1bn).
Meanwhile, French bank BNP Paribas provided the largest amount in loans and underwriting services ($12.8bn), followed by Crédit Agricole ($8bn) and another French bank Société Générale ($7.9bn).
Social and environmental risks
Projected demand growth in critical minerals, which are used in digital and energy transition technologies, will put additional pressure on the environment and society, unless negative impacts associated with mining are sufficiently addressed, says the report.
The International Energy Agency predicts that annual demand for transition minerals for renewable energy will more than triple to almost 40mn tonnes by 2050 from around 10mn tonnes today under a net zero scenario.
The report accuses the European Commission of pushing a “widely promoted narrative” that surging demand for critical minerals presents an opportunity to generate positive social outcomes in other countries. However, this is “wishful thinking” if well-documented environmental and social risks associated with the sector are left unaddressed, Fair Finance International project lead Kees Kodde tells Sustainable Views.
The financial institutions mentioned in the report were given the opportunity to respond.
Allianz said it classifies the mining sector as “sensitive” and assesses proprietary investments on a case-by-case basis, while BNP Paribas said that since 2013 it has had a dedicated mining sector policy with mandatory requirements on human rights, biodiversity and environment.
Crédit Agricole and ABP did not respond to the report’s authors.
None of the institutions responded to Sustainable Views’ requests for comment.
On Friday, the world’s largest mining company, Australia’s BHP, was found liable for damages caused in the Mariana dam disaster in Brazil in 2015 by the London High Court. The collapse of the dam caused 19 deaths and contaminated local waterways and destroyed homes and land.
The ruling opens the door to compensation, with lawyers seeking up to £36bn in damages from BHP and Brazilian miner Vale, joint owners of the Samarco iron ore project where the disaster occurred. BHP did not respond to a request for comment.
Weakening due diligence laws
Efforts to scale back EU sustainability reporting and due diligence rules under the omnibus proposal leave financial institutions further exposed to the risks associated with weak safeguards in the mining sector, says the report.
Last week, MEPs voted in favour of changes that would mean fewer companies are covered by the Corporate Sustainability Reporting Directive, and any obligations in case of infringements of human rights in the Corporate Sustainability Due Diligence Directive would be removed.
However, other EU regulations, namely the Critical Raw Materials Act and the Batteries Regulation, if implemented in full, would introduce mining sector-specific requirements on social and environmental responsibility. These would cover occupational health and safety, child labour, forced labour, discrimination, trade union freedoms, community life, and the rights of Indigenous peoples, as well as circular material requirements.
Improving transparency
The non-profits’ report includes recommendations to banks, investors, mining companies and EU policymakers.
Financial institutions are called on to improve transparency, including by requiring detailed ESG and human rights reporting from investee companies.
They should also ensure effective grievance mechanisms require free, prior and informed consent for affected communities before investing in projects, strengthen environmental and labour standards, and support human rights defenders, the report says.
It encourages mining companies to conduct environmental and human rights due diligence, manage tailings and waste responsibly, and ensure community consultation with FPIC.
EU policymakers are urged to resist weakening sustainability rules.