Energy transition minerals: Hidden risks of the green transition
The global energy transition is creating demand for minerals such as cobalt, lithium, copper, nickel and graphite. For mineral producing countries, particularly in central Africa, this presents an opportunity to attract investment, develop industries and generate employment. These opportunities, however, come with ESG risks that conventional corporate policies and supply chain checks are often not equipped to address. Without stronger accountability, the energy transition could reproduce some of the historical failures associated with the extractive industries.
Cobalt mining in the Democratic Republic of Congo (DRC) is an example. While cobalt is essential to the energy transition, parts of its supply chain have been associated with unsafe artisanal mining, child labor, land displacement, environmental damage and poor working conditions. For communities with few alternative livelihoods, artisanal mining can be an essential source of income. Simply excluding these miners from formal supply chains may not be a solution either.
This creates a contradiction. Corporates can demonstrate green credentials in the markets where they sell electric vehicles and batteries, while significant ESG risks remain embedded in distant supply chains that they may struggle to identify, measure or mitigate.
The challenge is not just responsible sourcing. It is whether corporate risk management systems are equipped to identify and address the ESG risks embedded across the entire value chain.
Why conventional ESG approaches can fall short
Many corporates have developed ESG policies, supplier codes and responsible sourcing commitments. Yet these systems often focus disproportionately on the immediate supplier or operating entity, rather than the wider value chain and the communities affected. For example, cobalt mined in the DRC can pass through several intermediaries and overseas processing facilities before reaching battery manufacturers. This creates a fragmented value chain in which the original mine worker can become largely invisible to the companies ultimately benefiting from the mineral.
A supplier may satisfy documentation requirements without demonstrating what happens at the last-mile mine site. A corporate may have a human rights policy without knowing whether those last-mile workers were even able to raise grievances safely. A bank may assess a mining company’s ESG data without adequately understanding the informal buyers, intermediaries and power relationships through which minerals were originally sourced.
For corporates and financial institutions, this has a direct risk management implication. ESG risk cannot be assessed only at the level of the legal entity seeking finance. It must be understood across the chain of activities, suppliers and communities connected to that entity.
From compliance to accountability
First, corporates need to move towards risk mapping across the energy transition mineral value chain. This means identifying where extraction takes place, who operates and buys minerals, how workers are engaged, and where land rights, labor conditions, benefit-sharing, or community relations may be compromised. Traceability technologies can help establish where minerals originate, but it is equally important to understand how they were extracted, processed and traded across the entire chain.
Second, risk assessments must consider local realities. Artisanal miners, women and other vulnerable groups in mining communities, displaced households and local businesses may experience very different consequences from the same mining activity. Their concerns cannot be adequately captured through a standard supplier questionnaire or a consultation conducted only with government authorities and corporate representatives. Nor should non-compliance automatically result in blanket exclusion, since this may simply displace the problem rather than resolve it.
This requires grievance mechanisms, worker participation, community engagement and credible remediation, so that suppliers are supported in addressing identified risks rather than automatically excluded from the value chain. Such engagement must be accompanied by measurable improvements and appropriate escalation where serious or persistent violations remain unresolved. It also avoids transferring corporate responsibility to local suppliers simply because their operations are informal or difficult to monitor.
What banks should change in their risk management
Banks’ lending decisions can shape the incentives of corporates across the value chain. Their ESG risk policies should therefore translate into more than a general commitment. Credit appraisal and due diligence should consider exposure to labor rights violations, land disputes, community displacement, conflict, weak governance and supply chain concentration.
This also requires banks to translate ESG findings into internal risk management processes. Depending on the severity and nature of the exposure, this could mean enhanced due diligence, revised borrower risk assessments, specific financing covenants, time-bound corrective action plans and more frequent monitoring. Material findings should also feed into sector risk policies and portfolio-level assessments, rather than remaining isolated within individual ESG reviews.
Where risks are identified, the response should not automatically be withdrawal of finance. In some circumstances, engagement, time-bound improvement plans and financing linked to corrective actions may produce better outcomes than excluding suppliers or communities.
Banks can also influence the economics of responsible production. For example, assured offtake arrangements and more predictable prices for responsibly sourced cobalt could incentivize manufacturers and intermediary buyers to support better working conditions. Risk-sharing financing facilities could help address the additional commercial costs of such arrangements, making responsible sourcing more viable for buyers and producers alike.
Making ESG risk policy a business strategy
The energy transition minerals debate should prompt corporates and banks to reconsider how their ESG commitments are embedded in business decisions. Board oversight, procurement strategy, credit risk frameworks and supplier engagement need to work together to understand where risks arise, who bears them, who has the power to address them and how commercial relationships can support improvement.
The green transition will require significant investment in minerals and the industries that supply them. But its success should not be measured only by the number of electric vehicles produced, renewable energy capacity installed or emissions avoided.
A transition that reduces carbon emissions while leaving vulnerable last-mile workers and communities behind is not sustainable. For banks and corporates, recognizing this is no longer simply an ethical consideration. It is essential to understanding the risks, resilience and long-term financial viability of the businesses and investments they support.