The world is changing
We can argue about whether it is changing fast enough and many of us will have views on how the transition should and should not happen, but we all know for sure that the world and we must change!
As we move away from traditional fuel sources towards new greener fuel sources there are many exciting prospects and many challenges that will need to be overcome. You only have to watch one of Attenborough’s documentaries to understand what a pivotal point we are at if we are to save the world in time, and events like the recent COP26 summit in Glasgow are demonstrative of the importance and urgency of the issue. Given this, the transition has now become the priority at every board table. The younger generation are passionate about the transition and shareholders are demanding change to business strategies.
The role of corporations
For corporates there are many things to consider when figuring out their Agenda 2030 and future corporate strategy. What will their customers need in the future? How do they continue to service their clients if their needs don’t fit the new “acceptable” world? How will financing change and at what cost? What will my market look like? And most importantly, how do I move with the evolution? Corporates are looking at how they will achieve high ethical standards in sustainability, traceability and social governance throughout their activities. With change comes opportunity and there is real potential for those who embrace the change and stay at the forefront of it.
The move away from fossil fuels requires the development of new transition technologies to transform industry, to heat our homes and power our cars. The problem with renewable energies is the intermittency, we cannot choose when the sun shines or when the wind blows! The solution is storage, provided largely by numbers of enormous batteries to help to regulate the distribution of power. The battery market is anticipated to be worth US$100 billion by 2025. Ironically however, if we don’t convert in the right way the move towards cleaner fuels could result in unintended harm to our environment and human beings. Cobalt, a key component in battery technology, is well known for the exploitative conditions under which it is mined by adults and children. It is widely reported that forced labour, child labour, debt bondage and sexual assault are serious realities associated with cobalt mining, particularly in the DRC. Amnesty International has documented violations of the human rights of indigenous people living near lithium (a key battery component) mines, communities are not given enough information about how damaging mining activities can be to their water sources.
Increasing mandatory due diligence
Supply chain due diligence by market participants is therefore key when sourcing these new technology metals. Regulators play their part in forcing high standards of due diligence to ensure that companies and their financiers are scrutinising the entities from whom they are sourcing and we are seeing lots of movements in this regard. In Europe, the Non-Financial Reporting Directive (NFRD) which requires large public interest companies with more than 500 employees to disclose environmental, social and employee related matters will be replaced by the Corporate Sustainability Reporting Directive (CSRD), which will extend the obligation to more entities, introduce more detailed reporting requirements and require audits of reported information. In Switzerland, following an unsuccessful vote on the proposed Responsible Business Initiative, the indirect Counter-Proposal will automatically enter into force in the coming months. The Swiss Criminal Code and the Swiss Code of Obligations will impose extensive non-financial reporting obligations on large public interest companies and financial institutions particularly in relation to environmental, social and employment related matters, respect for human rights as well as the fight against corruption. Additionally, due diligence obligations will be imposed on companies. For some companies this type of due diligence will already be in place to some extent, for others it may require new processes. In order for these human rights violations to improve it is imperative that we work together as stakeholders. Governments, NGOs, financiers and the private sector can be so much more effective when they collaborate. The more we are able to force high ethical standards to be necessary for a company’s success, closing the opportunities for less scrupulous companies to frustrate ethical improvements, the faster these situations will improve. The LME has been a market leader in this regard and taken a bold step forward with its responsible sourcing requirements, which we welcome as a strong step towards improving conditions for many miners.
A balanced transition
At this time of innovation and development we should also be taking the time to really think about the implications of how we transition to a greener world and ensure that we move forward in a way that improves not just the climate but also the social issues which need addressing. We must be cautious not to exasperate the human rights violations in certain industries as both climate and human rights need to go hand in hand. Technology and transparency can help in the fight against these human rights abuses. It is clear that the necessary energy transition is dependent on “transition metals” and so the need to source them is a very real one. Companies along with other shareholders therefore need to work to address these issues together with their suppliers and partners.
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Guest author:
Victoria Attwood Scott
Victoria Attwood Scott is the Global Head of Compliance at Mercuria Energy Trading SA, Victoria joined Mercuria in 2013 and is based in Geneva, Switzerland. Prior to joining Mercuria, Victoria worked for Goldman Sachs in the UK where she was a Managing Director and Global Head of Commodities Compliance.
Victoria has previously been a compliance officer at Investec and Barclays Capital. Victoria started her career with Barclays working on the London International Financial Futures and Option Exchange (LIFFE). Victoria is a member of the LME User Committee.
Since its founding in 2004, Mercuria has become one of the premier global energy and commodities trading companies. Having begun primarily as an oil trader, Mercuria is now also a leading player in base metals trading and enjoys an established presence at the LME.
Not only this, but with a pledge to shift more than half of its investments to energy transition projects over the next five years, Mercuria shares the Exchange’s sustainability focus.