The transition to renewable energy is essential in combating climate change, but it is neither simple nor without consequences. While many assume that reaching a critical tipping point will trigger a seamless shift to renewables, this belief overlooks the substantial environmental, social, and governance (ESG) challenges embedded in this transition.
This is because setting up and maintaining renewable infrastructure demands significant resource extraction as well as processing which, if poorly managed, can create long-term sustainability risks. Climate change is often acknowledged in passing, yet its real impact will become increasingly undeniable as we approach a critical ecological threshold.
Many who advocate for renewables may not fully grasp the disruptive realities of this shift and its myriad impacts—many of which will be felt most acutely by vulnerable communities and fragile ecosystems. The transition to renewables is not a magic bullet. Rather, it’s a complex, ongoing process that requires deliberate planning, ethical sourcing, and adherence to stringent ESG safeguards.
This blog post examines the challenges inherent within renewable energy supply chains, underscoring the urgent need for a transition that’s both swift and sustainable.
Lithium
Relevance: Lithium batteries provide high-energy density needed to power EVs and enable energy storage in solar and wind systems.
Where it’s found: 56% of the world’s lithium reserves comes from the Lithium Triangle of Argentina, Bolivia, and Chile.
Challenges: Lithium extraction in this arid region is highly water-intensive, using approximately 500,000 gallons per ton of lithium extracted. The process that’s involved depletes groundwater, disrupts salt lake ecosystems, and threatens biodiversity. Indigenous communities, who rely on these water sources, face increasing challenges in their ability to easily access clean water.
Regulatory approaches vary across the Lithium Triangle. While Chile has taken steps to improve sustainability through its National Lithium Strategy—addressing over 150 environmental impacts linked to lithium mining—Argentina and Bolivia lag in implementing these robust environmental guidelines due to the complicated regulatory and policy processes in these countries.
Additionally, the mining companies in these countries reduce the effectiveness of their risk management efforts by inadequately assessing cumulative impacts, using internal regulatory frameworks that are outdated, and by operating with a concerning lack of transparency. For example, environmental impact assessments (EIAs) which companies undertake before a mining project is approved and implemented often lack comprehensive baseline data, making it difficult to effectively manage the known risks.
Cobalt
Relevance: Cobalt enhances the energy density, stability, and lifespan of lithium-ion batteries.
Where it’s found: Democratic Republic of Congo (DRC) supplies around 70% of the global demand.
Challenges: Up to 30% of DRC’s cobalt comes from artisanal and small-scale mining (ASM), which is notorious for child labor, dangerous working conditions, and fatal accidents. Despite government regulations to formalise ASM and corporate initiatives—such as the Global Battery Alliance and Cobalt for Development (funded by BMW and Samsung) aimed at improving working conditions and eliminating child labor—systemic challenges persist.
Poverty, corruption, and weak law enforcement all hinder efforts to reduce or eliminate unethical practices. And governance challenges are widespread among international mining companies and state-owned enterprises. For example, Gécamines has faced corruption allegations and has yet to publish independent audits, reducing the company’s transparency and accountability.
Graphite
Relevance: Graphite is used in the anodes of lithium-ion batteries.
Where it’s found: Graphite mining and processing present major ESG risks in Madagascar and China.
Challenges: In Madagascar, mining projects often lack mandatory environmental and social impact assessments (ESIAs), leaving local communities vulnerable. The principle of “free, prior and informed consent” is not legally recognized, limiting the local population’s ability to have a say in mining projects that will impact them. Although Madagascar has environmental laws, enforcement is weak due to funding shortages, lack of necessary manpower, and corruption.
In China, processing battery-grade graphite involves hazardous chemicals like hydrofluoric acid (HF). Workers exposed to HF can suffer severe burns and respiratory damage, and the area’s natural resources risk contamination. While recent data on HF burns in China’s graphite processing industry is lacking, available records show an increased number of HF burns in western China, particularly in Zhejiang Province, from 2004 to 2013.
Manganese
Relevance: Manganese enhances battery performance in lithium-ion and sodium-ion batteries. It also strengthens wind turbine components and can potentially serve as a cost-effective catalyst in hydrogen production.
Where it’s found: Kalahari Manganese Mining Fields in South Africa hold nearly 25% of global manganese reserves.
Challenges: The mining process involves “dewatering” underground aquifers to prevent flooding in open-cast pits, leading to the groundwater being depleted, reducing access to clean water in surrounding communities. Additionally, the chemical pollutants that result from the extraction processes often seep into local water sources, causing contamination that poses severe health risks. For example, elevated nitrate levels from mining activities can lead to methemoglobinemia, a condition that impairs oxygen transport in the blood and can be fatal for infants.
Although companies like BHP and Vale have introduced water recycling and dust suppression measures, weak enforcement, poor community engagement, and insufficient monitoring continue to be major challenges.
Nickel
Relevance: Nickel enhances battery efficiency, serves as a catalyst in electrolysis, and provides durability in energy systems.
Where it’s found: Indonesia holds 19.6% of the world’s reserves.
Challenges: Indonesia’s nickel industry has grown rapidly since banning raw exports in 2020, but this expansion has led to severe environmental issues. Deep-Sea Tailings Disposal (DSTD) is commonly used in the region’s poorly regulated mining operations. DSTD has caused water pollution, fish depletion, and heavy metal contamination, particularly in the Indonesia’s South and Central Sulawesi and Obi Islands waters. And nickel smelting has polluted both the air and the water in Morowali Industrial Park which covers 3,000 hectares.
While companies like BHP, Vale, and Anglo American have implemented ESG safeguards, most efforts focus on decarbonization rather than addressing the broader social and environmental risks from their mining activities.
Platinum Group Metals (PGMs)
Relevance: Platinum Group Metals (PGMs) are indispensable for hydrogen fuel cells and proton exchange membrane (PEM) electrolysers, which drive green hydrogen production.
Where they’re found: South Africa holds approximately 90% reserves of these metals.
Challenges: In South Africa, mining these metals poses significant environmental and social risks. The extraction and refining processes consume huge amounts of energy and water. And pollutants such as SO2 and dust contribute to increased greenhouse gas emissions, particularly as lower-grade ores demand more energy for processing. Along with this air pollution, wastewater discharge, and surface runoff further contaminate the environment, impacting both local populations and the ecosystems in which they live.
Leading PGM producers such as Anglo American Platinum, Impala Platinum, and Sibanye-Stillwater have introduced various safeguards to address ESG risks. However, the concentration of PGM production in South Africa exacerbates other challenges such as shortages in the country’s electricity supply, security threats from organized crime syndicates, labor conflicts, and general economic instability. These issues further complicate operations, delaying projects including those aimed at renewable energy integration.
Rare Earth Elements (REEs)
Relevance: REEs are a group of chemically similar metallic elements. Despite their name, they are not particularly rare in terms of abundance, but they are rarely found in concentrated deposits, making them difficult to mine economically. Neodymium and Dysprosium enhance wind turbine generators, and Lanthanum and Cerium improve electrolyser efficiency for hydrogen production. Neodymium, Praseodymium, and Terbium power high-performance EV motors.
Where they’re found: China controls over 85% of processing capacity for REEs.
Challenge: The production of REEs involves the use of radioactive elements, which are extremely dangerous to people and the environment. The Bayan Obo mine in China, the world’s largest REE mine, has caused extensive environmental damage by contaminating soil, air, and water. Local communities suffer from elevated cancer rates and other severe health conditions, while polluted water threatens the Yellow River.
In response, China implemented environmental regulations starting in 2010, introducing pollution control standards and consolidating rare earth enterprises to improve industry oversight. The government also intensified its crackdowns on illegal mining operations, especially in Jiangxi Province, to try to promote more sustainable practices.
Despite these domestic efforts, China remains involved in illegal REE mining in Myanmar’s Kachin State. Chinese-backed businesses operate unregulated mines, leading to unsurprising results: a destroyed environment, contaminated groundwater, and displaced local communities. The lack of regulation has also led to human rights abuses, such as subjecting workers to poor working conditions and even forced labor.
Renewable energy companies like Vestas, Siemens Gamesa, GE, and Bloom Energy are minimizing their reliance on rare earth elements by adopting alternative technologies, recycling, and more-responsible sourcing. However, a major challenge for the global supply chain is the over-reliance on China for REEs, which makes desired diversification difficult.
Balsa Wood
Relevance: Balsa wood is prized in wind turbine manufacturing due to its exceptional strength-to-weight ratio, making it ideal for lightweight yet sturdy turbine blades.
Where it’s found: Ecuador stands as the world’s leading supplier of commercial balsa wood, contributing approximately 90% of global production.
Challenges: The global demand for renewable wind energy has increased the need for balsa wood, primarily sourced from secondary forests in Latin America, often on indigenous lands and smallholder farms. In Ecuador, audits are sometimes conducted by the same institution that issues licenses, leading to issues around transparency. In Peru, eight key companies control 80% of the market, raising legitimate concerns about the legality of their operations.
Efforts to improve traceability have mainly focused on primary forests, neglecting agroforestry and indigenous practices which illegal loggers exploit. Balsa wood logging harms ecosystems and communities, exacerbating problems like human trafficking and drug trafficking. The lack of transparency in the timber supply chain makes verifying legality difficult, although certifications like the Forest Stewardship Council (FSC) are used to ensure sustainability.
Companies like Siemens Gamesa engage only certified suppliers and disclose annual balsa wood consumption. However, certification labels have been criticized for not addressing deforestation and not promoting more sustainable forest management.
The Need for Responsible Supply Chains
Despite efforts to mitigate ESG challenges, weak regulatory frameworks, limited enforcement, and a lack of transparency continue to threaten necessary ethical and environmental changes to the supply chains for renewable energy. In many mineral-rich regions, socio-economic instability and security risks create additional challenges for the sustainable sourcing of energy resources.
From a lack of transparency and issues with data monitoring to the complexity of the supply chain, all of these challenges impact the well-meaning efforts to ensure more ethical sourcing practices. Additionally, high market concentration in a specific region, a growing demand for critical materials, or increased economic pressures on producers often causes companies to adopt higher-risk and less responsible production methods.
Addressing these cross-cutting issues requires that mining companies, regulatory bodies, governments, and any other entity involved in this industry to commit to—and enforce—more effective regulatory oversight and more stringent due diligence measures. In short, there needs to be a more robust commitment by the entire industry to sustainable and responsible sourcing of the materials required for renewable energy.
Without meaningful action, the transition to renewable energy risks being undermined by the very supply chains that enable it. To truly achieve a greener future, clean energy must not only be renewable, it must also be responsibly sourced.
For more insights and guidance on renewable energy, supply chains, green investing, climate change and other related issues, stay tuned to our blog for future updates and expert analyses.
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