Grey areas of green investing: electric vehicles
A closer look at sustainability dilemmas
Sustainable investing is not always a matter of right or wrong. When selecting companies for a sustainable investment portfolio, you sometimes run into dilemmas. In this article we look at a concrete example of such a dilemma. We take a closer look at manufacturers of electric cars.
Electric vehicles (EVs) can play an important role in reducing CO₂ emissions. From a sustainability perspective, however, there is more to be said about the production of EVs – especially in relation to the supply chain. EV batteries require several raw material components. Cobalt, for example, is an essential component of Lithium-ion batteries. Around 70% of the global cobalt supply comes from Congo. Cobalt extraction in Congo has been linked to human rights violations, such as dangerous working conditions. A substantial part of Congo’s cobalt production takes place through unregulated ‘artisanal’ cobalt mining, where workers – including children – mine cobalt by hand. This practice leads to accidents – sometimes even fatal ones.
Concrete investment case
The cobalt example shows that even though EVs may play a valuable role in the battle against climate change, there may be reasons not to invest in certain EV producers. For our sustainable investment portfolios, we have considered investing in a well-known EV producer. We decided, however, not to invest in this particular company for now, as it is struggling with sustainability issues. These issues include, among others, risks tied to the supply chain, with the company in question sourcing much of its cobalt from Congo.
Addressing the cobalt issue
In addition, several carmakers are adopting battery recycling strategies. Through battery recycling, demand for raw materials, such as cobalt, could be significantly reduced. Moreover, companies are exploring possibilities to move towards cobalt-free batteries, by changing the chemical composition of battery cells. And, finally, prototypes for next-generation batteries have been developed: these so-called solid-state batteries would require significantly less cobalt. Such initiatives may help EV producers to establish a sustainable supply chain in the future – something which, in turn, could lead to more sustainable investment opportunities in EVs.