Energy transition - from bad to getting better

Energy transition is high on the agenda. But we must not lose sight of human rights in the process. Wind turbines in the landscape supply green renewable electricity; and batteries are an indispensable component for the storage of the generated energy and in electric vehicles. Unfortunately, the production of the turbines and batteries is often accompanied by human rights violations and environmental damage in developing countries. Many raw materials - such as copper, cobalt and lithium - are mined under very poor working conditions. Workers can be unprotected from dangerous chemicals and the hazardous working conditions in unstable mining tunnels. Child labour is also a major problem in the extraction process. Copper mining, for instance, pollutes the soil, water and air in Zambian villages.

ABN AMRO does not currently invest in mining companies for its ESG products¹ and services, but that does not mean that we are turning a blind eye to the origin of the raw materials needed for the energy transition. The transition to renewable energy sources must be fair. We want to “green” the economy in a way that is fair and as equitable as possible for all concerned, with decent working conditions. 

There is still much work to be done. We contribute to the protection of human rights by making clear choices in our investment portfolios and by committing to international agreements on sustainability standards, such as the United Nations Guiding Principles on Business and Human Rights (UNGP) and the United Nations Principles for Responsible Investments (UNPRI).

We also call on companies to take their responsibilities regarding sustainability seriously. They must not only feel responsible for making their own production more sustainable, but also for the non-sustainable processes in the rest of the chain, such as for the human rights of employees at suppliers. Fortunately, we are seeing progress here. For example, more mining companies are having their operations assessed on the basis of international sustainability standards.²  Volkswagen, Ford and Polestar use blockchain technology to trace the origin of the cobalt used in the production of their electric car models. These car manufacturers buy only cobalt that has been mined in the most sustainable way possible. And energy companies, such as Vattenfall, are making efforts to help customers with small budgets to insulate their homes, thus preventing energy poverty. 

Even though more and more companies are taking their responsibilities seriously, much remains to be done. That is why it is important to enter into dialogue with companies. This dialogue is known as “engagement,” and it is an important instrument for increasing sustainability. 

We use various sources to assess the social performance of companies. We look at which social criteria are relevant to each sector and examine, for example, how companies protect human rights in the supply chain. How do companies make their production processes sustainable? We expect companies to take action on this.

Fortunately, progress does not stand still and the energy transition is accompanied by more and more new (sustainable) developments. For example, it is now possible to produce batteries without cobalt. This innovation is still at an early stage and cannot be applied on a large scale, but it is a first step towards a solution for the cobalt problem that has preoccupied scientists and battery manufacturers for some time. This development characterises the energy transition: the transition from fossil to renewable energy proceeds in phases from bad, to less bad to better and better.

The switch to energy from renewable sources is certainly good, but limiting the consumption of raw materials and energy is even better. When our analysts assess sustainability, companies that contribute to the energy transition, use energy efficiently and conserve raw materials have an edge. After all, the amount of available materials is not infinite; every kilo of raw material that can be reused counts. There will come a time when there is simply not enough left in the ground to meet demand. That would seriously delay the energy transition and it is something that everyone - companies and investors alike - want to avoid.

Judith Sanders
Sustainable Investment Strategist

¹ ESG stands for environment, social and governance
² IRMA (Initiative for Responsible Mining Assurance), https://responsiblemining.net/