The Dark Side of Investing— Part I
Investors and consumers love to be on the right side of history. No one wants to be a Hitler. No one.
In our two-part series of The Dark Side, we address the digital and energy transition and the unavoidable global crisis initiated by no other than Evergrande.
The 21st century's technological advancements in AI — exacerbated by the pressures of COVID-19 — have changed the way we work, live, play, and learn. The "new normal," as it comes to be known, certainly exists for employees of large corporations, small companies, and students, all of whom are adapting to a "new era of knowledge labor" to succeed.
We are on the cusp of "radical" energy and digital transition. We are in the midst of the fourth industrial revolution. Our focus is on the geopolitical pressures on the global economy, the lack of "green" in clean energy, crypto-currencies, and the illusion of "de-centralization." To manage investment portfolios, it is imperative to harvest relevant, actionable insights from the barrage of data thrown at us every second — we intend to do just that.
As an investor, have you ever wondered —
How CLEAN is clean energy?
Let us address the question in this two-part series of The Dark Side of Investing.
As a consumer and as an investor, you are not saving the earth. Not by driving electric cars and not investing in electric car companies. As an investor, if your goal is to make money, keep investing in growth-driven stocks and add value to your portfolio. However, if you invest purely on believing that you are doing good, green investing is unsuitable. Why? Every time you buy an electric car thinking you are reducing carbon footprints, you kill a village.
Child Labor and Toxic Leak
Everything has a price. The new green technologies are no different.
Investors and consumers are warming up to electric cars and an illusion that they are "doing good" by either investing in companies that are ESG compliant or consuming products that are "green" and environmentally friendly. While this is a piece of excellent news for efforts to cut greenhouse gas emissions, a UNCTAD report says the expected boom in mining for the raw materials used to make rechargeable batteries raises environmental and social concerns that must be addressed.
"Most consumers are only aware of the 'clean' aspects of electric vehicles," says Pamela Coke-Hamilton, UNCTAD's director of international trade. "The dirty aspects of the production process are out of sight."
"The move towards net zero carbon emissions is going to create new stresses on our planet, at least in the short term," said Prof Richard Herrington, head of earth sciences at the Natural History Museum, London. "We are going to have to learn how to consider profit and loss with regard to ecosystems just as we do now when we are considering economic issues. Metals such as lithium and cobalt provide examples of the awkward issues that lie ahead, said Herrington."
Lithium and cobalt are needed to make lightweight rechargeable batteries for electric cars and for storing power from wind and solar plants. Their production is likely to increase significantly over the next decade, which could cause serious ecological problems.
While most consumers live in industrialized nations, the lion's share of the raw materials is concentrated in a few developing countries.
Lithium and Cobalt — Lifeline of Green Energy
More than half of the world's lithium resources lie beneath the salt flats in the Andean regions of Argentina, Bolivia, and Chile, where indigenous quinoa farmers and llama herders must now compete with miners for water in one of the world's driest regions.
Lithium mining requires vast amounts of groundwater to pump out brines from drilled wells, and some estimates show that almost 2 million liters of water are needed to produce one ton of lithium.
In Chile's Salar de Atacama, lithium and other mining activities consumed 65% of the water, causing groundwater depletion, soil contamination, and other forms of environmental degradation, forcing local communities to abandon ancestral settlements.
"As demand for lithium increases and production is tapped from deeper rock mines and brines, the challenges of mitigating environmental risk will increase," the report says.
Nearly 50% of world cobalt reserves are in the Democratic Republic of the Congo, which accounts for over two-thirds of global production of the mineral.
According to UNICEF, the UN's children's agency, about 20% of cobalt sourced from the central African nation comes from artisanal mines, where some 40,000 children work in hazardous conditions.
The dust from excavation may contain toxic metals, including uranium, linked to health problems such as respiration diseases and birth defects.
The environmental risks are just as worrying. For example, cobalt mine sites may contain sulfur minerals that can generate sulfuric acid when exposed to air and water. This process, known as acid mine drainage, can devastate rivers, streams, and aquatic life for hundreds of years.
The environmental impacts of graphite mining are similar. The use of explosives can blow dust and fine particles into the atmosphere, causing health problems in nearby communities and contaminating soils around the site.
In the case of cobalt, 60% of the world's supply comes from the Democratic Republic of the Congo, where large numbers of unregulated mines use children as young as seven as miners. There they breathe in cobalt-laden dust that can cause fatal lung ailments while working tunnels that are liable to collapse.
"Men, women, and children are working without even the most basic protective equipment such as gloves and face masks," said Mark Dummett of Amnesty International, which has investigated the cobalt-mining crisis in DRC. "In one village we visited, people showed us how the water in the local stream that they drank was contaminated by the discharge of waste from a mineral processing plant."
Why Must Investors Care?
Investing in companies that claim to be ESG compliant (ESG investing, for instance) and investing in electric car companies might cost investors dearly. In addition, narrowly screening companies — the most prevalent way investors express their ESG views — may cost them returns.
How? It depends, and it isn't very easy. As an investor, are you ready to take a risk/return trade-off to invest in companies with environmentally sound products or with strong ESG practices? — strong ESG practices are questionable. More on this later.
Instead, long-term investors can choose to invest in sustainable mining techniques and technologies that can recycle more effectively in the raw materials found in lithium-ion batteries.
Interested in learning more about clean energy investing? or understanding ESG practices and steer clear from companies that will cost you dearly? Sign up for Actionable Insights from the Bent Ledger — Unicus Research.
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Disclaimer
The content and the analysis belong to Unicus Research and its subsidiaries. The content and analysis provided are for the information purpose only and should not be taken as investment advice. Unicus Research and its subsidiaries are not liable for any investment or other loss arising from the use of the research.
Citations: https://unctad.org/news/developing-countries-pay-environmental-cost-electric-car-batteries
