ESG + Natural Resources

Energy Transition offers Opportunities for ESG-compliant Natural Resources Investments

Due to the boom in electric mobility, the demand for lithium for the production of batteries has exploded. The largest deposits are in the world's largest salt lakes in Chile and in the Salar de Uyuni in Bolivia. The extraction of the light metal from the salt lakes in these dry regions in the Andes is criticised because of possible negative effects on the groundwater level. PICTURE DANITA DELIMONT/ ALAMY STOCK PHOTO

ESG-compliant investments in natural resources are considered to be particularly challenging. Clemens Struck, Head of Data Science, explains in an interview how, by combining our expertise in the areas of ESG, derivatives and natural resources, we provide access to opportunities with new products for our customers.

How do you navigate the current ESG environment?

In an environment with uncertainty about measurement and a not yet matured debate on what ESG investing is, we offer clients customized ESG policies reflecting their individual views. Our offering accommodates the heterogeneity that is currently out there in the market. Paying attention to multiple measures from several data providers helps us obtain a clearer picture in this noisy environment. Being aware of the current imperfections, we are actively adapting to new standards as the field evolves.

Does Sustainable Investing have real effects?

We do not know this for sure. Yet, we do know from experience that changing the direction of financial flows can create powerful incentives to change actual behavior. If ESG becomes the established standard, it is expected that non-ESG compliant companies will have to pay a premium in financing. Furthermore, highlighting ESG issues has put non-ESG companies and their directors into the spotlight. These practices often correlate with other forms of bad management that adversely affect long-term shareholder value. The reallocation of funds into ESG investments also reflects the anticipation of increasing government action against non-ESG compliant behavior.

How can we use natural resources more efficiently?

Due to global demographic change and rising incomes, we assume that the demand for natural resources will continue to increase. We therefore need to develop new technologies that raise the efficiency of how we source and consume natural resources.

Who develops these technologies?

Companies in many industries. Above all, where consumption is greatest, there is the highest incentive for innovation. This is particularly true for utilities and their suppliers, in mechanical engineering, but also in the mining of metals.

What are the ESG risks associated with these technologies?

Many of these activities are associated with increased ESG risks. For example, growth in low-carbon technologies such as rechargeable batteries leads to increased consumption of natural resources such as Lithium.

What advice do you have for investors interested in resource efficiency?

To minimize investment risks, we recommend a diversified, equally weighted equity portfolio that invests in companies from different industries in several countries. To minimize ESG risks, we recommend setting high thresholds based on data from multiple providers.

Which role do commodities play in the Clean Energy Transition?

To switch to a climate friendly energy supply, the economy requires metals and minerals. These valuable materials are needed for, among others, wind parks, solar plants, batteries, power-to-gas plants, and electric vehicles. For example, the demand for battery critical metals such as lithium is widely expected to increase by 40-fold over the next 20 years.

What are the key metals for the energy transition?

Rare Earths, Platinum, Palladium, Germanium, Gallium, Indium, Tellurium, Cobalt, Lithium, and Vanadium, Copper, and Nickel.

Where are they sourced?

Canada, USA, Australia, Japan, Finland, Sweden. But also, in developing countries like Bolivia, Indonesia, Dem. Rep. of Congo, Zimbabwe, South Africa, China, and Russia under more controversial sourcing conditions.

What are the ESG specific risks associated with these metals?

Predominantly, environmental, human, and governance risks. For example, Cobalt is primarily sourced in regions with ongoing human rights controversies like Dem. Rep. of Congo. Nickel production, for example, is often associated with severe environmental controversies. Corruption is a main governance issue in countries that are responsible for over 50% of the global nickel, lithium, cobalt, and copper mining.

How do you minimize exposure to these risks?

By setting very high thresholds for the ESG filters in products that directly hold metals & mining companies. As a result, about 80% of the global metals & mining universe is not included in our selection. In this way we minimize controversies and reputational risks. However, carbon emissions, while significantly lower than in comparable products, remain naturally elevated in this sector.

Who is the target audience of an ESG commodities product?

Institutional investors who seek exposure in commodities for diversification purposes and face compliance constraints as well as constraints on their alternative investment quota.

How do you serve investors seeking a more direct impact investment?

We offer a series of green bonds that invest into, among other objects, photovoltaic parks. We also offer a venture capital product directly investing in MedTech start-ups in Silicon Valley.

Product Ideas

ESG+ Equity Key Transition Metals

Investing in technology leaders improving the sourcing of natural resources
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ESG+ Equity Natural Resource Efficiency

Investing in technology leaders improving natural resource efficiency
Learn more

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Your contacts

Daniel Gerber

Chief Sustainability Officer

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Clemens Struck

Head of Data Science

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