Unmined Potential? Opportunities for Development Finance to Support Sustainability and Inclusion in Transition Mineral Supply Chains

Demand for energy transition minerals (TMs) is set to expand many-fold as global investors and nations embrace the ongoing global energy transition. The task of establishing sustainable and inclusive production methods for these supply chains is an urgent one for source countries – most of which are developing countries located in Latin America and the Caribbean, Africa and Asia, and the Pacific – to continue making progress toward the United Nations 2030 Sustainable Development Goals.

Public development finance institutions (PDFIs), including both multilateral and national development banks, play a unique role in the governance of TM supply chains. However, in addition to the social, environmental and economic governance challenges that have emerged from the previous commodity booms, the transition mineral boom poses novel challenges to PDFIs in environmental and social risk management (ESRM) due to new geographies, the speed and scale of expansion, and in some cases, newly commercialized mineral extraction techniques with distinctive socio-environmental risks.

A new policy report published by the Boston University Global Development Policy Center and the Universidad del Pacífico Centro de Estudios Sobre China y Asia-Pacífico provides findings following a systematic review of PDFIs’ ESRM frameworks, interviews with key stakeholders (including major PDFIs with exposure to the transition mineral supply chain), and a September 2024 workshop with practitioners and researchers on transition mineral ESRM hosted by the Boston University Global Development Policy Center. As PDFIs expand low-carbon financing portfolios built upon the expansion of transition mineral frontiers, the authors argue that it is essential to review the preparedness of PDFIs’ ESRM frameworks in light of the unique challenges presented by transition mineral production. 

The report identifies the following significant remaining gaps:

• PDFIs are limited in their ability to apply patient capital and high-level ESRM to direct TM support in several ways. 
  • First, without mineral traceability, it is impossible to fully apply environmental and social standards to project clients’ suppliers, as required by the International Finance Corporation Performance Standards.
  • Second, several PDFIs and export credit agencies (ECAs) are relatively new to directly supporting TM production or relatively new to developing their own ESRM policies and practices, and they lack the needed institutional resources to successfully establish industry standards through their actions.
• PDFI support for policy and institutional capacity varies widely by region. Although this support can be crucial for lower-income countries with few institutional resources across all productive sectors, few of the countries targeted by this type of support are those with burgeoning TM sectors. The expansion of concessional finance to middle-income countries, as envisioned by the World Bank evolution road map, may facilitate this step.
• Country platforms for strategy and coordination, including the World Bank’s Country Climate and Development Report (CCDR) series and the Just Energy Transition Partnerships, have not yet incorporated environmental and social governance strategies for TM sectors in a robust fashion. Thus, PDFI and ECA support for these goals is necessarily limited.

Based on these findings, the report offers the following lessons and recommendations to address these gaps and maximize the potential benefit of the advantages of PDFIs and ECAs, through collaboration with other international bodies.

Policy recommendations:

• A just energy transition must include sustainable and inclusive TM supply chains, though this aspect is often absent from existing energy transition platforms.  
• The ongoing green finance reforms in China’s financial sector – especially including the recent Green Finance Guidelines – will be crucial to set verifiable expectations for the performance of Chinese firms’ overseas activity. It is crucial that these include transparent and accountable key performance indicators.
• It is crucial for PDFIs and ECAs with strong written ESRM policies to resist pressure to weaken them in order to expedite future projects. The 2025 International Finance Corporation Performance Standards review presents such an opportunity and must be met with a commitment to maintain “gold standard” practices. 
• Several nascent industry governance initiatives have promise and could benefit from financial support and coordination from PDFIs. 
• Transition mineral environmental, social and governance (ESG) standards should be underwritten by robust independent monitoring as well as grievance and accountability mechanisms within PDFIs. 

While PDFIs exist in a constellation of national and international TM governance and production actors, both private and public, their unique policy mandates, patient capital, high-level ESRM and capacity as “knowledge banks” makes them crucial allies with important roles to play in establishing climate justice throughout energy transition supply chains. These recommendations can help PDFIs and ECAs take meaningful steps into that role.