We have talked at length in several pieces of work published this year and last year about the risk that the ESG investor leadership in the climate debate could have unintended consequences, especially if they paint their “bad” ESG group with too broad a brush and include industries that are essential to the energy transition process. We have focused on the US mid-stream industry, which has a central role in providing logistics for more natural gas, more LNG, CO2, and hydrogen, but which will struggle to provide the infrastructure if they are thrown in the fossil fuel bucket and cannot get access to reasonably priced funding. Now we are seeing the same with the miners, many of whom are looking to expand to increase production of materials needed to aid in energy transition also – such as silver, copper, and aluminum.
In our ESG and climate piece this week – linked here – we talked about the step-change in demand for renewable power, required to meet the near and medium-term emission goals, causing inflation in materials and equipment and therefore costs for solar and wind power, rather than the continued deflation anticipated in project planning assumptions. If the miners cannot get attractive funding to expand the production of the metals that we need – it is not just lithium – then the mines will not get expanded until metal prices are high enough to attract investment and can afford the more expensive finance costs.
Source: Bloomberg and C-MACC Analysis
With the absence of leadership at government levels in many countries and regions, we are allowing the finance community to be the ESG police, and they are generally not looking at the bigger picture, as they are more focused on specific investments and are being guided by ESG advisors that have no concept of the overall challenges presented by (sometimes arbitrary) climate change goals. For example, the US emission target is likely unworkable, but we would be tying both hands behind our backs as we try to address the target and neither the pipeline companies nor the miners can find investment capital.