Europe Must Tackle Mining-Sector Corruption
On 16 March—just over one year after Russia’s invasion of Ukraine threw Europe’s energy system into turmoil—the European Commission published its highly anticipated proposal for the Critical Raw Materials Act. But the draft law falls well short when it comes to addressing corruption, one of the most crucial issues in the extractives sector.
Why is the EU legislating on transition minerals?
Less than three months after air strikes began in Ukraine, the REPowerEU plan set out the EU’s intention to accelerate the energy transition and reduce dependency on Russian fossil fuels, which included legislation on transition mineral supply and ramping up efforts to secure associated partnerships. In announcing the Critical Raw Materials Act, Commissioner Thierry Breton declared that “we must avoid becoming dependent again, as we did with oil and gas.”
Processing of key minerals is more geographically concentrated than that of oil and gas, and EU policymakers are concerned by China’s dominance. The International Energy Agency outlined that China refines 35 percent of the world’s nickel, 50-70 percent of its lithium and cobalt, and a whopping 90 percent of rare earth elements. This has led EU countries to frantically seek supplies elsewhere.
Alongside a renewed (and worrying) push for fast-tracked domestic mining, consumer countries have sought allies to meet their growing mineral needs. This search has led to the creation of the U.S.-led Minerals Security Partnership; strategic partnerships between the EU and countries like Namibia, Kazakhstan, Ukraine and Canada; and visits from European leaders to priority countries like Chile, Argentina and the Democratic Republic of the Congo.
But diversifying away from China is not enough to secure sustainable and responsible supply chains. By turning a blind eye to mining-sector corruption, Europe risks derailing its energy security efforts.
How well does the Critical Raw Materials Act address corruption?
There is welcome recognition of corruption in the Critical Raw Materials Act proposal, yet the commission could significantly strengthen the provisions.
Article 5 of the regulation outlines sustainability criteria for any business that wishes to develop a strategic project, which are eligible for streamlined permitting and financing opportunities. Encouragingly, these criteria include “the use of transparent business practices with adequate compliance policies to prevent and minimise risks of adverse impacts on the proper functioning of public administration, including corruption and bribery”.
Yet the measures for assessing compliance with these criteria are worryingly weak. They rely overwhelmingly on third party certification schemes, many of which are of dubious quality, or compliance with draft due diligence legislation that fails to address corruption.
This language suggests that only unsavory characters in mineral-rich countries perpetrate corruption, ignoring the often-central role of extractives companies based in high-income jurisdictions, including the EU.
The commission recognizes “known sensitivities and challenges in extractive industries” and the need to support good governance capacity and transparent business practices in non-EU countries. But this language suggests that only unsavory characters in mineral-rich countries perpetrate corruption, ignoring the often-central role of extractives companies based in high-income jurisdictions, including the EU. Requiring companies across the minerals supply chain to undertake due diligence on governance impacts could help address this imbalance in the CRMA.
Germany's Olaf Scholz meets with Chile's Gabriel Boric. Photo by Bloomberg via Getty Images.
As drafted, the CRMA risks gliding over critical corruption risks. Much remains unclear. Will the previous poor conduct of companies be taken into account when making strategic project decisions? Who will monitor or legally enforce compliance with sustainability criteria? How will third parties effectively report alleged breaches of these criteria?
To strengthen sustainability measures in the EU’s critical raw materials policies, particularly around corruption, the European Parliament and Council should:
- Include robust due diligence provisions for environmental, social, and governance concerns in the Critical Raw Materials Act, with a particular focus on governance issues unaddressed in draft due diligence legislation.
- Take into account the previous conduct of companies as part of the decision-making process for strategic projects, to help ensure the integrity of EU funding.
- Develop ways to effectively monitor and enforce sustainability criteria, ensure that civil society actors can report sustainability breaches, and give oversight bodies the necessary powers and responsibility to take remedial action within a set time period.
Why does tackling corruption matter?
First and foremost, corrupt actors steal from societies to enrich themselves. Revenues from the extractives sector that should fund schools, healthcare and essential infrastructure instead line the pockets of corrupt leaders and dubious agents, helping to cement the rule of autocrats the world over before being frittered away on luxury property and superyachts.
Corruption is also an efficiency concern. NRGI research has identified that mining lead can be 2-3 years shorter in jurisdictions with better governance—years humanity can ill afford to waste as we approach climate tipping points. In Guinea, wrangling over alleged corruption has led to decades of delays to development of the world’s richest iron ore deposit. Similar delays regarding transition minerals could derail progress toward a low-carbon future.
Furthermore, corruption jeopardizes much-needed environmental and social safeguards around mining. Licensing approvals can run roughshod over community members’ wishes. Companies can cover up environmental damage, which officials ignore. These injustices can then be eased with a timely political donation, a subcontract granted to favored contacts, or straight-up bribes.
The mining industry has a long and inglorious history of such behavior and, in the rush to diversify away from China, European policymakers risk deepening longstanding inequalities rather than upending them, and enabling corrupt actors rather than holding them to account.
If Europe misses this crucial opportunity to tackle extractive-sector corruption it will have failed to learn from the past year’s energy upheaval, decades of mining industry exploitation, and the lessons of its own recent corruption scandal. Cleaner energy requires cleaner politics and cleaner business. To achieve this goal, the Critical Raw Materials Act will be critical indeed.
