The rising demand for critical minerals
Critical minerals such as lithium, cobalt, nickel, and rare earth minerals are essential in today’s rapidly expanding clean energy technologies—from wind turbines and electricity networks to electric vehicles. The global transition towards clean and green energy has significantly increased the demand for critical minerals. These minerals are essential for manufacturing electric vehicle (EV) batteries, renewable energy infrastructure, and grid storage solutions. According to the International Energy Agency, meeting net-zero emissions targets by 2050 will require six times more mineral inputs than today.
Lithium demand alone is expected to grow by over 40 times by 2040 due to the rise of EVs and battery storage, while demand for cobalt and nickel is set to increase by over 20 times. Additionally, recently there is increased emphasis on the critical role of rare earth elements in the global transition to clean energy, noting that demand for these materials is expected to surge in the coming decades. India alone will need eight times more lithium and twice the nickel by 2040 to meet its clean energy transition goals.
Financing responsible mining: key challenges
Financing responsible mining presents significant challenges due to substantial financial commitments and risks involved. Ensuring sustainability while maintaining economic viability requires addressing several challenges like:
- High investment costs– Mining projects require billions in upfront capital with long payback periods. The Oyu Tolgoi copper-gold mine in Mongolia saw costs surge to US $7 billion due to delays and infrastructure challenges
- Regulatory & ESG compliance– Stricter environmental and social regulations increase financial burdens; failure leads to project cancellations. Serbia initially halted Rio Tinto’s US $2.4 billion Jadar lithium project in 2022 due to environmental concerns. However, in mid-2024, Serbia revived the project after securing new environmental guarantees from Rio Tinto and support from the European Union
- Geopolitical & supply chain risks – Resource nationalism and global trade disruptions create financial uncertainty. For instance, Indonesia banned nickel ore exports in 2020 to boost its domestic refining industry, disrupting global supply chains and leading to price surges. Very recently, it has announced plans to cut nickel production to stabilise prices, highlighting how government policies shape global mineral markets
Strategic solution for deployment of critical minerals
In the face of significant financing challenges, the need for innovative funding strategies has never been more urgent. As countries and companies strive to secure sustainable and resilient critical mineral supply chains, it becomes imperative to explore and leverage diverse financing mechanisms.
- Thematic bonds – Since the first issuance in 2007, green bonds have grown rapidly. According to Bloomberg, bonds worth US $4.5 trillion have been issued until the first quarter of 2024, within which the mining industry contribute a small share of US $12.5 billion to it. The expansion of green bond issuance can be instrumental for the mining industry as it would stimulate the transition by lowering the social and environmental impacts. This will also open access to enhance the reputation and improve the credibility of mining companies, leading to a stronger commitment to their business models. Additionally, it would also allow companies to access new investors with sustainability mandates, especially given the rapid growth of funds focused on ESG factors in recent years
- Private equity and venture capital – Private equity funds and venture capital firms have increasingly begun investing in critical mineral projects, especially in the early stages. The critical minerals sector offers substantial growth opportunities due to the rising global demand for clean energy transition and the relatively limited supply of these minerals. In 2023, US $4.2 billion (3.1%) of US $156.6 billion in global real assets capital was allocated to metals and mining- the second largest share since 2008. In 2023, Kinterra Capital raised US $565 million for its first fund focused on critical minerals like lithium, cobalt, and nickel. These investments are boosting mining, refining, and processing projects in the US, Canada, and Australia, reducing reliance on China for EV battery-chemical production
- Grants, subsidies, and incentives– Any kind of grants, subsidies, and incentives reduce the financial risks and foster the development of domestic supply chains. For instance, India’s National Critical Mineral Mission aims to boost domestic production, reduce import dependence, and promote offshore mining through targeted policy incentives, including the country’s first offshore mineral auction in 75 years. Similarly, Canada’s Strategic Innovation Fund allocated US $1.5 billion in 2022 in critical mineral manufacturing, processing, and recycling driving R&D technology transfer and large-scale investments
- Green and sustainability-linked loans – As commercial banks are increasingly shifting away from financing traditional oil and gas projects, green loans and sustainability-linked loans have emerged as attractive financing tools for critical minerals. The Export-Import Bank of the United States (EXIM) supports mining and energy projects by mitigating technical, legal, and financial risks to support the mining and energy sector—from mines to gigafactories—both in the U.S. and abroad. EXIM’s China and Transformational Exports Program (CTEP) also strengthens U.S. leadership in critical minerals and advanced energy technologies by ensuring a secure and sustainable supply chain facilitating large-scale investments
- Public-private partnerships – The mineral industry can use public-private partnerships as a strategic tool to mobilise capital, share risks, and drive sustainable resource development. For instance, Chile mandates that all new lithium projects operate as PPPs, with the government holding a majority stake to maintain national control while leveraging private sector expertise. France’s 2030 investment initiative also allocates EUR 500 million in public support for critical minerals, with 50% as loans and grants, and 50% through a dedicated public-private equity fund to enhance domestic supply chains
Additional strategies for investment in critical minerals
- Blended finance: An effective strategy to de-risk investments in critical minerals by combining public, private, and philanthropic capital. It enables the scaling of sustainable mining, processing, and recycling while ensuring financial viability. The European Investment Bank has deployed blended finance instruments to support European lithium and battery projects and the IFC has collaborated with other Development Finance Institutions (DFIs) to provide blended concessional finance for private sector projects, including those in the mining sector to mobilise private investment by mitigating risks associated with large-scale mining operations
- Sovereign wealth funds: Governments can potentially channelise national wealth into critical mineral projects through sovereign wealth funds to ensure long-term resource security. Norway’s Government Pension Fund Global (GPFG) is an excellent example of a fully owned fund by the government used to reinvest oil and gas revenues into diversified assets, ensuring national stability
To ensure a sustainable critical mineral boom, governments and industries must prioritise responsible mining, robust financing mechanisms, and resilient supply chains. Strengthening public-private partnerships, leveraging green finance, and enhancing ESG compliance will be key to securing long-term investments. Additionally, innovation in recycling and alternative materials can reduce dependency on raw mineral extraction.
Bibliography
https://www.iisd.org/system/files/2025-02/india-critical-energy-transition-minerals-volume-1.pdf
https://www.wfw.com/articles/financing-mining-minerals-rising-to-the-challenge-set-by-cop28/
https://www.nature.com/articles/d41586-023-02330-0
https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions