Corruption in critical minerals puts the energy transition at risk

15 February 2022

Transparency International’s Accountable Mining Programme raises the alarm on how corruption in mining of critical minerals threatens to derail the energy transition unless urgent action is taken.

This blog is a transcript from a presentation by our Research and Policy Manager at a webinar co-hosted with NRGI and EITI. Watch the recording here.

Let’s start by looking at some key facts that show just how significant the boom in energy transition minerals could be.

Renewable energy technologies need minerals and metals. In fact, they use more minerals and metals than old-school dirty carbon-intensive power generation.

If countries are to achieve their international pledges to reduce their carbon emissions – and keep global temperature rises within safe limits – we require a mass deployment of clean energy technologies- wind, solar, batteries and more. And that means a significant growth in demand for the minerals and metals that those renewable energy technologies are made out of.

But where do these minerals and metals come from?

Adapted from IEA (2021) The Role of Critical Minerals in Clean Energy Transitions. All rights reserved

What has us at Transparency International’s Accountable Mining Programme so concerned is that many of these minerals are located in countries that have high levels of corruption, weak governance and governments that do not or cannot protect human rights.

Source: Based on Church and Crawford (2020) Minerals and the Metals for the Energy Transition using the Transparency International 2017 Corruption Perceptions Index.

So, we’re going to see more mining projects started in these high-risk countries. And this has us worried. We’re worried because decision-making processes about mining are already vulnerable to corruption – and the boom in critical minerals could make those problems worse.

Licensing for mining projects is already vulnerable to corruption.

And it’s not just because of traditional, ‘corrupt’ jurisdictions that we should have cause for concern. In Transparency International’s Accountable Mining Programme, we’ve been working with Transparency International Chapters in over twenty countries to study the weaknesses in the licensing process – that is in government decision-making about whether or not a mining project goes ahead. We pinpointed where and how those weaknesses open the door to corruption.

What we found was concerning. We found that regardless of how established the mining sector was or how well the country performed in corruption rankings, every jurisdiction we assessed was vulnerable to corruption in some way.

Corruption is a cause for concern because there is so much at stake.

Corrupt mining deals can result in a loss of revenue for producer countries as corrupt politicians and businesspeople siphon off money and award contracts to benefit themselves – robbing citizens of funds that should be there to benefit everyone.

And not only that – corruption is not a victimless crime. Companies that secure their rights to mine through corruption are very unlikely to be responsible mining companies that respect human rights and operate with high levels of integrity.

Corruption in the licensing process can result in women and men in communities being displaced from their land, potentially losing access to key sources of livelihood and sites of cultural heritage. And we know from our research that women will often suffer disproportionately.

So, if we don’t take steps to deal with the weaknesses in the licensing process and make it more transparent, accountable and resilient to corruption, then we are putting people and the planet and the whole prospect of a just and people-centred energy transition in jeopardy.

The energy transition is likely to exacerbate corruption risks.

There are three reasons why we are likely to see an increase in corruption risks in relation to critical minerals.

Firstly, the energy transition is a significant opportunity for industry to make money.

And with the prospect of lucrative projects comes a greater willingness to take on higher risks – including integrity and corruption risks. The reports about the flurry of deal-making in the lobbies of luxury hotels in countries with reserves of critical minerals are perhaps a taste of what is to come.

We’re seeing more mining companies willing to operate in jurisdictions that were previously ‘too risky’. With exploration to scout out promising new projects being key, we will also be seeing more junior miners – smaller and usually less risk-averse companies – move into critical mineral producer countries. And we are also seeing consumer companies like electric vehicle manufacturers moving into mining because of pressure to ensure that their minerals are responsibly sourced.
So, what does this mean for corruption risks? It means more companies entering the field that may not be experienced when it comes to managing corruption risks, or that do not have adequate internal safeguards and systems in place, or that simply do not care about corruption. That is naturally going to increase the corruption risks and the chance that the weaknesses in the licensing process will be exploited.

Secondly, the critical minerals boom is seeing greater state participation.

The energy transition is an opportunity for governments to increase investment and raise important revenue that could be incredibly beneficial for the citizens of that country. However, the increased flows of investment also mean higher corruption risks.

There’s concern about a potential ‘race to the bottom’ in regulatory standards to attract investment – by fast-tracking the licensing process, giving decision-makers sweeping approval powers, or making it easier for companies to be granted a licence by limiting opportunities for public participation and scrutiny. All of this has negative implications for accountability and increases corruption risks.
Risks related to local content requirements is another area to keep an eye on. Governments are increasingly starting to require foreign mining companies to partner with local suppliers, or domestic processors/refineries, or even for part local ownership of the mine. On the one hand, this could be a fantastic opportunity for broader economic development in the country. However, it can be a problem when decision-makers have a conflict of interest and put pressure on mining companies to partner with a favoured local company that has political connections or family ties in exchange for the mining licence.
Greater involvement of state-owned enterprises also increases the well-documented risks related to SOE officials including misappropriation of funds, bribery, and deal-making that favours individuals with political connections.

Finally, increased demand puts pressure on already stretched institutions.

Increased workload for under-resourced government departments means increased risks of bribery as companies seek to speed up or overcome delays in the licensing process, ‘outbid’ their competitors for priority access, or get away with fraudulent statements about their qualifications or misleading impact assessments.

Also, energy transition minerals and metals are often located in socially and environmentally sensitive areas. Corruption in decisions about these projects means greater impacts on communities and the environment, as well as increased corruption risks in company engagement and negotiations with communities about land access and acquisition and free, prior and informed consent (FPIC).

We need to take action now

The corruption risks in licensing for mining projects are well documented, real and serious.

We must double down on our efforts to strengthen transparency and accountability in the licensing process so that the energy transition doesn’t come at the cost of the citizens, local communities, First Nations People and precious, fragile ecosystems in producer countries.

Transparency International’s Accountable Mining Programme is working with our partners to call for targeted actions to tackle the corrupt influence of fossil fuel vested interests, and to keep corruption out of approval decisions for mining critical minerals – this is what a just and people-centred energy transition requires.

Photo by Jason Blackeye on Unsplash

Lisa Caripis
About the Author

Lisa is the Research and Policy Manager for the Accountable Mining Programme.