The growth of the cleantech industry seems resilient from an economic perspective. For it to maintain its social license-to-operate, however, it will also need to formulate answers to the environmental and social challenges throughout its value chains.

Man-made greenhouse gas emissions have had a significant impact on planet Earth’s climate systems. In order to mitigate the climate change that has already started to have adverse impacts, including extreme weather events, droughts, floods and sea-level rise, the economy needs to be ‘decarbonized’. For global warming to remain manageable, i.e. keeping the average rise in temperature well below two degrees Celsius compared to pre-industrial times, it is commonly accepted that we need to achieve a net-zero[1] carbon economy globally by 2050.

The cleantech industry, providing renewable energy generation equipment and technologies that help improve carbon efficiency and mitigate environmental damage, has been presented as part of the solution. Despite the inclination of many stakeholders to still favor fossil-fuel-based industries, the business case for and the hype around cleantech is only growing.

Mitigating climate change without jeopardizing other SDGs

Promising as it sounds, however, cleantech is not free from serious challenges. Before declaring the industry a shoo-in solution, the process behind the products, as well as the whole product lifecycle – not just the use stage – should be scrutinized through a sustainability lens. For cleantech to be a holistically constructive response to climate change, it should not jeopardize other Sustainable Development Goals (SDGs). The environment and human rights in the entire cleantech value chain must be safeguarded to ensure a truly sustainable and just transition. As cleantech grows in scale, it is all the more important to manage working conditions as well as any strain on the environment and local communities in the vicinity of mines, factories, energy generation sites and waste management operations that underpin the sector.

Opaque metal supply chains

For cleantech equipment manufacturers to manage the environmental and social risks in their supply chains, they first need to acknowledge the many interdependencies. Cleantech requires many metals that can really only be produced in combination with other metals. For example, cobalt and gold are often only by-products of large-scale copper mining. ‘Rare earth’ metals also tend to be by-products of mines that produce much larger volumes of other metals. This creates dependencies on additional supply chains and large volumes of metals that cannot all be used in cleantech.

Furthermore, the supply of metals needed in cleantech is hardly keeping up with the increasing demand. The development of new mines takes many years. Longer-term purchasing arrangements might not only help to hedge against the significant price volatility of many metals but also offer opportunities for manufacturers to use their leverage as customers to enforce more responsible mining practices.

A sustainable value chain supporting a sustainable product

Just like any industry, cleantech needs to secure its long-term social license to operate in order to reach its full potential[2]. Any cleantech equipment manufacturer should aim to improve the sustainability of the processes needed to deliver its intrinsically sustainable products.

For the transition to a low-carbon economy to be ‘just’, there is a broad spectrum of labor rights to be managed proactively. Special attention is essential particularly for raw materials or components produced in countries where labor rights of employees are not properly protected[3]. This is not limited to avoiding or addressing the causes of child and forced labor, but also requires a healthy and safe working environment, freedom of association and collective bargaining, and job security and living wages.

It is also important to respect the rights of communities, including indigenous peoples, who often find themselves adversely impacted by industrial development taking place in their territories. For instance, lithium mining is very water-intensive and can easily compromise the land rights and access to water of local communities that do not directly benefit from the economic growth. Another example could be a parent working in a cobalt mine having a causal relation to birth defects in babies[4]. Problems can also arise if wind turbines are installed in a location with unresolved land disputes.

Closing the loop

At the other end of the product lifecycle, first-generation wind turbines are now reaching the end of their economic life and solutions need to be developed to recycle not just the steel but also the electric components and composite rotor blades. As long as there is still waste being landfilled or incinerated, there are opportunities to improve the product’s design. In contrast to wind turbines, not as many photovoltaic solar panels and electric vehicles are reaching the end of their economic life yet. The volumes will first need to increase before business models for recycling can really be scaled up. In the meantime, equipment manufacturers can also work on the design to improve recyclability.

Overall, the low-carbon economy is not going to be completely sustainable without parallel efforts towards circularity. This requires the elimination of waste in every stage of the value chain. Fossil-fuel based technologies need to be replaced and the low-carbon substitutes will simultaneously need to become more resource-efficient.

Supporting the investment case with engagement

Different stakeholders need to work together on making the transition to clean technology mutually beneficial. Besides re-directing investment from fossil fuels to renewable energies, investors can play an important role through active ownership, and there is good momentum for institutional investors to communicate their expectations of holistic sustainability to the cleantech companies in their portfolios. Sustainalytics’ new Responsible Cleantech engagement theme addresses this nexus, aiming to ensure that the underlying processes are aligned with the sustainability and SDG credentials of cleantech investments and products.

This blog post is a reflection on a webinar which Sustainalytics organized on 3 June 2020, with contributions from Benjamin Sprenger, Assistant Professor at Leiden University and Allan K. Poulsen, Cluster Lead Sustainability and Advanced Materials at Vestas.

To find out more information regarding Sustainalytics’ Responsible Cleantech Thematic Engagement or its wider Engagement Services, please visit our website here or contact us here.

Sources:

[1] The term ‘net-zero’ is meant to signal that any man-made greenhouse emissions that cannot be abated would need to be offset by additional measures such as carbon capture in natural sinks or with technological solutions.
[2] See more on potential human rights impacts related to renewable energy: https://www.business-humanrights.org/sites/default/files/Renewable%20Energy%20Investor%20Briefing_0.pdf
[3] See the example of impacts specific for wind turbine production: https://www.somo.nl/wp-content/uploads/2018/01/Final-ActionAid_Report-Human-Rights-in-Wind-Turbine-Supply-Chains.pdf
[4] https://www.theguardian.com/global-development/2020/may/06/pollution-causing-birth-defects-in-children-of-drc-cobalt-miners-study#:~:text=It%20found%20that%20the%20risk,polluted%20areas%20in%20the%20world.