Foreign direct investment in mining projects reduces the global supply risk of critical materials – Nature

Executive Summary

The global transition to clean energy, a cornerstone of Sustainable Development Goal 7 (Affordable and Clean Energy) and SDG 13 (Climate Action), is hampered by an over-reliance on lithium-ion batteries and the associated supply chain vulnerabilities of their critical materials. This report analyzes the role of Foreign Direct Investment (FDI) in diversifying the supply of materials essential for emerging, alternative energy storage technologies. The study focuses on natural graphite, manganese, sulfur, molybdenum, and vanadium, mapping their global production and assessing supply risks across 205 regions.

Key findings indicate that FDI is a significant factor in the global production of these materials, controlling 31.3% of manganese, 27% of natural graphite, and 29% of molybdenum in 2020. A proposed Supply Risk Index (SRI) reveals that FDI effectively reduces supply risks for investing nations by diversifying their sources of production. However, the report also highlights a persistent and high concentration of both material extraction and processing in a few dominant countries, posing a threat to the resilience of global supply chains. This analysis underscores the urgent need for strategic international partnerships, as outlined in SDG 17, to foster a more diversified, resilient, and sustainable supply chain that supports global economic growth (SDG 8) and responsible production patterns (SDG 12).

Introduction: Aligning Energy Storage with Sustainable Development Goals

The expansion of energy storage is fundamental to mitigating climate change and achieving a global clean energy transition. However, the current dependency on lithium-ion batteries creates significant supply chain vulnerabilities, impeding progress toward key Sustainable Development Goals. Diversifying energy storage technologies is crucial for building resilient infrastructure and promoting sustainable industrialization (SDG 9).

The Imperative for Diversified Energy Storage

To achieve SDG 7 (Affordable and Clean Energy) and SDG 13 (Climate Action), the global community must explore and adopt alternative energy storage solutions. Emerging technologies offer numerous advantages:

• Vanadium Redox Flow Batteries (VRFBs): Offer scalability and a long cycle life, ideal for large-scale grid storage.
• Lithium-Sulfur (Li-S) Batteries: Provide higher theoretical energy density using less expensive and more abundant materials.
• Manganese-ion and Molybdenum Aqueous Batteries: Reduce dependency on scarce and environmentally damaging materials like cobalt and nickel, contributing to SDG 12 (Responsible Consumption and Production).

These alternatives support the development of a more sustainable and less polluting energy sector, fostering innovation and enhancing the competitiveness of clean energy industries.

Critical Materials for a Sustainable Energy Future

The development of these emerging battery technologies requires a stable supply of specific critical materials. This report focuses on five such materials:

1. Natural Graphite
2. Manganese
3. Sulfur
4. Molybdenum
5. Vanadium

Ensuring the availability of these materials through sustainable and diversified supply chains is essential for scaling up next-generation energy storage and supporting the global transition to a low-carbon economy.

The Role of Foreign Direct Investment in Global Supply Chains

Foreign Direct Investment (FDI) in mining projects serves as a critical mechanism for achieving the SDGs by fostering international cooperation. It allows high-income countries to secure the materials needed for their clean energy transitions while enabling resource-rich, low- and middle-income countries to generate revenue and stimulate economic growth.

FDI as a Catalyst for SDG 17 (Partnerships for the Goals)

FDI represents a tangible form of partnership between nations. Investing countries can mitigate supply risks, while host countries benefit from capital infusion, technology transfer, and infrastructure development, which are vital for achieving SDG 8 (Decent Work and Economic Growth) and SDG 9 (Industry, Innovation, and Infrastructure). This study defines FDI as a foreign investor’s ownership stake in a mining project and examines its role in strengthening global supply chains.

Quantifying FDI’s Impact on Material Production

In 2020, FDI exerted significant control over the global production of critical materials for emerging batteries. The shares of global production controlled by foreign entities were:

• Manganese: 31.3%
• Molybdenum: 29.0%
• Vanadium: 27.3%
• Natural Graphite: 27.0%
• Sulfur: 14.0%

These figures demonstrate that international investment is already a key driver in the extraction of materials necessary for the clean energy transition.

Analysis of Global Production and Supply Risk

Geographic vs. Corporate Control of Critical Materials

The analysis reveals a high geographic concentration of material production. For instance, three countries account for nearly 80% of manganese production, and two countries produce 74% of the world’s vanadium. This concentration creates significant vulnerabilities in the supply chain.

When FDI is considered, the production controlled by corporate entities is slightly more diversified than the geographic distribution of mines. This indicates that FDI can serve as a tool to mitigate risks associated with geopolitical disruptions in a single region. However, the overall diversification remains limited, underscoring the need for more strategic investment to build the resilient infrastructure required by SDG 9.

The Supply Risk Index (SRI) and Its Implications for SDGs

This report proposes a Supply Risk Index (SRI) to quantify the vulnerability of nations to supply disruptions. The SRI confirms that countries with significant FDI in overseas mining projects face lower supply risks than countries that are heavily reliant on imports. By securing access to resources, FDI helps stabilize the supply chains essential for meeting the targets of SDG 7 and SDG 13. Conversely, nations without domestic production or FDI face high supply risks, which could impede their own clean energy transitions and economic development.

Concentration in Processing and Refining

A critical vulnerability exists in the mid-stream of the supply chain. China dominates the processing and refining of key materials, handling approximately 100% of natural graphite, 90% of manganese, and 70% of vanadium. This concentration means that global supply chains for emerging battery materials are highly susceptible to disruptions, posing a significant challenge to achieving sustainable industrialization (SDG 9) on a global scale.

Discussion: Towards a Resilient and Sustainable Supply Chain

The findings confirm that FDI plays a dual role: it is a vital tool for mitigating supply risks for investing nations and a driver of economic development for host nations. However, to fully align with the 2030 Agenda for Sustainable Development, FDI strategies must evolve to address the structural vulnerabilities in the current system.

FDI’s Role in Risk Mitigation and Sustainable Development

By allocating FDI-controlled production to the investor’s home country, supply chains become more resilient. This stability is crucial for the long-term investments required to scale up clean energy technologies. For host countries, FDI provides essential revenue, but frameworks must be established to prevent economic dependency and ensure that benefits contribute to inclusive and sustainable growth, in line with SDG 8.

Addressing Vulnerabilities for a Sustainable Future

The heavy concentration of mining and processing in a few countries is unsustainable. A recalibrated investment approach is needed to foster a more diversified global production base. Strategic FDI can be directed to under-explored regions and materials, enhancing supply chain resilience. Furthermore, these investments must be coupled with stringent standards for environmental protection and social responsibility to promote SDG 12 (Responsible Consumption and Production) and prevent the negative impacts often associated with extractive industries.

Policy Recommendations for Achieving the Sustainable Development Goals

To address global supply risks and promote material diversification, this report proposes several policy initiatives rooted in the principles of the Sustainable Development Goals:

• Strengthen Global Partnerships (SDG 17): Develop and reinforce international agreements that govern FDI in the mining sector. These frameworks should ensure fair benefit-sharing, promote technology transfer, and transform dependencies into long-term partnerships for resource security and sustainable growth.
• Promote Responsible Production (SDG 12): Resource-rich countries should create policy environments—including tax incentives and streamlined regulations—that attract FDI into projects adhering to the highest environmental and social standards. Investing countries should prioritize partners who commit to responsible mining practices.
• Enhance Supply Chain Resilience (SDG 9): Governments and international bodies should actively promote FDI in diversifying not only mining but also the processing and refining stages of the supply chain. This will reduce global dependence on a single country and build more robust industrial ecosystems.
• Foster Innovation and a Circular Economy (SDG 9 & 12): Increase public and private investment in research and development for alternative battery technologies and advanced recycling initiatives. A circular economy approach will reduce reliance on primary raw materials, minimize environmental impact, and create new economic opportunities.

Analysis of Sustainable Development Goals in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

1. SDG 7: Affordable and Clean Energy

   The article is fundamentally about securing the materials needed for the clean energy transition. It explicitly states, “Expanding energy storage is essential for the clean energy transition and climate change mitigation.” The focus on materials for emerging battery technologies like vanadium redox flow batteries and lithium-sulfur batteries directly supports the infrastructure required for widespread adoption of renewable energy sources.

2. SDG 8: Decent Work and Economic Growth

   The article discusses the economic implications of Foreign Direct Investment (FDI) in the mining sector. It notes that FDI can stimulate “economic growth, accelerating technology transfer, fostering innovation, strengthening manufacturing capabilities,” and that low- and middle-income countries view FDI as a “vital source of revenue to address economic vulnerabilities.” This highlights the connection between resource extraction for clean energy and economic development.

3. SDG 9: Industry, Innovation, and Infrastructure

   The development and scaling of “emerging battery technologies” is a core theme, directly linking to industrial innovation. The article analyzes the entire supply chain, from mining and extraction to processing and manufacturing, which are key components of industrial infrastructure. It emphasizes how FDI can strengthen “manufacturing capabilities in battery production” and support the “development of localized manufacturing capacities.”

4. SDG 12: Responsible Consumption and Production

   The article addresses the sustainable management of natural resources by analyzing the supply risks and geographic concentration of critical materials like manganese, graphite, and vanadium. It implicitly calls for more sustainable and diversified production patterns to avoid over-reliance on a few sources. The discussion on reducing dependency on “environmentally damaging materials such as cobalt and nickel” also aligns with this goal.

5. SDG 13: Climate Action

   The primary motivation for developing alternative energy storage, as stated in the introduction, is “climate change mitigation.” By analyzing the supply chains for materials essential to these technologies, the article addresses a critical bottleneck in the global effort to transition away from fossil fuels and combat climate change.

6. SDG 17: Partnerships for the Goals

   The entire analysis revolves around global partnerships, specifically through Foreign Direct Investment (FDI). The article examines how international investment flows between high-income and low- and middle-income countries shape the global supply chain. It highlights how FDI serves as a mechanism for “cooperation between host and investing countries” and is used to “strengthen bilateral partnerships with international stakeholders.”

2. What specific targets under those SDGs can be identified based on the article’s content?

• Under SDG 7 (Affordable and Clean Energy)

  • Target 7.2: By 2030, increase substantially the share of renewable energy in the global energy mix. The article supports this target by focusing on energy storage solutions, which are critical for stabilizing grids that rely on intermittent renewable sources.
  • Target 7.a: By 2030, enhance international cooperation to facilitate access to clean energy research and technology… and promote investment in energy infrastructure and clean energy technology. The article’s central theme of using FDI to develop mining projects for battery materials is a direct example of promoting investment in clean energy infrastructure.

• Under SDG 8 (Decent Work and Economic Growth)

  • Target 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading and innovation. The article discusses how FDI can lead to “technology transfer” and “fostering innovation” in host countries, contributing to economic productivity.

• Under SDG 9 (Industry, Innovation, and Infrastructure)

  • Target 9.2: Promote inclusive and sustainable industrialization and, by 2030, significantly raise industry’s share of employment and gross domestic product. The article mentions the potential for FDI to support the “development of localized manufacturing capacities,” which is a key aspect of industrialization.
  • Target 9.4: By 2030, upgrade infrastructure and retrofit industries to make them sustainable, with increased resource-use efficiency and greater adoption of clean and environmentally sound technologies and industrial processes. The focus on “emerging battery technologies” as alternatives to lithium-ion represents a move towards adopting cleaner and potentially more sustainable industrial processes.

• Under SDG 12 (Responsible Consumption and Production)

  • Target 12.2: By 2030, achieve the sustainable management and efficient use of natural resources. The article’s analysis of supply risks and production concentration of critical minerals is directly related to the sustainable management of these finite natural resources.

• Under SDG 17 (Partnerships for the Goals)

  • Target 17.3: Mobilize additional financial resources for developing countries from multiple sources. The article defines FDI as a “foreign investor’s ownership stake in a mining project” and analyzes its role, which is a clear example of mobilizing financial resources.
  • Target 17.7: Promote the development, transfer, dissemination and diffusion of environmentally sound technologies to developing countries on favourable terms. The article notes that FDI can accelerate “technology transfer” related to mining and material processing.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

Yes, the article proposes and utilizes several specific indicators to measure supply risks and the impact of FDI:

1. Supply Risk Index (SRI): This is a composite index proposed by the authors to “quantify supply risks of each material.” It is calculated as a weighted sum of three sub-indicators, making it a comprehensive tool for measuring supply chain vulnerability.
2. Material Import Dependency (MID): A sub-indicator of the SRI, it “quantifies a country’s dependence on overseas critical material supplies.” This directly measures a nation’s exposure to global supply chain disruptions.
3. Likelihood of Supply Disruptions (LSD): Another sub-indicator of the SRI, it “assesses geopolitical risks affecting the critical materials supply from one country to another” by integrating World Governance Indicators.
4. Share of Country Imports in Global Total Imports (SIG): The third sub-indicator of the SRI, it “evaluates the proportion of a country’s imports relative to total global imports,” indicating vulnerability.
5. Percentage of Global Production Controlled by FDI: The article provides explicit figures for this, such as “FDI controlled 31.3% of manganese, 27% of natural graphite, 29% of molybdenum, 27.3% of vanadium, and 14% of sulfur.” This can be used to track progress on Target 17.3 (mobilizing financial resources).
6. Herfindahl–Hirschman Index (HHI): The article uses the HHI to “quantify production concentration” from both geographic and corporate perspectives. This indicator measures market diversification and can be used to assess progress towards building more resilient supply chains (SDG 9 and 12).
7. Geographic Concentration of Production/Processing: The article repeatedly uses percentages to show the dominance of a few countries in mining and refining (e.g., “China processes 100% of global natural graphite”). This data serves as a direct indicator of supply chain risk and the need for diversification.

4. Create a table with three columns titled ‘SDGs, Targets and Indicators” to present the findings from analyzing the article.

Source: nature.com