Critical Raw Materials Act vital to meet supply-side problems in race to net zero

The world will not run out of critical raw materials but there will likely be severe supply side problems as demand increases during the energy transition, said experts at the inaugural Sirm 2024 Geneva Rendez-Vous in Switzerland.

At the event, hosted by Swiss risk management association Sirm, Ferma’s vice-president Valentina Paduano told delegates that the EU’s Critical Raw Materials Act is designed to help ramp up supply of key raw materials across Europe, and offers a risk-based approach that will see regulatory “evolution not revolution”.

She told the Swiss risk and insurance managers that the new rules are complex but promised members that Ferma will help guide them through the process and ensure they can take advantage of opportunities to step up and help their organisation.

Lluís Fontboté, professor emeritus of metallogeny at the University of Geneva, told the risk and insurance managers gathered for the first big Sirm event in the Romandie French-speaking region of Switzerland that the world is not running out of critical raw minerals. But he said there are going to be “probable” supply bottle-neck problems and risks down the line. This is because of ESG issues, the time gap between exploration, discovery and exploitation, price volatility and investment risk, said the professor.

He noted that the world will need an “unprecedented ramping up” of raw materials – which are used in items like solar panels, wind power equipment and electric batteries – to hit net-zero targets.

Fontboté said there are “big doubts” about whether it will be possible to hit these new production targets. In fact, he thinks that sufficient ramping up of production and therefore decarbonisation goals are unlikely “unless there are dramatic technology changes”, such as new types of batteries.

As S&P put it: “The surge in demand to meet net-zero emission by 2050 requires a near doubling of today’s global copper supply by 2035, an expansion that current exploration trends or projects in the feasibility stage of development are incapable of meeting.”

In a bid to help secure a sustainable and resilient supply chain for critical raw materials deemed indispensable for the green and digital transitions, the EU passed the Critical Raw Materials Act in March. The Act identifies 34 critical and 17 strategic raw materials crucial for various industrial sectors. These materials are fundamental to sustaining the EU’s research and investment ecosystem.

It introduces the following 2030 benchmarks for strategic raw materials.

• EU should provide at least 10% of the EU’s annual consumption from extraction.
• EU should provide at least 40% of the EU’s annual consumption from processing.
• EU should provide at least 15% of the EU’s annual consumption for recycling.
• No more than 65% of the EU’s annual consumption of each strategic raw material should come from a single third country.

Ferma’s Paduano said the rules are designed to ensure a secure and sustainable supply of critical raw materials for Europe’s industry. “Critical raw materials are needed for the green transition as well as for defence and space. They are needed to enhance the bloc’s long-term competitiveness and maintain its strategic autonomy in a fast-changing and increasingly challenging geopolitical environment,” she said.

The Act introduces four key requirements on companies. The first is stringent permit process deadlines for European extraction projects. The second is recognition of strategic projects. The third puts an emphasis on national exploration plans. And, perhaps most interestingly for risk managers, the fourth requirement introduces mandatory supply chain risk assessments.

The new rules will impact Swiss companies through supply chains and potential regulatory alignment. As such, Swiss risk managers are advised to closely monitor its implementation and assess potential impacts on their operations, supply chains and strategic planning.

Paduano stressed the importance of companies taking a risk-based approach to the new rules to help avoid a tick-box, compliance approach.

“All the new regulations that are coming at EU level are based on a risk management approach. This means that in order to avoid a tick-box compliance exercise, and to effectively add value to our companies, we need to approach this kind of requirement from a risk-based perspective,” said Paduano, who chairs Ferma sustainability committee.

And Ferma said it is vital that risk professionals, back by their European federation, spend time to work out how industry and the risk management profession should respond.

“These rules are complex. We are very aware of that. It is our job at Ferma to be close to our members to be able to together understand how we can comply with these requirements,” said Paduano.

“But the message from Ferma that we would like to give you above all is that the Critical Raw Material Act is an evolution not a revolution in approach to this important strategic topic. That is an important message for boards and European industrial policies,” she continued.

Adding: “We need to understand the kind of role we need to play as a risk managers in our organisations. As Ferma, we will continue to follow the evolution and try to give our network all the possible instructions and guidance to help risk managers do their job in this area and take advantage of the opportunities on the table,” continued Paduano.

The comments were made during a roundtable on raw materials and the risks around maintaining supply, hosted by Maurizio Micale, group vice-president of corporate insurance risk management at STMicroelectronics, at the Sirm 2024 Geneva Rendez-Vous.

Switzerland and Geneva are big commodity and raw material trading centres and distribution hubs, so this issue is of critical importance to its economy and risk managers.

Leandro Brandt, sales manager at Vale Base Metals, and prior insurance and risk manager at Vale International, and Florence Schuch, general secretary at commodity trading association Suisse Negoce, also spoke at the event.