Full Title: Thematic Bonds Can Help Increase Investment in Responsible Mining of Critical Minerals
Author(s): Gautam Jain, Tom Moerenhout, and Preetha Jenarthan
Publisher(s): Center on Global Energy Policy at Columbia University SIPA
Publication Date: September 23, 2024
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Description (excerpt):
Without an increase in the supply of critical minerals, there is no pathway to meet the Paris Agreement’s 1.5°C temperature rise limit, as they are essential components of many clean energy technologies ranging from solar panels to wind turbines to electric vehicles and storage batteries. A key challenge to increasing supply to meet expected demand growth from the energy transition has been an underinvestment in the mining and exploration of critical minerals over many years. Elevated price volatility of critical minerals in combination with the long lead times of mining projects is a headwind to new investments, as are potential reputational risks from the negative environmental and social impacts of the mining industry.
One option to help bridge some of the investment gap in critical minerals mining by providing long-term stable financing while encouraging responsible mining is thematic bonds, a relatively new and thriving asset class that has proven useful for funding projects based on specific investment themes such as mitigating the impacts of climate change and meeting sustainable development goals.
This commentary explains the need for more consistent investments in critical minerals and evaluates how mining companies have used thematic bonds so far. It then discusses opportunities for expanding issuance of these bonds and suggests new features that could be added to further align them with investor interests while helping solidify the long-term viability of the critical minerals mining industry. The authors find that there is a significant potential for thematic bonds to help expand investments in the responsible mining of critical minerals for the energy transition.