CRU boss Rebecca Gordon: ‘Net zero will force investors to understand new commodity supply chains’

'Net zero’ and ‘the energy transition’ are now embedded in the everyday language of asset owners, managers and corporates. 

But the green investment community is much less focused on a shift that some argue is equally important in the journey to net zero: the materials transition.

Investors have traditionally focused on a narrow selection of commodities to meet economic needs, such as iron, copper, lead, zinc and more recently aluminium. 

However, rapidly evolving and expanding technologies, paired with an unstoppable appetite for sustainability, require corporates and thus investors to explore more exotic parts of the periodic table, such as ethically sourced cobalt or relying on Russian nickel.

The near future will force investors and corporates understanding new commodity supply chains and starting to answer some very fundamental questions about how to support global economic development with some very smart technology and commodity-based solutions, according to investment veteran Rebecca Gordon.

To understand this complex ecosystem, and why net zero-minded investors should pay attention, this publication sat down with Gordon, since 2019 the CEO of City of London-based CRU Consulting, a global commodities business intelligence firm, to discuss the transition, its impact on supply chains and what this means for the net zero agenda.

Some in the net zero community urge investors to pay much more attention to the materials transition. Do you agree?

We have thought, and also begun to invest, our way through ‘net zero’ and ‘the energy transition’, but the changes that we are initiating in the energy mix are not easy or simple. The changes must be enabled by massive investment in both equipment and infrastructure, both of which will themselves consume both materials and energy. The argument is that there now needs to be considerable thought given to the source of the materials and energy that will be needed to build that equipment and infrastructure. 

Can you elaborate on that?

Yes, if we suddenly require unprecedented volumes of solar silicon for manufacturing solar cells, rare earth elements for magnets, lithium for energy storage, copper for electrical wiring etc- new or expanded mines need to be permitted, financed, built and operated before the materials are available and the new infrastructure can be installed.

So what will the impact of the materials transition be on supply chains?

Supply chains are facing a range of pressures at the moment, not just from the materials transition. Actual supply availability is being monitored more closely by all consumers. Geopolitical tensions such as those between the West and China and Russia, and major subsidy changes like the Inflation Reduction Act in the US have changed the economics and appetite for investments by location.

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Companies looking for more control of their supply chains and more transparency around where their materials are coming from, including the embedded carbon in those materials. This can be seen in downstream players taking a keen interest in miners and either taking ownership stakes or signing long term offtake agreements to ensure future known supply. With location and control being increasingly important it is not always the lowest cost mines that are being developed.

There are also completely new supply chains that are needed. Quartz for silicon, vanadium, nickel chemicals, rare earth metals are all examples where the new volumes of materials required greatly exceed installed capacity. High purity alumina, graphite and the consumables for existing production methods such as graphite electrodes for EAF furnaces are all less well-known examples, where imbalance has led to recent price spikes and new market entrants.

Thinking specifically about energy storage we have a wide variety of possible battery compositions and other energy storage mechanisms, such as pumped hydro, that will be used in combination to meet the new demand. We will move from lead acid and lithium-ion batteries to a broad array of solutions including vanadium reflow, sodium ion, lithium iron phosphate, sulphur etc. drawing on a mix of materials and minimising potential bottlenecks in supply.

What does this mean for the net zero investment agenda?

To meet the goals put in place by the net zero agenda, it means starting to answer some very fundamental questions about how to support global economic development with some very smart technology and commodity-based solutions. It also means that it is not simply the case that we “turn the production taps” further open and all the materials the world needs will suddenly be available.

For example, as the net zero investment agenda drives the move away from the binary road transport world of petrol vs diesel power, think of fossil fuels and lead batteries, to a world of hybrids, hydrogen fuel cells, various evolving lithium chemistry batteries, potential new chemistries involving sodium, lithium metals, silicon etc; entire new supply chains from mining, processing, refining, manufacturing and assembling will require both financing and ramping up.

Corporates moan about the challenges of ethically sourcing cobalt or relying on Russian nickel. What does this mean for the market?

It means they will need to demand increased transparency around their purchases and, in some cases, invest or incentivise investments in new production assets, which may be higher cost than their current providers. The short-term net zero future will see us understanding new commodity supply chains and starting to answer some very fundamental questions about how to support global economic development with some very smart technology and commodity-based solutions.

How can asset owners and investors make sense of this emerging transition?

Investors are currently using disparate datasets and methodologies and trying to compare conclusions when trying to make sense of this emerging transition. It is becoming increasingly necessary to work with reputable and consistent data, otherwise decisions are made in the dark. However, in sustainability especially, the characteristics of good data are nuanced and numerous. Good data has to simplify and standardise a chaotic real-world.

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