Why asset owners should have a seat at the IEA’s Critical Minerals Summit

Ensuring the security of supply is deeply entrenched in the ethos of the International Energy Agency (IEA). It was set up in 1974 in response to the now infamous oil embargo by major producers which sparked the 1973 oil crisis. It's aim was to establish multilateral cooperation amidst an intense and asymmetrical power relation between producers and consumers.

Over the years, the IEA has expanded the scope of its advice and the focus of its summits. In 2022, member states agreed that it was time to put the spotlight on critical minerals. It is now part of the agency’s mandate.

Come September, the mandate will be put on full display. Under the aegis of its Turkish commander-in-chief, Dr.Fateh Birol, the IEA is set to host the world’s first critical minerals summit.

The Summit

The IEA’s Critical Minerals and Clean Energy Summit is scheduled for 28 September 2023 in Paris. The French capital, the IEA’s home turf, is a common sight to those attending high-level dialogues on energy security.

A preliminary list of participants has been released, which serves as a reminder of the weight of the summit. Mining ministers from Chile and Indonesia will be in attendance. So too will the top executives of large commodity and mining companies – BHP, Rio Tinto, Glencore, Korea Zinc, Rare Earths Norway, Umicore and Talon Metals.

A few financial market participants have accepted the invite: Mohamed Kallala, global head of corporate and investment banking at Natixis is expected to be in attendance. As is Jonathan Hacket, head of sustainable finance at BMO Capital Markets.

This raises the question whether asset owners should also be in attendance. 

Politicised capital allocation

What happens in Paris this September will matter for those who allocate large sums of money.

Critical mineral such as cobalt, lithium and nickel have supply chains that are prone to political interventions. Those who dominate choke points in supply, wield political power over those who do not – an incentive large enough for the weaponization of supply chains to become a real possibility.

The consequence of this is that governments are increasing not only their support but also their scrutiny over those who invest in critical mineral supply chains.

In 2022, Canada ordered three Chinese companies to divest stakes in lithium developers. All of which, were minority stakes. More interestingly, Chinese capital injection in Canadian resources is not new. Data suggests that 27 of Canada’s largest miners have Chinese entities listed as major shareholders.

The Canadian decision comes at a time of “friend shoring” – a buzzword that captures the tendency of putting ownership of assets under the scanner. Investments from allies are encouraged and exposure to capital from countries with misaligned interests are likely to be blocked. Telling the difference, is far from simple.

Such trends, which will undoubtedly dominate critical minerals regulation, set the stage for a messy interaction between asset prices and geopolitical risk.

History suggests that asset prices are far from immune to geopolitical power plays.

A study by BlackRock, the asset management company, found that trade tensions motivated by geopolitics tend to introduce volatility in prices across equities, debt and currency markets.

Researchers from the Australian National University found that geopolitical uncertainty of the kind critical mineral industries face, increases investor risk aversion – which then affects demand for certain assets.

The Voice of Capital

If the goal of the IEA summit is to produce consensus with broad buy-ins from stakeholders, then investors’ input seems critical to the process.

“Investors bring a unique voice and perspective to the policymaking process, both directly in their own right and in terms of the levers they have over companies and their own lobbying practices”, says the Investor Agenda, an investor coalition.

For asset owners, the prospect of systemic risks emerging from policy outcomes in critical minerals increases the returns associated with spending political capital.

In Australia for instance, asset owners have signed up to a stewardship code that encourages policy advocacy on these grounds.

“Where asset owners have concerns regarding systemic, industry-wide policies they can encourage policy makers to better align the operation of the financial system and regulatory policy with the interests of long-term investors”, says the Australian Asset Owner stewardship code.

Across the world, several regulatory interventions that are underpinned by multilateral cooperation have already benefitted from investor expertise – disclosures, carbon trading and standards are epitomes of that process.

The security of supply in critical minerals is a systemic problem and risk, which involves and affects the asset owner community.

Given asset owners’ experience with not only engagement at mining companies but also policy advocacy at the highest levels, their presence in Paris this September seems imperative.