Written evidence submitted by the FCDO (MIN0049)

Introduction

Critical minerals – by definition – are those minerals most important to a country’s economy and whose supply chains are most at risk. They are important to a wide range of technologies including electric vehicle batteries and motors, wind turbine generators, solar panels, semiconductor chips, sensors, aerospace and defence alloys, and many more.

Resilient critical mineral supply chains are vital to realise the UK’s national priorities in safeguarding UK industries and the growth, wealth and jobs they create, supporting our clean energy transition and protecting national security. Secure access to critical minerals is required to deliver the UK’s Net Zero Strategy, the Government’s Ten Point Plan for a green industrial revolution, and the objectives in the Integrated Review, among others.

We will not achieve net zero by 2050 without securing access to the critical minerals that will be required for the clean energy technologies that will deliver net zero ambitions, yet the issues we are facing are global and cannot be resolved through taking unilateral action alone.

We need to ensure mineral supply chains are diversified and sustainable, minerals are accessible, and that we work together to ensure liberal markets that work for all. This is a central tenet of the UK’s recently published Critical Minerals Strategy.

The UK’s Critical Minerals Strategy, published on 22nd July 2022, set out our approach to accelerating our domestic capabilities, collaborating with international partners and enhancing international markets. We are already making progress working closely with businesses, international partners and other stakeholders.

In the lead-up to the strategy launch, BEIS commissioned the British Geological Survey (BGS) to undertake first UK criticality assessment that defined a list of 18 critical minerals based on economic vulnerability and global supply risk. Alongside the launch of the strategy, BEIS launched the Critical Minerals Intelligence Centre to provide HM Government with up-to-date data and analysis on sources, supply, stock and flow of critical minerals.  

Since publication, the UK has made significant progress against the ambitions of the Critical Minerals Strategy, in line with the A-C-E approach set out in the July 2022 publication: Accelerating the UK’s domestic capabilities; Collaborating with international partners; and Enhancing international markets. As part of this we have deployed funding – through the Automotive Transformation Fund and other facilities – to support the development of UK domestic supply chains. Securing international collaboration and agreements has been a significant priority given the global nature of supply chains, geographic concentration of critical minerals, and the UK’s limited domestic sources of critical minerals.

The government is committed to the ambitions of the Critical Minerals Strategy. A refresh of the Strategy’s delivery approach will be published this year, setting out a refreshed set of milestones for delivering resilient critical mineral supply chains.

Which critical minerals are the most important to the UK’s national priorities (including national security and the green transition)?

The British Geological Survey (BGS) identified the following cohort of 18 minerals as having a high degree of criticality for the UK in its first criticality assessment in 2022:

Additionally, the Department for Business and Trade’s Critical Minerals Expert Committee have advised on a ‘watch list’ of minerals that are deemed to be of increasing criticality, currently: Iridium; Manganese; Nickel; Phosphates and Ruthenium.

The definition the UK uses on criticality is derived from the economic importance to us and where minerals have very high global supply risk. The UK will regularly evaluate the criticality of minerals through the Department for Business and Trade’s -funded UK Critical Minerals Intelligence Centre (CMIC), which is delivered by the BGS. The next assessment will be carried out in spring 2023.

The CMIC is researching the critical minerals requirements of specific sectors and technologies. It has already published its findings on battery minerals, and will soon publish studies on minerals for the hydrogen economy and aerospace and defence alloys.

Figure 1: BGS criticality assessment matrix

Where are the vulnerabilities in these supply chains?

The challenges in critical mineral supply chains fall into four broad groups: those that are endemic to the supply chains; those caused and/or exacerbated by recent disruptions; and those precipitated by shifts in global energy demand and consumption. Finally, there are particular challenges caused by the geographical concentration of many critical mineral supply chains, covering both production and processing.

The supply chains for critical minerals are international, opaque and often concentrated in specific countries. Markets are volatile, distorted and fraught with environmental, social and governance challenges. This creates a situation where we rely on mineral supply chains that are vulnerable to market shocks, geopolitical events and logistical disruptions, at a time when global demand is rising faster than supply. Of the 18 critical minerals identified as being crucial for the UK’s economic and wider national security 12 are subject to Chinese dominance. Globally, demand for some critical minerals is forecast to quadruple by 2040, although for minerals needed for EVs and battery storage such as lithium, growth could increase by forty times by 2040. In terms of Chinese dominance, this can be best seen in the global processing of those minerals essential for the manufacturing of EVs and battery storage with 40% of copper, 35% of nickel, 65% of cobalt, 58% of lithium and 79% of graphite[1].

To date, the UK has relied on market forces to provide security of supply of minerals to UK industries. Any shift in position to greater market intervention would need to consider trade policy agreements as well as WTO rules. Market vulnerabilities are exacerbated by the very nature of critical minerals, many of which are often by-products or co-products of mining for other commodities, so supply and demand are often inefficiently connected. State-subsidised companies who can operate globally with greater agility, at lower margins and with longer investment timeframes, creating a disadvantage for those not subsidised, also distort the markets. This leads to the complexity of markets. Data is of variable quality, consistency and accessibility, making it difficult to trace supply of critical minerals from mine to end-product, whilst many critical mineral markets are considered as being “incomplete markets” because there is no organised market on which to trade. Recent history has shown how prices can be manipulated by those in control of supply, with opaque price setting mechanisms contributing to market volatility, which can create commercial risk and deters investors.

Recent events have demonstrated the vulnerabilities in global supply chains, from the COVID-19 pandemic to Russia’s invasion of Ukraine. The latter has highlighted the vulnerability of concentrated commodity supply chains and the risk of dependence on a single source. The conflict has also heightened global demand for clean and independent sources of energy, and the critical minerals that those technologies will consume. Alongside geopolitical developments, ongoing supply chain disruptions caused by a combination of logistical factors, persisting from the COVID-19 pandemic and incidents such as port lockdowns in China, port strikes and localised conflict, have all added to supply vulnerabilities.

As the global clean energy transition picks up pace there is an increasing risk that mineral markets become tighter, there could be price spikes and supply chain disruptions; or, increasingly protectionist actions by our allies given China’s dominance in parts of the supply chain, and the US Inflation Reduction Act (IRA).

Additional vulnerabilities will occur as global demand growth for certain minerals, driven in many cases by decarbonisation targets, could outstrip supply chain capacity. The latter will struggle to expand quickly owing to long lead times for mine development and mineral processing. For example, rising demand has caused lithium prices to increase nearly 400 percent year-on-year, as of May 2022.

China is a dominant player in international markets. As a major producer, processor and consumer of critical minerals – and especially rare earth elements - China has used government-led investment and industrial policy strategy, as well as targeted export controls and foreign investment restrictions, to develop a sustained advantage in upstream and downstream sectors. Its headline strategic and economic policy priorities target its continued and sustained dominance in global advanced technology (often reliant on critical minerals), and self-reliance in the key components that will drive this.

Recent global trade tensions – and Chinese efforts to enhance its regulatory tools in response – increase the potential for targeted, retaliatory restrictions on access to critical minerals; though these are not without risks for China itself. Continued rising demand in China, as well as efforts to control environmental damage of domestic extraction, will drive Chinese investment interest overseas, where it will look to grow its third country mining portfolio (e.g. Latin America for lithium; DRC for cobalt). Currently, many Western manufacturing companies (e.g. electric car producers) are reliant on China’s battery mega factories with few alternatives.

It is increasingly evident that systemic competition with China (and others) has come faster than expected in critical mineral markets. China’s drive for global leadership positions in future tech, such as Artificial Intelligence (AI), robotics, New Energy Vehicles (NEVs), and clean energy (including to meet China’s latest commitment to carbon neutrality by 2060) means we are likely to encounter increased systemic competition from China. The UK’s ability to impact on this continued Chinese dominance will vary by sector – but the major factor may be the broader strategic goals of China’s industrial policy to dominate the whole value chain in key future-tech sectors.

We will continue to do more to adapt to China’s growing impact on critical mineral markets – ensuring the UK and UK companies do not lose access to those markets, by managing disagreements, defending our values and cooperating where our interests align, including pursuing a positive economic relationship that mitigates the risk of China using retaliatory or economically coercive measures and helps tackle global challenges such as environmental, social and governance issues.

These are not vulnerabilities that exclusively affect the UK. There is broad consensus amongst the G7, Five Eyes and like-minded partners, of the threats and challenges that we all need to address in order to strengthen critical minerals supply chains. Diversified supply chains are generally more resilient, with a wider range of markets that can respond to shocks and supply constraints. The UK’s international approach to improving the security and diversification of critical minerals supply chains is in line with HMG’s Critical Minerals Strategy. To address some of the vulnerabilities in the international markets, the UK needs to act alongside our allies and play a direct role in supporting an uplift in responsible extraction and processing of minerals alongside recycling and other technology developments.

What are the consequences of disruption to these supply chains?  

As outlined in the Critical Minerals Strategy we are seeking to protect British business from future shocks, deliver our clean energy transition, and protect national security. Any disruption to critical mineral supply chains is likely to have a direct or indirect effect on all three goals.

Critical minerals are essential for the UK’s energy transition (seven of the government’s Ten Point Plan targets for a green industrial revolution assume a stable supply of critical minerals), as well as underpinning key manufacturing industries. Without a secure critical minerals supply to the UK, manufacturers and industry will suffer disruption to the production of certain technologies. This could have a range of consequences from deterring investment in UK industry and reducing the competitiveness of UK industry, to shortages or prices impacts on critical technologies. It would affect the UK’s ability to manufacture key technologies for the clean energy transition and will also limit its ability to deploy cutting-edge military and commercial capability, risk UK jobs, and mean that we are dependent on others for imports of key green technologies, and ultimately the success of the UK’s energy transition. The UK’s future energy security depends on a secure supply of critical minerals.

An example of what this might mean is provided by the global demand for electric vehicle battery minerals (lithium, graphite, cobalt, nickel) where demand is to exceed the rate at which new primary and secondary sources are currently being developed. The UK’s automotive and electric vehicle battery ecosystem, could grow by 100,000 jobs by 2040 but this depends on the development of a UK battery manufacturing capability. Our intention to build a new generation of gigafactories will only happen in the UK if there is a resilient supply of battery minerals[2].

It is not only UK industry that would be affected by disruption to supply chains. Critical minerals are required to make the imported products upon which the UK relies for a functioning society, including as part of day-to-day life (e.g. phones, transport, computers, communications), for national security (e.g. military equipment), for essential health services (e.g. medical devices). If we want these products to be available in the UK when we need them – regardless of where those products and components are made – the UK has an interest to ensure global critical mineral supply chains are resilient and responsive.

The UK has a degree of influence over global supply chain resilience, as a centre of mining finance and metals trading, a global leader in international forums and as home to some of the world’s largest mining companies. We need to ensure these levers are deployed in an effective way.

From a defence perspective the MOD maintains and actively manages its spares, equipment and ammunition war fighting stockpiles so any disruption to these supply chains would have minimal impact over the short to medium term. Longer term disruption would potentially impact on-going maintenance and planned upgrades of in-service capabilities and development and in-service introduction of new capabilities.

What opportunities are there for diversification of the UK’s critical minerals supply chains?

The Critical Minerals Strategy recognises the challenges and constraints, which put the UK’s security of supply for critical minerals at risk. These include rapid demand growth, geographical dominance, disconnect between supply and demand, state-sponsored activity, market volatility and opacity. It sets out the next steps for accelerating UK’s domestic capabilities, collaborating with international partners and enhancing international markets.

Strong and resilient supply chains have a diversified supply base. Diversification opens new markets and keeps supply chains intact during periods of uncertainty or crisis. For minerals with a fair and open market, we will continue to rely upon and champion an effective and efficient market: where the world already provides a responsible and resilient supply, we see no case to interfere.

Where the markets are not yet in place, are not transparent or have issues, we will work with business and international partners to secure their activities for the long-term.

UK security of supply is achieved both by securing direct supply for our industry, but also by enhancing the global market to ensure global supply is increased. A more diverse supply base – i.e. more companies supporting the sustainable extraction and processing of minerals in a more diverse range of countries – increases global resilience, which increases the UK’s resilience. The UK is working through multilateral channels, including the G7, where leaders committed to: ‘focus on promoting market circularity and support diversification by exploring investment in alternative resources, processing capabilities, sustainable practices, and new technologies’.

We are clear that no one country by itself can ensure the resilience of global critical mineral supply chains. To deliver on the Strategy’s commitment to collaborate internationally on diversifying global supply, we have continued to engage bilaterally and across a range of multilateral forums, notably the Minerals Security Partnership (MSP), the International Energy Agency (IEA), the International Renewable Energy Agency (IRENA), the G7 and the G20.

The biggest challenge for the UK is the fact that critical mineral supply chains are highly concentrated. For each of the 18 critical minerals identified as crucial to the UK economy, the top three producer countries control between 73 and 98 percent of total global production. China is the biggest producer of 12 out of the 18 minerals. Australia, Brazil, the Democratic Republic of Congo, Russia, South Africa and Vietnam are the biggest producers of the remaining six. However, there are opportunities for diversification, and the UK is engaging directly with producer countries to help increase global production and secure supply.

The UK will play its part as a location for the growth of these supply chains. The Critical Minerals Strategy sets out how the UK can accelerate domestic capabilities, building on the UK’s advantages including freeports, expertise, industrial clusters, access to clean energy, R&D capabilities, pockets of mineral wealth and access to investors and customers. There are also funding opportunities available.

We are also seeking to support UK companies to participate overseas in diversified, responsible and transparent supply chains utilising DBT exports support alongside  UK Export Finance (UKEF) loans and government-backed guarantees, which help to secure private investment for overseas critical minerals projects (with UK content) whilst ensuring adherence to the highest international Environmental and Social Governance (ESG) standards. UKEF can also provide investment support for domestic projects with future export potential, helping to stimulate the growth of UK critical minerals supply chains and secure domestic supplies.

The MOD has a significant interest in critical mineral supply chains. They are investing in a range of initiatives that will help identify any risk and vulnerabilities in Defence supply chains. At the forefront of this is the development of an extensive MOD-wide Supply Chain Resilience Programme, which aims to prioritise the mapping of our most critical supply chains to ensure the impact on the delivery of Defence outputs is minimised.

MOD has also sought to improve the quality of the data they receive from their suppliers by introducing a new condition in all new contracts over a certain value threshold requiring contractors to provide the Department with their supply chain maps down to Tier 4 of the supply chain.

MOD has also closely monitored the impact of the Ukraine Crisis, COVID-19, and EU Exit on the defence supply chain and is working collaboratively with strategic suppliers to mitigate risks. Assurance has been reached on the broad resilience of defence supply chains through engagement with strategic suppliers, dialogue with industry at the Defence Suppliers Forum (DSF), analysis of various bespoke data returns and surveys, and through extensive collaboration with delivery teams in MOD.  Mitigations put in place by industry such as diversifying supply chains, stockpiling and close financial monitoring has led to Defence supply chains remaining broadly resilient to these economic and geopolitical shocks. 

How is the FCDO supporting the Government’s efforts to diversify supply of critical minerals?

The joint FCDO-DESNZ International Energy Unit (IEU) develops and coordinates the UK’s international approach to improving the security and diversification of critical minerals supply chains, in line with HMG’s recently published Critical Minerals Strategy.

The IEU works closely with departments across Whitehall and acts as the primary connection point with the FCDO’s network of overseas posts, where opportunities to engage bilaterally with host countries, and with multilateral groups and organisations, are identified and developed.

The Economic Security and Resilience Department leads the FCDO’s work to deepen international cooperation on economic security and resilience with key allies and partners, including the G7, and supports cross-HMG work to strengthen critical supply chains, which includes critical minerals.

The IEU also provides the lead for UK engagement on critical mineral multilateral platforms such as:

-          The US led Minerals Security Partnership (launched in June 2022), which the UK is a member of along with Canada, Japan, Australia, EU, France, Germany, Finland, South Korea, Norway and Denmark. It aims to support minerals rich nations to diversify access to supplies; provide alternatives to China through identifying projects that can benefit from its support and encouraging investment; information sharing; promoting and setting environmental, social and governance (ESG) standards for mining and the supply chain; working with resource-rich nations; and, ensuring likeminded MSP nations are asking their diplomatic networks to work together. We judge this to be a promising forum.

-          The International Energy Agency has established a Critical Minerals Working Party to look at issues such as stockpiling, market transparency, ESG and R&D. Its membership is largely OECD nations and we are working to ensure there is no duplication with the MSP and G7 critical mineral tracks.

-          The Extractive Industries Transparency Initiative (EITI) provides an international platform for supplier and consumer countries to work together to strengthen supply chain governance and transparency, particularly in resource rich developing countries.  The UK is home to the EITI Secretariat and has been a leading advocate, with the previous Foreign Secretary committing to continue financial support.  EITI membership is broad, although the US withdrew under the Trump administration and have not yet re-joined. The 2023 EITI Global Conference in Dakar will provide an opportunity for multi-stakeholder dialogue on how the extractives sector can support sustainable development goals by furthering transparency and good governance.

-          The German G7 Leaders Summit in Elmau committed to a forward-looking strategy through international cooperation, policy and financial tools as well as addressing trade barriers, noting that minerals should never be used for political coercion. It also committed to coordinate on mechanisms for identifying, monitoring and minimising vulnerabilities and logistical bottlenecks in advance of shocks; pursuing enhanced cooperation on mechanisms to improve assessment, preparedness, deterrence and response to risks across and beyond G7; and to consider all parts of critical minerals supply chains including the circular economy. Japan’s G7 Presidency has established a number of Expert Working Groups to take work forward ahead of the Leaders meeting in Hiroshima in May 2023.

-          The G20 agreed on the importance of critical minerals and raw material supply chains this year and India plans to make critical minerals a key element of its G20 Presidency through the clean energy track. It wishes to conclude a declaration on G20 critical minerals partnership. We will work to support delivery of this ambition although this could present challenges for Russia and China, though equally could expose to the wider group the challenges in supply chains.

-          Bilaterally we have seen a strong uptick in engagements with international partners, including the partnerships identified in the UK’s Critical Minerals Strategy: US, Australia, Canada, EU, South Korea, Japan, Saudi Arabia and Indonesia. Some of these partnerships are either already or about to be set in formal Government to Government (G2G) arrangements (Australia achieved in 2020, South Africa partnership announced November 2022. Work with similar agreements with Canada and Saudi Arabia are well advanced).

What can the UK learn from steps taken by other countries to reduce the vulnerability of their critical mineral supply chains?  

Vulnerabilities in critical mineral supply chains have prompted different responses from our international allies and competitors, although there are several themes that have emerged.

There is an emphasis on governments incentivising local or alternative supply chains. The US Inflation Reduction Act introduces tax incentives for new electric vehicles and hydrogen vehicles with a certain proportion of components and materials sourced from the US or their Free Trade Agreement partners. The EU has consulted on its Critical Raw Materials Act (to be published on 8 March), with an aim of reinforcing monitoring capacities, strengthening local supply chains and building up strategic reserves.[3] China also continues to subsidise domestic production and processing of critical minerals.

Governments of major manufacturing economies are seeking to forge international partnerships on critical minerals. This is happening bilaterally and plurilaterally, in groups such as the US-convened Minerals Security Partnership (MSP).

Governments are also using investment security[4] measures to safeguard critical mineral supply chains. For example, in November 2022, the Government of Canada ordered the divestiture of Chinese holdings in three Canadian critical mineral companies.

Major manufacturers are proactively taking steps to secure their own supply of critical minerals, seeking to influence, partner with, or integrate into their supply chains.

These developments – and others – represent a constantly evolving global landscape in which the UK operates.

The following table represents a snap shot of measures taken by key critical minerals allies.

We are engaging with our partners not only to secure supply but to exchange best practice, share skills, and collaborate on new and innovative approaches to securing supply.

How can the FCDO support the responsible sourcing of the UK’s critical minerals?

We are working to promote a greater focus on sustainability as a means to help avoid undesirable practices that harm the environment and society, whilst decreasing long-term risks to businesses.

Supply chains commonly contain significant ESG performance issues and risks, which creates added vulnerability to disruption. The true cost of these negative externalities is not currently recognised in the price of the minerals. The market does not differentiate based on provenance and there is inconsistency in the definition of ESG standards. Promoting clearer global ESG standards will help to level the playing field for responsible UK companies and reduce the risk of them being put at a competitive disadvantage.

Under the right conditions, ESG standards can lead to value creation for businesses by reducing costs, increasing employee productivity, minimising regulatory and legal interventions, facilitating top-line growth, and optimising investment and capital expenditures[i]. The UK’s Transparency in Supply Chains legislation, under the Modern Slavery Act 2015, requires certain large businesses with a turnover of £36 million or more to publish annual modern slavery statements setting out how they are reducing modern slavery in their operations and supply chains.

To address inconsistencies in voluntary sustainability reporting, the UK is creating an integrated framework for sustainability disclosures to provide a shared understanding of which economic activities count as green. This will standardise sustainability labels and restrict how terms like ‘ESG’, ‘green’ or ‘sustainable’ can be used. In October 2021, the UK Government published Greening Finance: A Roadmap to Sustainable Investing[ii] outlining how it is implementing Sustainability Disclosure Requirements (SDR) to green the financial system and drive sustainable investments. The UK had already become the first country in the world to commit to mandatory climate-risk disclosures, aligned to the international Task Force for Climate-related Financial Disclosures (TCFD[5]). The Financial Conduct Authority requires listed firms to disclose in line with the TCFD recommendations on a ‘comply or explain’ basis, and has implemented an industry group to develop an ESG Code of Conduct for the financial sector[iii]. In October 2021, DWP made it mandatory for the largest pension funds to disclose their climate-related financial risks. In April 2022, BEIS made it mandatory for the largest businesses to disclose their climate-related risks and opportunities, in line with TCFD recommendations. Furthermore, in 2021, UK Export Finance (UKEF), the UK’s Export Credit Agency, was the first Government department to publicly disclose against the TCFD recommendations; disclosing for a second time in 2022.

Other parts of HMG and its Arm’s Length Bodies have incorporated ESG into their strategies and operations:

• DBT’s Export Strategy[iv] and Modernising Trade agenda uses the ESG framework to demonstrate the UK’s commitment to exporting best sustainability practices. DBT commits to ensuring protections for UK consumers, respect for workers’ rights and upholding labour standards, eradicating forced labour in global supply chains, promoting economic empowerment for women and people with disabilities, and not compromising commitments to protect environment and tackling climate change.

How can the UK work with global partners to improve environmental, social and governance performance (ESG) across the sector? 

Working together with governments, standard bodies and industry is at the core of FCDO’s work to shape a global rules-based system. The UK has a track record of leading key industry standards such as Extractive Industries Transparency Initiative and Ethical Trade Initiative that has aimed to improve how the industries operate in relation to ethical, social and governance standards.

The FCDO with will work closely with multilateral organisations, partner governments, private sector, and civil society to:

• Promote harmonisation in sustainability disclosures and reporting, using the UK’s leadership to drive a race to the top on environmental, social and governance (ESG) standards, including through the Critical Minerals Strategy.

• Promote Beneficial Ownership Transparency (BOT) as a global norm, using UK’s unique position as global thought leader on corporate transparency and Financial Action Task Force (FATF) standard, to safeguard UK and partner countries’ economies from malign actors and dirty money and level the playing field for clean trade and investment.

• Promote green standards which help deliver Net Zero, energy efficiency, resilient energy markets, lifecycle emissions, and environmental sustainability, including through the Industrial Decarbonisation Strategy and through bilateral and multilateral trade policy.

• Enable developing countries to use, meet and develop standards, and to build strong National Standards Bodies and other standards related institutions that facilitate trade and meet the needs of citizens. 

Internationally the UK has been vocal in our belief that the extraction of critical minerals should work for the benefit of countries that extract and produce critical minerals. The UK is playing a leading role in international fora in pushing for the highest possible standards in the critical minerals extraction and processing industries. This has included working with the City of London – whose role as a global centre of mining finance and metals trading – means they are well placed to help make international markets more responsive, transparent and responsible.

DBT can support countries in their drive for improving ESG by enabling UK companies to export goods, services, and know-how to the mining lifecycle; and the resilient infrastructure solutions to enable the movement of critical minerals to the industries who need them. 

As a condition of its support, UKEF takes into account environmental, social and human rights (ESHR) impacts, including climate change risk, within its decision-making processes, proportionate to the project’s risks and impacts. UKEF manages transaction-related risks in line with the OECD Council Recommendation on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence (OECD Common Approaches) and the Equator Principles, a risk management framework adopted by over 130 global financial institutions. UKEF‘s application of these international E&S standards and frameworks ensures that the projects it supports, effectively implement robust management systems that enable a project or company to identify, assess, manage and monitor their E&S performance. UKEF’s proactive engagement with the US-led Minerals Security Partnership has included discussions on the adoption of internationally recognised E&S standards and good practice, and the drafting of a principles and objectives statement to be used as a condition for projects receiving MSP government support.

To help deliver our wider energy transition ambitions, the UK will support initiatives – such as the Canadian-led Sustainable Critical Minerals Alliance (launched in December 2022) - that will genuinely ensure global critical mineral markets operate transparently and sustainably. We will also engage directly with those producer countries – such as through our Clean Mineral Partnership with South Africa – to ensure that producer countries see tangible benefits from the clean energy transition.

We are also aware that there is a lot of work still to be done on improving ESG standards. Through greater cooperation, we can inject competition and ensure a level playing field where companies with the highest standards of environmental sustainability and transparency can thrive.  We will remain conscious of the risk of unintended consequences that can occur around improving ESG standards, for example the risk of disinvestment or relocation of investment which could at a surface level be seen as creating a positive impact in that it might provide measurable visible reductions in use of forced or child labour, or poor working practices. However, this might simply mean that bad practices are driven underground or create more poverty through loss of livelihoods.

Certification schemes can provide reassurance, data and evidence for investors and markets, but the costs of these if passed down to the miner\digger at the bottom of the critical mineral value chain can risk more child labour (for example), even if indirect, through depressing family incomes necessitating children to leave school and work either in parallel income raising activities such as agriculture, or more hidden mining related activities. The UK will continue to work to mitigate these unintended consequences, particularly using UK Aid funded work to contribute to a better understanding globally of these risks when developing ESG approaches.

What are the potential complications/implications of insisting on traceability in supply chains? 

The traceability of minerals passing through value chains enables transparency to improve market information and to build confidence in trading relationships. Alongside transparency, traceability can incentivise adherence to international standards and reduce technical barriers to trade resulting from market failures such as asymmetries of information. To achieve these goals requires the development of both international standards and information systems enabling traceability.

Practical steps to insist on supply chain traceability will require agreement on standards specifying characteristics to be tracked and tracking methods. Such methods include mass balance chain of custody, simple accounting systems, and distributed ledger (“blockchain”) technologies.

For critical minerals, the development of international standards is at a formative stage. International Organisation for Standardisation (ISO) technical committees are currently developing a range of standards for the Rare Earth Elements (TC 298) and for Lithium (TC 333). ISO is surveying global usage, needs and future priorities for critical minerals, including market sustainability standards with a view to developing guidance for critical minerals stakeholders.

A major complicating factor is the complexity of critical minerals value chains from primary extraction through processing to manufacturing and then entry into a growing circular economy. The following identifies a typical supply chain from the mine to end of life for an EV.

The phases above are often vulnerable to challenging international relationships. The complexities of the supply chain – range from multinational miners through to SMEs and artisanal enterprises, all of whom can face both practical and economic challenges in meeting high market information standards.      

Where should the UK’s focus be in developing bilateral relationships for improving our supply chain accessibility and traceability?

UK critical minerals supply chains depend on a range of countries. The economies of most partnership countries share similar international dependencies for critical minerals, although Australia and Canada possess significant primary extractive industry sectors. This means that we are able to work collaboratively to increase supply chain accessibility and transparency.

A focus on supply chain diversification demands long-term investment and capability building given the long lead times characteristic for development of viable new critical minerals value chains. Subject to work on international standards and to the pace of change in international trade relationships, the accessibility and traceability of critical minerals supply chains are likely to improve through focused bilateral and plurilateral engagement in relationships based on long-term mutual interests, including those on which the UK shares dependencies with close international partners. 

The FCDO will continue to lead the UK’s international critical minerals engagement, where ministers have agreed to focus on:

Multilateral working through the US-led Minerals Security Partnership (MSP) that aims to drive investment into minerals rich countries making the West a credible alternative to China; Japan’s G7 Presidency to build consensus on action; and, the International Energy Agency’s (IEA) Critical Minerals Working Party focused on supply chain transparency, to unite the international community around ESG standards and stockpiling options for secure supplies. Our work on ESG tackles carbon emissions and illegal mining and we advance work through the International Organisation for Standardisation technical committees[6] on deeper technical and industry resource reporting standards. We will also use the UK’s Chairing of the OECD Ministerial Council to progress ESG.

Strengthening bilateral collaboration to support our own domestic needs and global diversification with resource rich nations (including Saudi Arabia, South Africa, Brazil, Democratic Republic of Congo, Argentina and Indonesia) by encouraging sustainable extraction, refining and processing; and, with trusted priority partners (Canada, US and Australia).

We will also deploy key UK levers in support of these ambitions by sharing mining and mineral processing expertise (academia, UK industry); working with DBT to bring companies into market supporting the full mining life-cycle (legal, regulatory, mining operations, environmental practices to tackle carbon emissions); promoting the City of London as the centre of mining finance and metals trading; and, reviewing whether our existing financial tools might be capable of supporting sustainable mining and processing for critical minerals. 

What are the opportunities and challenges of deep seabed mining for critical minerals?

The International Seabed Authority (ISA) is an autonomous international organization established under the 1982 United Nations Convention on the Law of the Sea (UNCLOS) and the 1994 Agreement relating to the Implementation of Part XI of the United Nations Convention on the Law of the Sea (1994 Agreement). 

The ISA is the organisation through which States Parties (of which the UK is one) to UNCLOS organise and control all activities related to the exploration and exploitation on the deep seabed in areas beyond national jurisdiction – “the Area”.  The Area covers around 54% of the total area of the world’s ocean. The ISA has the mandate to ensure the effective protection of the marine environment from harmful effects that may arise from activities related to deep sea minerals in the Area.

To develop a future society based on renewable energy and technology, it will be critical to find new sources of reliable, clean and ethically sourced mineral resources. Under UNCLOS, the Area is the common heritage of humankind and should be utilised for the benefit of humankind as a whole. This means that any financial and other benefits derived from mineral resources must be equitably shared among all states, including Small Island Developing States (SIDS), Least Developed Countries (LDCs), and Land Locked Developing Countries (LLDCs).

As deep sea mining is a new industry and the deep sea bed remains largely unexplored, the environmental impacts and the technological capabilities are not fully understood.  Mineral deposits are often found in areas with high biodiversity and many unique species, which are thought to be slow-growing and long-lived.  There is still little known about the deep sea bed habitats and environment. There are also information gaps on the specific future demand for critical minerals, the economics of deep sea mining and the resilience of critical mineral supply chains that a future deep sea mining industry would support.

However, there is a wide range of scientific study taking place that seeks to improve knowledge of the deep seabed.  This includes the recently published independent evidence review led by the British Geological Survey, in partnership with Heriot Watt University and the National Oceanography Centre, “Preliminary estimates suggests that the deep seabed hosts large quantities of economically important metals (nickel, cobalt, copper, manganese, tellurium), sometimes exceeding land based (terrestrial) mineral reserves that are currently economic to extract”. As much of the seafloor has yet to be explored, these estimates are thought to be conservative.

The Evidence Review goes on to say that “Exploiting certain critical minerals from the deep sea could contribute to meeting global demand for such metals as well as diversify the sources of primary mineral supply. However, in general current estimates of most seafloor mineral resources contain significant uncertainties, and accurate determinations of the total amounts of metal and its future recoverability are very difficult. If the resources are proven to be economically viable, and environmentally and socially acceptable to extract there are quantities of certain metals that could meet global needs for the foreseeable future”.

This latest piece of scientific research joins over 70 peer-reviewed publications detailing research into the environmental aspects of deep sea mining that have been supported by UK activity, and more will follow.

In terms of mining within Exclusive Economic Zones or Territorial Seas, increased interest in seabed mining (exploration and exploitation) has been displayed by a number of countries including Japan, Norway and the Cook Islands.

What should the UK’s role be in regulatory development around this? 

The International Seabed Authority (ISA) has the responsibility to develop a regulatory regime for deep sea mining exploitation by July 2023. This deadline has been set because on 25 June 2021, the Republic of Nauru notified the ISA of an intention to sponsor an application for an exploitation licence in two years. This notification is in accordance with Nauru’s rights as a State Party to UNCLOS under Section 1, Article 15(a) of the Part XI Agreement. At the October/November 2022 meeting of the ISA Council in Kingston, Jamaica, the Republic of Nauru updated the Council they did not intend to submit an application before July 2023, but gave no date when it would.

In addition to developing the core regulations, the ISA will also need to develop standards and guidelines that support the implementation of those regulations, including standards and guidelines for monitoring and evaluating environmental impacts.

Until there is sufficient scientific evidence about the potential impacts on deep-sea ecosystems and strong and enforceable environmental regulations in place, the UK Government has committed not to sponsor or support the issuing of any exploitation licences for deep-sea mining projects. The UK will continue to press for the very highest environmental standards to be agreed and implemented by the International Seabed Authority (ISA).

The UK has been fully engaged in the ISA led process to agree exploitation regulations and have submitted comments to the draft regulations. These submissions are publicly available on the ISA website.  The UK's submissions have consistently emphasised the need for the highest environmental standards to be adopted and applied. The UK's submissions have also emphasised the importance of transparency in the work of the ISA and the need for proper, open consultation at appropriate points in the application and evaluation processes, including with respect to environmental impact assessments.

The FCDO leads the coordination of the UK Government’s negotiating positions for the development of deep sea mining exploitation regulations at the ISA, and heads up the cross-Government (Department for Environment, Food and Rural Affairs; Joint Nature Conservation Committee and the Centre for Environment, Fisheries and Aquaculture Science) delegation when participating in the international negotiations at the ISA.

How can the UK Government help mitigate any adverse impact of “debt-trap diplomacy” and increasing divides between the global South and global North?

A lack of transparency around lending conditions by certain countries leaves room for speculation around whether debt-tap diplomacy happens. To prevent this, the UK is working to make sure lending is sustainable and transparent. The UK, through UKEF also adheres to the OECD Sustainable Lending Principles, and we encourage other OECD members to adhere to these as well. The UK was also the first G7 country to publish its sovereign loan portfolio while encouraging others to do the same. In addition, the UK helped establish the G20 Operational Guidelines for Sustainable Financing in 2017, supporting sustainability beyond the OECD; and supports the OECD Debt Transparency Initiative for private sector lending. To help countries make more informed finance choices, the UK is providing stronger, more transparent economic partnerships based on high quality investment, through British Investment Partnerships (BIP).

Where a country requires debt restructuring, the UK as a creditor, works with others to drive swift debt treatments. The UK has been a member of the Paris Club of creditors since 1956, supporting debt restructuring since then. As the creditor base has diversified, the UK supported the establishment of the G20 Common Framework for Debt Treatments for eligible countries in 2020. For the first time this brings together all G20 creditors, including the likes of China, in a multilateral forum to coordinate debt treatments together. This reduces the risk of individual creditor holdouts. Additionally, the UK is leading contractual improvements to prevent private creditor holdouts, recently publishing terms for Majority Voting Provisions for syndicated loans.

The British Investment Partnerships (BIP) offer of clean and reliable finance is aimed at providing a better alternative to countries in global south. The partnerships are underpinned with sound financing models characterised by high standards, transparency, and reliability. UK BIP employs a wide set of instruments including concessional finance that considers the needs of the partner countries in terms of finance and development.

The UK’s offer is complemented by UK’s regulatory diplomacy and expertise to enable partner governments to address structural problems they face and build economic and social foundations to achieve longer-term sustainable growth and climate change objectives.

It is important that the UK promotes a patient approach to development finance by other financing partners. We work with key allies to ensure southern partners have further access to clean and reliable finance. Through G7 partnership for Global Infrastructure Development (PGII), developing countries will have access to financing for value driven, high quality and transparent infrastructure development partnerships.

What are the risks to international security of having mid-stream processing concentrated in a handful of countries?

International supply chains can get caught up in geopolitical events, leading to disruptions in those markets and supply chains, where increased market volatility subsequently leads to increased competition for access to those resources.

The primary risk remains that UK supply chains for critical minerals are exposed to actual or threatened disruption. This in turn make may impact on the UK’s decision making and freedom of action - potentially also degrading UK diplomatic and military response capability over time.

Outside of geopolitical stresses, critical mineral supply chains are also exposed to “regular” supply chain disruptions caused by climate events and the unforeseen events such as the 2021 blocking of the Suez Canal.

An additional strategic risk for UK comes from the fact that even if the UK can diversify its suppliers by investing in extraction in emerging critical mineral regimes, we remain reliant upon processing in third countries – often with long supply lines, which may be vulnerable to conventional attack or economic warfare from a hostile aggressor. 

How can the UK guard against hostile states leveraging access to critical minerals for political gain?   

Russia invasion of Ukraine highlighted the damage that can be caused to markets by hostile actions. The consequences of increased energy prices has acted as a spur for countries to accelerate their energy transition plans, with the consequence that some critical mineral markets saw sudden upwards price volatility.

We acknowledge that China will remain a central source of both raw and refined critical minerals for a number of years. We will continue to adapt to China’s growing impact on critical mineral markets - managing disagreements, defending our values and cooperating where our interests align, including pursuing a positive economic relationship and tackling global challenges such as ESG issues.

We will continue to build stronger partnerships with key countries, along the lines of the arrangements we now have in place with Australia, Canada, Saudi Arabia and South Africa, to explore credible and appropriate opportunities to work with mineral rich countries, increasing supply chains and diversity of processing.

We are seeking to identify suitable funding and financing streams to support the building of processing and manufacturing capability and capacity in middle ground powers. Using London’s prime position as a centre of mining finance and metals trading, we are undertaking work to make international markets more responsive, transparent and responsible.

As the PM said in his Mansion House speech in November 2022, we must stand up to our competitors with robust pragmatism, though our diplomatic expertise, science and tech leadership, and investment in defence and security, and by increasing the quality and depth of our partnerships with like-minded allies around the world.

The National Security and Investment (NSI) Act gives the government powers to scrutinise and, if required, intervene in acquisitions of control over entities and assets in or linked to the UK that may pose national security risks. The Act requires particularly sensitive acquisitions to be approved by the government before they are completed. The World Trade Organisation provides the opportunity for its members, including the UK, to draw attention to and challenge unfair trade practices that raise discriminatory barriers to trade, including potentially raising a formal trade dispute

We are also participating in work across Government and internationally with allies on our most critical defence focussed supply chains, to share good practice to better understand vulnerabilities, exposure and the strategic mitigations required, including the potential for on shoring certain key capabilities. We have worked closely with industry at all levels and maintained an open dialogue, to identify and put in place the measures needed to protect the supply chains of our key programmes and to maintain the resilience of the UK’s industrial and technology base.