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On the Edge of the Abyss

The International Seabed Authority must decide whether deep sea mining is the key to the climate transition, or a “false solution”. 

Spanning around 1.7 million square miles between Hawaii and Mexico, and plunging to depths of 18,000 feet, the Clarion-Clipperton Zone (CCZ) is an immense abyssal plain teaming with natural resources and wildlife.  

Not much is known about the ecosystems dwelling in these deeper, darker waters. Indeed, scientists estimate that around 75% of animal species in the CCZ remain undiscovered. 

However, what is clear is that planes like the CCZ are home to valuable nodules of critical minerals which are vital to the world’s transition to a low-carbon economy.  

In June 2021, the President of Nauru, an island in Micronesia, submitted a letter to the International Seabed Authority (ISA), requesting that the organisation finalise rules and regulations on deep sea mining (DSM), triggering a two-year countdown.  

The ISA is the body responsible for regulating explorations for, and exploitation of, deep seabed and subsoil minerals found in areas beyond national jurisdiction.  

The organisation has had its work cut out, as DSM is a highly contentious activity.  

It would involve the procurement of minerals – like nickel, manganese, copper, zinc, and cobalt – from the seabed and nodules by either scraping, picking, cutting or dredging the deposits from the seafloor, transporting them back to the surface, and then extracting the minerals through de-watering and releasing the sediment-rich waters back into the sea.  

Companies interested in DSM argue that these minerals are needed to meet growing demand to upscale crucial low-carbon technologies, such as batteries for electric vehicles and components of solar panels.  

The ISA has handed out around 30 exploration contracts so far, allowing government-sponsored companies like The Metals Company (TMC) to investigate international waters.  

Alongside Nauru, countries in support of DSM include The Cook Islands, Kiribati, Tonga and India. 

“But the real concern is when we move to exploitation contracts,” says Catherine Weller, Global Policy Director of international conservation charity and NGO Fauna & Flora, noting that “the first of those licences could be issued this summer” – even if the ISA has not finalised regulation.  

Jessica Battle, Lead of WWF International’s No Deep Seabed Mining initiative, says the idea that the world needs critical minerals from the deep sea to solve the climate crisis “is marketing spin, not science”.  

She stands firmly on the other side of the argument, which is that DSM has a whole host of environmental and climate risks that make it an undesirable industry. The true scale of these impacts is still unknown, given how little we know about the ocean floor.  

Tensions mounted during the ISA’s latest negotiations on DSM in Jamaica, which took place over two weeks in March and featured increasing pushback from countries asking the ISA to pause or ban DSM. There have also been calls led by Palau, Fiji and Samoa for a global moratorium on DSM.  

“The debate rages on; it’s all still up in the air,” says Matthew Gianni Co-Founder and Political and Policy Advisor for the Deep Sea Conservation Coalition. 

Although DSM is not yet an investable reality, it’s vital that investors join the debate and begin discussions with portfolio companies on the potential risks and impacts, he says.  

Hidden depths 

As highlighted by more than 700 scientists from 44 countries, investors should be concerned that DSM could cause irreversible damage to the biodiversity on the sea floor, as well as the rest of the ocean, experts tell ESG Investor.  

A report published by Fauna & Flora noted the importance of nodules as habitats for species and contributors to the food web, with their removal leading to habitat and species loss. Further, sediment plumes from the mining process could lead to further fragmentation of habitats, smothering, and the potential release of toxic elements which could impact microbial ecosystems, the report said.  

“The deep ocean is a major active [carbon] sink and reservoir of heat and CO2,” adds Bobbi-Jo Dobush, Legal Officer and DSM focal point at The Ocean Foundation, warning of the potential for miners to release stored carbon into the atmosphere by disturbing soil or sea floors, or limit the ability of the soil or ocean to absorb CO2 via “disruptions to thermodynamics or biological activity”.

“Harming the deep ocean may make our climate worse,” she says.  

WWF International’s Battle says that scientists are only just beginning to understand the systems and processes that allow life to thrive in the deep ocean, and how it helps to regulate the climate. 

“This lack of scientific knowledge means we cannot possibly develop informed regulations for this new industry,” Battle notes.  

Dana Sasarean, Associate Director of Mining Research at ESG research, ratings and analytics firm Sustainalytics, is concerned about transparency.  

“Even if we get to the point where we figure out how to do DSM safely and sustainably, how do investors then verify that the mining process is happening in line with these expectations? There is a big concern that it would be out of sight, out of mind,” she says.  

A better option for investors wanting to support the green transition through the extraction of critical minerals is to focus “on alternative strategies like reuse and recycling, as well as minimising the environmental impacts of terrestrial mining”, Vemund Olsen, Senior Analyst of Sustainable Investments at Storebrand Asset Management, tells ESG Investor.  

In 2022, WWF commissioned an independent analysis of the critical minerals needed to support the climate transition. The report forecast that demand for these materials can be reduced by 58% between 2022-50 by utilising new technologies, circular economy models and recycling. 

Risky business  

DSM also has big governance and financial issues, says Dobush from The Ocean Foundation.  

“The conversation around DSM is rife with governance questions, and much of the ISA sessions are currently about gaps in the current draft regulations related to governance, control and enforcement,” she says.  

The ISA hasn’t escaped criticism. The New York Times reported last year the ISA had been sharing key information on some of the most valuable seabed tracts since 2007 with TMC, giving the company a “major edge” in their DSM ambitions. 

Dobush adds that investors should be “asking hard questions about the financial models around DSM”.  

The only company that has attempted DSM exploitation, Nautilus Minerals, went bankrupt in 2019 as it unsuccessfully attempted to develop its Solwara 1 deep sea copper, gold and silver project off the coast of Papua New Guinea, causing large losses for several banks, including ABN Amro and ING Group.  

In 2022, the Nasdaq stock exchange issued a delisting notice to TMC after it traded below US$1 at closing bid price for 30 consecutive days, supporting claims that the tide of public opinion is turning against DSM.  

Metals have also never been extracted and processed from nodules at commercial scale, and companies like TMC are “relying on equipment that has been neither manufactured nor tested,” says Dobush.  

TMC acknowledges this within its Form S-1 Registration Statement to the US Securities and Exchange Commission (SEC), which was amended following a complaint filed by Greenpeace USA, the Deep Sea Conservation Coalition and Global Witness ahead of the company going public in 2021. 

The company noted that “the polymetallic nodules that we may recover will require specialised treatment and processing and there is no certainty that such processes will result in a recovery of metals that is consistent with our expectations”. The statement added that “there is a risk that such processing and refining may not be economically viable and/or that the nodules will contain elements or compounds that would render them unsuitable”.  

Further, the need for deep sea critical minerals may become obsolete over time as battery technology evolves and alters the market, says Dobush. Battery producers are experimenting with other resources like sodium, meaning that they may “require no or little nickel or cobalt – two of the minerals would-be miners would attempt to source from the seabed”.   

In the TMC Form S-1, the company further states: “Technology changes rapidly in the industries that utilise our materials. If these industries introduce new technologies or products that no longer require the metals that we intend to collect and process, or if suitable substitutes become available, it could result in a decline in demand for our metal products.” 

WWF International’s Battle adds that the costs of DSM are currently unknown but, given the technological innovation needed, they will likely be far higher than terrestrial mining.  

“DSM will not close mines on land, as they will likely remain cheaper, and flooding the market with more minerals will only make the margins smaller, with risk of cutting out concerns for people and environment in land mining operations,” she says.  

A line in the sand  

A growing number of financial institutions are making their position on DSM clear.  

“Storebrand adopted a new nature policy in December last year, within which we included DSM as one of the activities that we will exclude from our portfolio,” says Olsen, explaining that this decision was based on the high environmental risks associated with the activity, as well as “the cumulative impacts from DSM combined with other stressors to the marine environment”.  

However, the exclusion is open-ended, depending on whether the “scientific gaps” are plugged and if marine environments can be suitably protected.  

Olsen adds that Storebrand excluded TMC from its portfolio because of this new policy.  

“We are also engaging with companies, where relevant, to express our position on DSM so that they are aware of the consequences on our ability to continue investing in them if they pursue this activity,” he says.  

Other financial institutions that have introduced new policies excluding DSM from financing include Lloyds Banking Group, European Investment Bank (EIB) and Standard Chartered.  

Global automakers, including Volkswagen, BMW and Volvo have also signed a public statement of support for a moratorium on DSM “as a matter of precaution”. They have committed to not sourcing minerals from the deep seabed or financing DSM activities, as well as excluding DSM-sourced minerals from their supply chains. 

“Signatories of the United Nations Environment Programme Finance Initiative’s (UNEP FI) Sustainable Blue Economy Finance Principles should have quite a high awareness of the risks involved in DSM,” says Storebrand AM’s Olsen. 

Last year, UNEP FI issued a briefing paper for investors and other financial institutions which said “there is no foreseeable way in which the financing of [DSM] activities can be viewed as consistent with the Sustainable Blue Economy Finance Principles”.  

Fauna & Flora’s Weller also points to the Global Investor Commission on Mining 2030, which is working to address the systemic risks in the mining sector, urging the group to “include DSM on its agenda”. 

Dr Stephen Barrie, Deputy Chief Responsible Investment Officer at the Church of England (CoE) Pensions Board, recently said investor members of the body are “in the early stages of developing an understanding [on DSM]”. 

“We call on investors to stop financing DSM activities,” says Weller.  

“But they can also sensitise companies in their portfolios, and not just mining companies, about the need to build a circular economy and invest in reuse and recycling technologies. 

“DSM is a false solution to the climate crisis.”  

The WWF has published guidance for financial institutions on DSM, recommending that firms develop a dedicated policy to stop and prevent financing that can lead to DSM and publicly commit to not invest in pure-play DSM companies. 

But it’s at the ISA where the crucial decisions on DSM will be taken.  

“The ISA needs to consider whether solving the climate crisis should come at the expense of a whole new biodiversity problem,” says Gianni from the Deep Sea Coalition. 

“Have we learned from our mistakes in the past? Do we really need to open up a whole new frontier of industrial resource extraction?  

“Let’s be smarter about how we solve climate change, rather than creating a whole new problem in the deep ocean.” 

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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