From the mine to the wind turbine

04.04.2023 | ​​What weighs more heavily for resources with an ambivalent ESG record?

The most important facts for you in brief

  • Decarbonisation of the economy can only be achieved through the use of certain natural resources 

  • Problems in extraction sometimes lead to inconsistent ESG profile 

  • Systematic case-by-case analysis essential for balanced investment decisions in commodities


Extraction of natural resources creates ESG trade-offs

"The most sustainable raw material is the one that stays in the ground!" This uncompromising conviction is sometimes held by environmentalists when it comes to the extraction of natural resources. Questions of sustainable investment, on the other hand, only really arise as soon as raw materials are extracted. Because this is associated with problems from an ESG perspective in some cases. On the other hand, without the increased use of certain non-fossil raw materials, the fight against climate change cannot be won. How should investments in commodities be assessed in this context - especially from an ESG perspective?

There are some fundamental points for sustainable investment decisions in this question:

  • Even when producers strive for sustainability, value chains of goods - and the raw materials they contain - often contain negative ESG aspects as well as positive ones. Often there are conflicting goals: for example, copper mining always interferes with nature, but copper use in a wind turbine is climate-friendly. This initially leads to the question: Is it at all justifiable to weigh negative and positive sustainability effects against each other?
  • If this is generally the case, how exactly should an asset manager assess countervailing ESG effects in individual cases, especially since these are often not quantifiable? How can the question be answered as to whether and why certain ESG aspects are more relevant than others? At Union Investment, systematic analyses form the basis for such an overall assessment. In the commodities sector, for example, we take a critical view of cobalt from an ESG perspective, whereas the positive aspects ultimately outweigh the negative ones in the case of copper.
  • Investment decisions can also lead to a field of tension in a temporal dimension: From an ESG perspective, how should burdens in the present be assessed against benefits in the future - a typical constellation in the context of climate change? For example, it can be argued that the long-term benefits from the use of copper "trump" short-term ESG concerns.

Value chain of raw materials with ambivalent ESG record

In the light of these fundamental questions, what exactly is the conflict of goals when it comes to raw materials? The brief examples above already hint at this: The starting point is the need to limit climate change. For this to succeed, the economy must be decarbonised through reduced use of fossil fuels. As an energy substitute, the rapid and broad expansion of alternative energy sources for the generation of green electricity is crucial, for example through wind power and solar plants (renewables). Certain natural resources are indispensable for the construction of such plants, but also for the necessary infrastructure and possible storage systems. Without large quantities of copper, aluminium, nickel, silver and silicon (especially in the field of photovoltaics), the goal of climate neutrality cannot be achieved as things stand today. Demand for selected raw materials is therefore already high and has led to significant price increases. The increasing momentum in the expansion of renewables should further support this trend for the corresponding raw materials. As a result, in many cases it will be necessary to develop additional raw material deposits in order to be able to meet the rising demand in the future. From a sustainability perspective, however, the increased extraction of natural resources intensifies an already existing area of tension. This is because an ESG analysis of raw materials shows that various sustainability aspects are in conflict with each other:

  • Challenges arising in connection with extraction and initial processing (extraction phase):
    • Ecological pressures occur primarily during extraction and can lead to environmental pollution, a threat to biodiversity and excessive water use. 

    • Social problems can arise during extraction, for example through child labour and the impact on indigenous peoples. 

    • Political dependencies on unfree and autocratic states such as Russia are currently almost unavoidable in the case of some raw materials and rare earths.

  • Opportunities arising from use (use phase):
    • The ecological goal of decarbonising the economy is only possible through the massive expansion of renewables. For this, a sufficient amount of certain raw materials is technologically necessary. 

    • The expansion of renewable energy sources reduces the dependence on fossil energy sources from (partly) also critical states and limits the environmental problems associated with the extraction of coal, oil and gas - for example with fracking.

In summary: Selected commodities generate a sustainability benefit through their processing, but this is offset by negative ESG effects in their extraction. Can commodity investments in such a constellation be sustainable at all? Can one determine on a "sustainability scale" whether the problems or the opportunities carry the greater weight?

Investment decisions require prioritisation of ESG objectives

Asset managers such as Union Investment are involved in the discussion about natural resources through their investment decisions. When investing in commodities, but also in companies that produce commodities or use them on a large scale, asset managers have to weigh up the "pros and cons" described above. As the above comments have made clear, this is always a fine line. For Union Investment, one thing is certain: an investment decision must be based on a consideration of the entire value chain. At the same time, Union Investment is convinced that, from an ESG perspective, the urgently needed efforts to combat climate change currently represent the greatest challenges facing society as a whole. If one shares this conviction, it seems legitimate in principle to prioritise the goal of decarbonisation over other sustainability goals - but not at any price. Ultimately, therefore, individual decisions are necessary. Completely contradiction-free solutions are rare. This means that investment approaches and decisions in connection with natural resources are always to some extent open to attack from a sustainability perspective.

Transparent decision-making rules improve acceptance

Active and sustainability-oriented asset managers such as Union Investment must therefore provide the most transparent and credible evidence possible for their investment decisions. Systematic selection processes tailored to the respective asset class are a key prerequisite for this:

  • Investments in raw materials:
    • In general, Union Investment has a value-based exclusion of investments in agricultural commodities, but also of uranium, the crucial raw material for the nuclear industry.
    • This is especially true for sustainably oriented investment concepts:
      • Types of raw materials whose production processes and use lead to particularly high ESG impacts are avoided, such as fossil fuels like coal, oil and gas. This is because their CO2 emissions are largely responsible for climate change.
      • The focus is on those types of raw materials that are essential for a sustainable transformation. Only the raw materials that make the most sense after weighing up all ESG aspects are taken into account. Two examples: Copper is a crucial input factor for the construction of renewable energy plants and electricity infrastructure. The positive use benefit is undisputed. But: The industrial mining of copper also leads to ecological burdens - for example in the use of water. From a social point of view, there are also problems - but to a lesser extent than with other metals. This is because copper is mined in politically less critical countries such as Peru and Chile. In Union Investment's view, the positive benefits of using copper outweigh the existing problems in the extraction phase. The situation is different for cobalt. The metal is urgently needed for battery production and the mobility revolution. However, the dependence on the main exporting country (DR Congo) is extremely strong. The many social problems associated with extraction outweigh the benefits for Union Investment. In this case, this leads to a negative overall assessment for sustainability investments.
  • Investments in commodity companies:
    • Within the framework of sustainability-oriented investment approaches, companies are generally excluded if they have particularly critical controversies in their business activities, have a below-average ESG rating in a sector comparison or do not demonstrate a credible, sustainable transformation strategy. For example, even before the start of the Ukraine war, the Russian company Norilsk Nickel was excluded as an investment. Several serious failures in the areas of ecology and workers' rights contributed to the decision.
    • Analogous to the decision for commodity investments, those companies are interesting that - in addition to other ESG aspects - pay attention to an environmentally and climate-friendly use of resources and show openness in the engagement dialogue. Positive examples are the Scandinavian companies SSAB from Sweden and the Norwegian Norsk Hydro - even if they do not extract raw materials themselves but process them. SSAB is a pioneer in the production of "green" steel, which contributes to the company's smaller carbon footprint. Norsk Hydro relies heavily on hydropower as an energy source for its aluminium production, which also results in a noticeable CO2 reduction in production.

Such systematic processes of the asset manager should ultimately ensure that the fundamental prioritisation of the goal of decarbonisation can be comprehensibly justified for each individual commodity and corporate investment. Risks and possible reputational damage from commodity investments cannot be completely ruled out. However, critical aspects are an integral part of the analysis, are not ignored and are included in the overall assessment.


Union Investment is convinced that the use of certain natural resources is essential for the consistent decarbonisation of the economy. Nevertheless, not all investments in such commodities - or in companies that use them - are automatically sustainable. It depends on the individual case - and that means: a systematic analysis is needed to arrive at a balanced investment decision. In this context, not only opportunities through the use for green technologies are assessed positively. Ecological and social challenges in the extraction of raw materials as well as geopolitical dependencies are also specifically taken into account. Sustainability-oriented selection processes help Union Investment to separate the wheat from the chaff. Nevertheless, investment decisions of this kind represent a fine line, even in the case of a positive overall assessment. Asset managers are therefore fundamentally required to explain the described tension in natural resources to investors and the public in a transparent manner. This is the only way to avoid misunderstandings.


An article by von Mathias Christmann. Supported in the area of research by Dr. Henrik Pontzen.


As at 04  April 2023.

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