People use many commodities in their everyday life – products such as sugar and wood, as well as metals and minerals. Some of these natural resources are rapidly depleting and could soon become scarce, which is a serious risk for a sustainable future. Find out what Triodos demands of companies so that we can avoid natural resource depletion.
High-risk commodities
Commodities or raw materials are used as the basis of a production process. Soft commodities become available through agriculture, forestry or fishery and include products such as sugar, wood and fish oil. Hard commodities, in contrast, are natural resources extracted through mining and include products such as tin, copper and crude oil. The continued availability of hard commodities in the long term is a main concern, as their constant use leads to resource depletion.
Commodity availability – a hot topic
The availability of commodities is a hot topic and one that is often debated in sectors, such as energy provision (regarding oil and gas), agriculture (regarding essential elements for food production) and electronics (regarding rare earth elements). Depletion of reserves, increasing prices, recyclability, substitution and geopolitical risks are considered the most important topics and are the subject of a steadily growing number of studies. Some studies, for instance, indicate that reserves of phosphate and zinc, both essential for food production, may become critical in a lifespan. However, there is not a lot of consensus among the experts and it appears difficult to classify specific commodities as scarce already.
When does scarcity become critical?
Whilst scarcity is difficult to classify, the systematic mining of minerals and metals undoubtedly leads to depletion. The question is when depletion becomes critical. Researchers constantly adjust their estimation of absolute reserves based on new insights and techniques. In practice, however, markets look at the available reserves compared to the commercial value (price), meaning their relative scarcity. If prices go up, reserves that were formerly not commercially exploitable can become interesting, whereupon the relative scarcity thus becomes less critical.
How does Triodos assess scarcity?
Despite the changing outlook for resources scarcity, Triodos believes that companies that are involved in mining and/or processing of hard commodities should be aware of the long-term risks related to resource depletion and should take their responsibility to mitigate these concerns. Triodos expects companies to take a precautionary approach with respect to mining and the processing of hard commodities, and asks them to demonstrate their awareness. They also need to describe the activities they undertake to prevent depletion, preferably backed by formal programs and targets. Other relevant topics for analysis and dialogue include innovations in mining processes, the re-use of tailings and the use of end-of-life recycling. Unfortunately, we have not yet come across a best practice example in the sector. The topic is not yet high on the public agenda of large multinational companies. By introducing our precautionary principle we aim to draw their attention to this topic and hope to stimulate change.
Note: The issues explored in this article are relevant for sustainable investments on the stock market. Triodos Bank believes that our socially responsible investments are a powerful means of promoting our values and working for greater sustainability, while enabling us to offer a complete range of attractive investment options to customers who choose to invest on the stock market.