The Biden administration and a host of U.S. allies are looking abroad to mineral-rich countries to secure vulnerable supply chains for EV batteries and renewables.

Jose Fernandez, the State Department's undersecretary for economic growth, energy and the environment, is trying to make sure the effort keeps ESG at the forefront.

Fernandez said the Minerals Security Partnership, established last year between 10 countries and the European Commission, has zeroed in on 16 overseas mining, refining and recycling projects to pursue, out of more than 170 that it evaluated.

The partnership’s work is emerging as a focal point on Capitol Hill, with House Foreign Affairs Republicans vowing to ramp up oversight of the effort.

For the still-unannounced projects to move forward, countries and firms will need to comply with a host of environmental, social and governance standards. Countries seeking help from the partnership will also need to display transparency around any bidding process, Fernandez said, and ensure local communities and Indigenous populations are consulted.

Upon checking those boxes, the partnership may offer up everything from political support to technical guidance, loans, financing through the Export-Import Bank or International Development Finance Corp., or political risk insurance.

This interview has been edited and condensed for clarity.

How many projects is the partnership focused on?

[Each MSP partner] submitted projects that their companies were interested in pursuing. We received about 180. We then have narrowed those down to 16 pilot projects that are being evaluated by the project working group on the basis of the investment climate, the need for the mineral, and also the potential for investment.

Those 16 projects go from mining projects, to processing projects to recycling. Recycling is a major aspect of what we're trying to do in the critical minerals space.

Once we select the projects that we can all agree should be pursued, we will then go to our companies and try to attract investments and financing or offtake agreements.

The partnership is offering more than just financial backing.

That’s exactly right. When we first started thinking about this, that role that was missing, often was financing support, either in the form of guarantees or straight project financing.

But in speaking to a number of companies – and we've done a lot of outreach with companies that are interested in or pursuing critical minerals – oftentimes, they said, 'Look, there’s enough funding, there’s enough liquidity.' Very often what we need is to have the support of the partner countries. All of them are important nations, we’d like to be able to say we’ve got the support of the partner countries and at times we may need the partner governments to provide us with advice or support to improve the investment climate.

We intend to compete on the basis of following the highest ESG principles. So, a lot of what they were looking for, to make the point short, it's advocacy as much as financing.

Where is the money coming from?

Remember, this is not just a U.S. initiative. This is a multilateral initiative. All of us have export credit agencies, all of us have the equivalent of development financing institutions, all of us also have access to our private sector, and that's important.

Oftentimes what happens is that there’s not enough information, the information comes too late, and oftentimes the financing is not necessarily the issue. But if it’s needed, it will be our private sectors, our development agencies, our credit agencies, and our job will be to make sure that that’s coordinated.

What is the partnership doing on ESG? 

A basic tenet of the MSP is to advocate for higher standards, for greater transparency, for good environmental practices, for more transparency, for local benefits. And many times, the host countries will want not only to be mining countries, but they’ll want to be involved in value-added, downstream activities, processing and the like.

So, ESG is fundamental to what we’re trying to do. And that’s basically avoiding a race to the bottom and engaging in the race to the top. We’ve discovered and we’ve been told often by companies that they need alternatives and they’d like those alternatives to bring more benefits to their populations, and that’s what we’re trying to do.

A U.S. company operating in the developing country will have to follow U.S. principles. It will not be able to dumb down its standards.

How can you guarantee these minerals will end up in the U.S.?

Some of that is accomplished through the Inflation Reduction Act. In order for companies to be eligible for credits, these are minerals that will have to be produced in certain countries.

We know that by 2040, the clean energy transition will result in an increase of five times, 500 percent, increase in overall critical minerals.The [International Energy Agency] is telling us that we will need 42 times the amount of lithium by 2040. So, the market will be here; the domestic mineral industry will play an important role.

I have no doubt that projects supported overseas by the U.S. and its partners through the MSP will result in a more secure supply chain for U.S. companies, for U.S. investment.

Is the goal of the MSP to get away from Chinese and Russian control of these mineral supply chains?

Our objective is to encourage the highest ESG standards, attract private sector investments and make sure that countries, producing countries, benefit from an industry that will take off in the next two decades.

It is not about China. If we've learned anything from the COVID pandemic, it’s that we cannot depend on single-point supply chains. We've got to diversify and create a much more resilient supply chain right now for the U.S.

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