Mining companies are considered “dirty” in terms of CO2 emissions, nonetheless they are a fundamental pillar of the economy and play a crucial role in the transition to a low carbon world. Moreover, excluding it from a sustainable portfolio might not be a great idea from an active risk perspective. Candriam’s IndexIQ ETF range offers investment opportunities for investors wishing to limit their impact on the environment and profit from the energy transition. Sustainable companies in the metals and mining sector have strongly outperformed the unsustainable ones in the last five years (1), but will they continue doing so? According to Candriam’s latest research paper, some of the sector’s leading sustainable companies are well-positioned to benefit from the transformation of the transport industry to electrification.

Electric cars are the future

The transformation to greener transport is led by a well-known company named after inventor and physicist Nikola Tesla, Tesla Inc. It mainly manufactures and sells electric vehicles, but also offers energy storage products and solar energy systems. A successful business? Tesla has returned more than 42% annually since their IPO in June 2010. Other automakers are also turning to producing electric cars due to tightening regulations on carbon emissions and increasing customer demand. It is estimated that internal combustion engines will play an important role until at least 2025, however the majority of new cars will be hybrid or electric after 2030 (2). Demand for catalytic converters, used for reducing emissions, could see an uptick in short-term demand, however is likely to draw the short straw in the long run caused by the popularity of Tesla’s and other electric cars.

The lighter, the better

The use of light materials in cars to replace (heavy) regular steel is an effective way to reduce the weight of cars and, therefore, petrol and electricity consumption. Subsequently, light metals such as aluminum and high-resistance steel are expected to see an increase in demand. Norsk Hydro, part of the IndexIQ ETF range, is a company specialized in the production and recycling of aluminum products. Almost 70% of its electricity comes from hydraulic energy which makes it one of the sustainable leaders in metals and mining sector.

The battery is key

Electric carmakers are still looking for the holy grail, ie the optimal chemical composition of electric batteries in order to enhance its energy density (3). Lithium batteries with a nickel, magnesium and cobalt cathode  (NMC) is expected to be favored by the market due to its good value for money. Since the price of cobalt is quite high and volatile, more than half of cobalt production is concentrated in the Democratic Republic of Congo, main battery makers are replacing cobalt with (high purity) nickel. A company part of the Candriam’s IndexIQ ETF range is Umicore. The Belgian-based company is transitioning from manufacturing catalytic converters to expanding its capabilities in battery materials (especially NMC). Its strategy is to address the key global sustainable challenges such as climate change and resource depletion. Umicore is also running a battery recycling program in partnership with Tesla, world’s biggest consumer of lithium.

Copper and electrification go hand in hand

Copper plays an important role in the energy transition of the transport industry due to its conductivity. Electric vehicles need on average 140 kg of copper more than an internal combustion engine . In addition, copper is used in the infrastructure to recharge electric cars. A company who could reap the fruits from a surge in copper demand is Antofagasta, a copper mining group listed on the London Stock Exchange. Besides the solid demand for copper there is a shortage of large-scale new copper mining projects which should lead to favorable copper prices according to Antofagasta CEO. 

Conclusion

China’s ambitious plan is to become one of the frontrunners in the electric car industry which should further limit global carbon emissions and should add to the increasing demand for metals used in electric cars. Mining companies selected in Candriam’s sustainable IndexIQ ETFs are well-placed to profit from the energy transition and, thus, should continue to provide investors with positive returns. 




(1) Sustainable companies represent the top 70% best scoring ESG companies in the Metals & Mining
(2) Barclays research
(3) Measures the amount of energy stocked in a defined mass or volume