Artisanal Mining and the Opportunity for Pension Funds to Enhance Sustainability
In this guest blog, Rob Karpati of The Blended Capital Group examines how improving standards in artisanal and small-scale mining can reduce systemic risk, stabilize critical mineral supply chains, and open viable, long-term investment pathways for pension funds.
Context
With inherently long-term mandates that include a fiduciary duty to consider legacy as well as emergent risks, pension funds are well-placed to capitalize on sustainability-oriented initiatives that increase climate resilience directly by facilitating transitions to clean energy, and indirectly through infrastructure that is fit for purpose in changing weather patterns.
Recognizing the scale of US pensions - AUM for CALPERS alone is $550B - even minor shifts in aggregate positions can deliver significant improvements in targeted outcomes. At this scale, many funds function as universal owners, fully exposed to broad economic opportunities and systemic risks.
Climate Finance Action’s recent white paper, Unlocking State Power: Overcoming Barriers to In-State Climate Investment for Pension Funds, explores these dynamics in greater depth. The paper examines why pension funds often struggle to translate long-term risk awareness into deployable capital and what institutional shifts enable action.
An Example of an Opportunity
Mining is a sector where funds can enjoy long-term returns while supporting responsible practices and programs that de-risk broader economies while improving social and ecological impacts. Wood Mackenzie estimates that $ 2.3 trillion in net new investment is needed to build the critical minerals capacity the world requires. Mining often takes place in remote, relatively underdeveloped areas, bringing risk profiles that range from technical geology and engineering to social conflict, ecological risks, and geopolitical rivalries.
Mining is often regional in scope and impact. Large-scale projects may be isolated or part of a series of projects that include multiple larger mines in a region, along with small-scale ‘artisanal’ miners who operate informally. These dynamics can generate risks, including environmental degradation, water contamination, resource competition, and social conflict, across both large and artisanal operations. To realize positive outcomes, regional ecosystems should be considered holistically, accounting for the relationships between mines, artisanal miners, and the socio-economic context of nearby communities.
Critical minerals supply shortfalls are a looming reality for a number of reasons:
There simply isn’t enough capacity in the system – new mines are needed.
Existing mines sometimes conflict, operating in areas of military conflict, like the Democratic Republic of the Congo (DRC), or causing conflict with communities and artisanal miners due to the complex impacts.
China has dominant positions in mining and refining, largely controlling the value chains that begin on the ground. This fact does not increase global shortfalls, but it does increase the fragility of supply for some countries.
From a systemic risk perspective, insufficient capacity is a fundamental problem, with clean energy solutions, AI/tech, housing construction, military equipment, and many other sectors all requiring stable, predictable access to supply.
Pension funds have historically shied away from mining, recognizing social and ecological concerns around the industry. This has made historical sense, but is it appropriate given today’s realities, where the lack of mining capacity significantly increases long-term systemic risks?
Combining the basic drivers of major pension funds – the need for long-term stable returns and the opportunity to enhance sustainable outcomes – sustainability bonds represent a clear opportunity for pension funds. There is a $1 trillion global sustainability bond market. Veridicor is rolling out Stakeholder Prosperity Bonds, ICMA-compliant sustainability bonds where the scope combines the professionalization of small-scale ‘artisanal’ miners with targeted improvements to large operations and with the development of regional infrastructure like roads, water, and power systems which both mines and nearby communities require.
These programs deliver:
Increased productivity given improved practices for artisanal miners and de-risked large projects as conflict transitions toward collaboration
Regional development as improved infrastructure and capacity building set in
Improved lives for miners –dignity of work, reduced poverty, improved safety, and elimination of child labor
Better ecological outcomes as Forest Smart Mining standards are implemented
KPIs directly integrated into bond structures ensure accountability and transparency.
Implications for Long-Term Capital
There are strong opportunities for pension funds that combine enabling increased sustainability with realistic returns profiles where risks are manageable. Sector-specific thinking is, of course, critical, framing the specific dynamics of what can be delivered, the implications for broader de-risking given the role of large funds as universal owners, and the commercial dimensions of risks and returns. The mining example speaks to how evolving realities are shifting which opportunities make sense. Critical minerals were not seen as critical not that long ago, but they are now broadly understood as essential to value and as key sources of risk.
The link between artisanal and large-scale mining, which is broadly in play, was also not well understood until relatively recently, with narratives about the nature of artisanal mining in particular often varying widely from reality. Financial instruments like Stakeholder Prosperity Bonds bring these together in a sector-specific, bespoke context, one that is compelling relative to the fiduciary duty of pension funds that combine long-term stability and returns with risk management.
For a broader examination of these institutional and operational challenges, and the governance and capacity shifts that enable pension funds to act across sectors, read Unlocking State Power: Overcoming Barriers to In-State Climate Investment for Pension Funds.
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