09 May 2025

Enhancing ESG Standards in the Critical Minerals Supply Chain

SFA (Oxford) was commissioned to identify existing gaps and opportunities related to the application of ESG standards in the Chilean mining industry, with particular consideration of the industry’s global role given the rising demand for critical minerals such as copper, lithium, molybdenum, rhenium, and rare earth elements, among others, due to their significance in processes like the energy transition and technological development.

The report is framed within the UK Government’s interest in understanding the current global landscape regarding the application of ESG standards and practices in the national mining sector. In this instance, the consultancy focuses specifically on Chile, due to: (i) the national relevance of the mining industry; (ii) Chile’s importance as a UK trading partner; and (iii) the presence and role of various British companies in the national mining sector.

Chile holds a leading position in global supply chains for critical minerals that are essential for accelerating a clean energy transition, particularly copper and lithium. These minerals are crucial, for example, for the development of renewable energy technologies, electric vehicles, electronic devices, and energy storage, among other areas.

Ismet Soyocak

ESG and Critical Minerals Lead

As countries progress towards meeting their energy transition and carbon neutrality goals, the demand for minerals such as lithium and copper will increase. This presents not only a unique opportunity for the development and consolidation of a key industry in countries like Chile but also a challenge to ensure that such development and consolidation align with the most advanced international environmental, social, and governance (ESG) standards.

The mining industry in Chile is well-positioned to respond to the growing global demand for critical minerals, thanks particularly to its existing mining infrastructure and operations, skilled workforce, and regulatory stability. However, there are high expectations from governments, investors, civil society, and other relevant stakeholders for the industry to continue strengthening its ESG standards. A lack of practical application of international frameworks related to these standards could expose Chile, as well as the companies operating within the industry, to various risks—physical, climatic, regulatory, financial, and reputational.

On the other hand, the widespread application of these standards and practices would not only help reduce or mitigate such risks but also boost investment in Chile through new financing mechanisms and incentives linked to ESG compliance. Ultimately, this would consolidate the country’s long-term position as a relevant and competitive global player in the mineral supply chain necessary to meet climate goals both nationally and internationally.

Jamie Underwood

Principal Consultant

Key findings

Through data analysis, database reviews, and various reports, alongside interviews with stakeholders in the mining sector, eight key topics or challenges have been identified in relation to ESG implementation in the country:

1. ESG Regulations: Chile’s mining sector faces complex and often fragmented permitting processes. While international standards shape better ESG practices, complex regulations and unclear national frameworks present challenges that need addressing.

2. Climate Change and Decarbonisation: Mining companies generally aim to achieve carbon neutrality by 2040, but the adoption of measures such as switching to electric vehicles and biofuels is hindered by high costs, limited scalability, and insufficient financial support or targeted subsidies.

3. Water Management: Water scarcity has become a critical issue both nationally and for the mining industry specifically. Clear regulations on technologies like desalination (linked to plants and infrastructure) and continuous improvement in effective water management will be key not only to maintaining long-term mining operations but also to managing and strengthening relationships with nearby local and Indigenous communities.

4. Tailings Management: Tailings dams and deposits (particularly abandoned ones) can pose high risks due to dam failures, watercourse contamination, and accidents caused by extreme weather events. The adoption of efficient design models and monitoring mechanisms is crucial to avoid or minimise such risks.

5. Social Licence to Operate: Mining companies prioritise engagement with local and Indigenous communities through co-designed solutions and transparency. However, Chilean legislation still lacks clarity regarding the granting of Indigenous territorial rights and collective protection mechanisms.

6. Biodiversity: Mining operations near sensitive ecosystems such as salt flats, wetlands, and glaciers require extensive analysis and investment. While companies are progressing in integrating biodiversity into their sustainability efforts, they continue to face challenges due to insufficient data and funding.

7. Diversity, Equity and Inclusion – Gender Equality: Mining companies are promoting female employment and pay equity, but the existence of remote operations and rotational shift work hinders progress in this area, requiring ongoing efforts and potential government support.

8. Sustainable Investment and Innovation: Companies are independently funding innovative projects related to biodiversity and decarbonisation technologies, but other financing mechanisms and support to ensure the scalability of pilot projects remain limited.

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A five-point Action Plan to strengthen ESG leadership in Chile’s mining sector

To address these eight ESG challenges, a five-point action plan has been developed for the mining sector. It is estimated that comprehensive implementation of this plan will enable Chile to strengthen its role as a global leader in the responsible production of minerals such as copper, lithium, and molybdenum:

1. Transformation of Public Policy Systems: Strengthen national regulatory frameworks and governance mechanisms to ensure robust compliance and application of ESG standards.

2. Optimise Operations Across Their Lifecycle: Promote sustainable mining practices along the mineral extraction and processing value chain, particularly in areas related to energy efficiency, operational electrification, responsible tailings management, and pollutant emission reduction initiatives.

3. Enhance Water Management in Operations: Address water scarcity and improve resource efficiency in Chile through the implementation of solutions such as water recycling, desalination, and protection of watershed headwaters.

4. Advance the Application of Circular Economy Principles: Accelerate the adoption of measures such as waste reduction, recovery of secondary materials, and the reprocessing of tailings deposits.

5. Improve Land Use Impact Management: Strengthen biodiversity protection, ecosystem restoration, and promote the adoption of net gain initiatives and proactive, early community engagement strategies to mitigate the negative impacts associated with land use.

Chile–UK collaboration: Advancing ESG leadership and sustainability in mining

While mining companies in Chile generally continue to lead in setting sustainability targets linked to ESG compliance, there is still room for improvement. Chile is currently in the 20th percentile globally, ranking 32nd in ESG scores. Although this ranking reflects notable progress, it also highlights substantial opportunities for further advancement.

It is within this context of improvement that strategic opportunities for short- and medium-term collaboration between countries, particularly between Chile and the United Kingdom, emerge. By jointly addressing ESG challenges, Chile and the UK can strengthen global partnerships, enhance environmental, social, and governance performance, and ensure the mining sector’s sustainability. Key opportunities identified include training and technical knowledge exchange among decision-makers, developing new technical skills for mining personnel, and integrating long-term sustainability goals into operational strategies. Striking a balance between profitability and ESG leadership is essential for the sustainable economic success of both countries.

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