Fuel prices have hit record highs in the UK. Petrol recently reached over £7 a gallon according to the Automobile Association (AA), and diesel soared to a record 177p a litre on average according to automotive insurer RAC.
This price inflation is not restricted to the UK, with the US having just announced plans to release up to 1 million barrels of oil a day from the country’s strategic reserve in an attempt to control the price of the fuel – not to mention rationing regimens being proscribed across Europe.
Although prices were already on the rise, the conflict in Ukraine has caused an even greater surge, and European and American efforts to cut back on imports from Russia mean costs will likely continue to climb. This could represent the beginning of the end for fossil fuel-guzzling ICE vehicles – and in doing so, it opens the door for new opportunities in the electric vehicle (EV) sector.
Electric vehicle sales already more than doubled between 2020 and 2021 to reach 6.6 million vehicles. Now, rising petrol prices are giving consumers another reason to think about going electric. New data from the Society of Motor Manufacturers and Traders found that Britons bought more electric cars in March than in the whole of 2019, incentivising investors to look more seriously at the EV sector.
One of the main advantages of EVs compared to Internal Combustion Engine (ICE) vehicles is that the electricity they run on can come from anywhere, including cheaper and greener renewables, meaning they play an important role in greening the transport sector. The UN’s latest IPCC report claims that electric vehicles powered by low emissions electricity offer the largest decarbonisation potential for land-based transport. This is supported by research from the Global Battery Alliance and McKinsey, which found that the lithium-ion batteries powering electric vehicles could bring down emissions in the transport and power sectors by the 30% required to meet the Paris Agreement goals.
There is clearly much cause for optimism in the recent surge in electric vehicles, and the sector presents exciting opportunities to investors. However, to guarantee EVs’ long-term attractiveness, there must also be an increased focus on end-to-end sustainability. This is because the mass scale-up in the production of these vehicles, including the lithium-ion batteries they contain, poses a range of ESG risks in relation to human rights, vulnerable communities, and battery recycling.
One of the key components of many electric vehicle batteries is cobalt, the majority of which is produced in the Democratic Republic of the Congo (DRC), a country which is often associated with unethical and unsafe labour practices. For example, it has been estimated that around 40,000 children work in the artisanal mining of cobalt in the DRC, and environmental issues such as poor management of water resources and air pollution are prevalent. Electric vehicles cannot be considered a clean ESG-friendly transport alternative if they are produced in a way that damages the environment or violates human rights. These systemic issues must be addressed for electric vehicles to be viable in the long term.
A collaborative approach between companies, investors and policymakers is needed to reduce these risks and make the EV and battery value chain more responsible, just, and circular. Industry players must take immediate action to improve their ESG impact. Investors, both private and public, should require environmental compliance and social responsibility in the development of the value chain. Policymakers must also establish regulations that are based on the whole lifecycle, to increase focus on greenhouse gas disclosure and electric vehicles’ Scope 3 emissions.
The Global Battery Alliance (GBA) aims to bring these groups together and promote the creation of a long-term, sustainable battery value chain. Its 90+ members include industry majors, governments, NGOs and academics, such as Microsoft, Tesla, Volkswagen AG, UNICEF, the Environment Ministry of Japan, and Eurasian Resources Group. The GBA’s ‘Battery Passport’ initiative seeks to create a digital ID for batteries to put data about their ESG performance, manufacturing history and provenance in the hands of consumers.
As a major near-term driver to realise the Paris Agreement goals, EVs present promising investment opportunities. However, investment in the infrastructure needed to support rising electric vehicle use – including renewable energy and charging stations – is equally as important as investment in the production of EVs themselves.
To ensure both the continued viability of the EV market and long-term value generation in this area, it is important to remember at the heart of EV adoption is the drive for sustainability. Electric vehicles are only as sustainable as the energy they use, the supply chains behind them and the infrastructure built up around them. As fuel prices continue to rise, improving the ESG impact of all these elements must be the focus of all stakeholders involved.
