Rare Earth Minerals: The Hidden Backbone of the Energy Transition

Clean energy, electric vehicles, and other technologies depend on rare earth minerals, making supply security vital. Green finance enables responsible mining, recycling, and diversification – reducing risk and supporting sustainable growth.

The global shift to clean energy and sustainable transportation is inseparable from access to rare earth minerals and other critical raw materials. Technologies – such as wind turbines, electric vehicles (EVs), and solar panels – rely on these elements to achieve high performance, lightweight design, and maximum efficiency. Without them, large-scale production of permanent magnets, advanced batteries, and efficient photovoltaic cells would be impossible.

The International Energy Agency (IEA) underscores this dependency: an average EV requires six times more minerals than a conventional car, while onshore wind turbines demand up to nine times more mineral resources than gas-fired power plants. This mineral intensity makes supply security a strategic priority for the energy transition.

Green and sustainable finance is emerging as a strategic tool to support diversification of rare earth minerals, channeling capital into responsible mining, recycling, and alternative sourcing initiatives that reduce dependency on single-country dominance.

China’s Dominance of Rare Earth Minerals and Geopolitical Risk

Currently, China controls the lion’s share of the global rare earth supply chain, with growth in mining and refining projected to reach 80% and 90%, respectively, according to the IEA’s 2025 Global Critical Minerals Outlook. This concentration creates a structural vulnerability: rare earth elements have become a geopolitical bargaining chip amid rising global tensions. Any disruption – whether through export restrictions or trade disputes – could stall progress toward climate goals.

The EU’s Response: Critical Raw Material’s Act

To mitigate these risks, the European Union introduced the Critical Raw Materials Act (CRMA) in 2024. The legislation sets ambitious targets for recycling, processing, extraction, and sourcing, aiming to strengthen the rare-earth circular economy and secure a stable supply to meet the EU’s 2030 consumption needs with the goal of achieving a sevenfold increase by 2050. The European Climate, Infrastructure and Environment Executive Agency reports that the current recycling rate for rare earth elements is less than 1%, with approximately 12,900 tonnes imported annually – primarily from China and Russia. By diversifying sources and promoting sustainable practices, the CRMA seeks to reduce dependency on single-country dominance while addressing environmental and social challenges linked to mining.

Green Finance: Driving Sustainable Supply Chains

Financing the energy transition is a monumental challenge: according to the World Economic Forum, an estimated $5.6 trillion in annual investment will be required through 2030 to support energy transition initiatives.

Green Bonds and Sustainability-Linked Loans

Green finance – through instruments such as Green Bonds and Sustainability-Linked Loans (SLLs) – is emerging as a critical enabler. These tools channel capital into responsible mining, supply chain upgrades, and sustainability projects.

Evidence of impact is growing: according to a recent academic study a 1% increase in green credit correlates with a 0.52% reduction in CO₂ emissions from mineral extraction for EVs. By issuing green bonds, mining companies enhance transparency and build investor trust, allowing stakeholders to track the environmental impact of every dollar invested.

Despite this promise, adoption remains limited. The Center on Global Energy Policy at Columbia University asserts that, as of Q1 2024, the mining sector issued $12.5 billion in thematic bonds, including $6.3 billion in green bonds and $4.3 billion in SLLs, yet this represents less than 0.3% of the total thematic market, signaling vast untapped potential. Additionally, $26.2 billion in sustainability-purpose loan facilities is available, though the real impact may be lower as not all credit lines are fully drawn.

Standards and Verification for Responsible Mining

Despite mining’s historic sustainability risks, today’s thematic bonds require high environmental and social standards, helping raise the bar for all new projects. Sustainable finance standards developed by the International Capital Market Association (ICMA) play a pivotal role in this shift. The ICMA Green Bond Principles now include guidance on Green Enabling Projects, allowing capital to flow to activities such as rare-earth mining, refining, and magnet manufacturing – projects that enable climate solutions even if they are not inherently green. To avoid greenwashing, these projects must directly support renewable energy, e-mobility, or other Paris-aligned outcomes, and report against stringent sectoral standards for decarbonization and circularity.

As highlighted in a commentary from the Center on Global Energy Policy at Columbia University (Jain et al,. 2024), innovative frameworks are reinforcing accountability:

• Use-of-Proceeds Green Bonds with environmental and social risks management can mandate measurable investments in biodiversity protection, pollution control, labor health and safety, and community development.
• Exclusion commitments prohibit financing for high-risk practices such as weak tailings dam infrastructure, waterway dumping, child and forced labor, weapons, military contracting, and other activities that may pose significant environmental or social risks.

Independent verification is critical to ensure credibility. Providers like ISS-Corporate deliver Second Party Opinions (SPOs), assessing whether issuers have robust policies, safeguards, and reporting mechanisms. SPOs promote transparency and trust, enabling investors to prioritize environmental and social responsibility. Since 2018, SPOs have supported rare metals and recycling projects globally, including the Arafura Rare Earths Ltd, Industrial Development Corporation of South Africa, RLB NÖ-Wien, and Metlen Energy & Metals and Sociedad Química y Minera de Chile.

Path Forward: Building Resilient Supply Chain

China’s rare-earth restrictions have heightened the urgency for major economies to establish resilient, diversified global supply chains. To mitigate financial, environmental, and social risks, nations are adopting supply chain rebalancing and circular innovation – requiring significant capital investment. Green finance offers a powerful solution to bridge this gap, but its effectiveness depends on rigorous standards and independent verification. Without transparency, environmental and social risks could offset the benefits of the transition. By embedding accountability and aligning with global frameworks, green finance can enable a rare-earth supply chain that is both sustainable and future-proof.

Acknowledgment: This article was authored by Adams Wong, with contributions from Illaria Vigo, Allen Ng, and Justin Chow of the Sustainable Finance Research group at ISS-Corporate.