Introduction

The report analyses sustainability risks and opportunities across the lithium-ion battery value chain, focusing on technologies, materials and stakeholders relevant to the energy transition. It supports investors in integrating environmental and social considerations into investment decisions and engagement. The scope is limited to lithium-ion batteries and excludes legacy and niche technologies.

The role of batteries in the energy system

Lithium-ion batteries are critical to electrification and renewable energy integration. Global battery deployment has almost doubled year on year since 2019, reaching about 85 GW. Electric vehicles dominate demand, with EV battery demand rising by roughly 45% in 2023. Meeting climate targets requires battery deployment to increase around sevenfold by 2030.

Lithium-Ion battery technologies and chemistries

High-nickel lithium-ion batteries, such as NMC, and lithium iron phosphate (LFP) batteries dominate the market. High-nickel batteries power over half of EVs and offer high energy density. LFP batteries accounted for more than 40% of global EV battery demand in 2023 and around 80% of new stationary storage installations, driven by lower cost, improved safety and longer lifespans. Greater LFP uptake reduces reliance on cobalt.

The Lithium-Ion battery value chain

The value chain spans raw material extraction, processing and refining, cell and pack manufacturing, battery installation and end-of-life management. Cells represent roughly 70% of battery pack costs, with cathodes accounting for about half. Environmental and social risks exist throughout but are most severe during extraction and processing.

Extracting critical minerals

Demand for lithium, nickel, cobalt and graphite is projected to rise several-fold by 2050. Lithium extraction is concentrated in brine operations in Chile, Argentina and Bolivia, and hard-rock mining in Australia. Brine extraction emits less CO₂ than spodumene mining but is highly water intensive, using up to 65% of local water resources in some regions. Mining can degrade ecosystems and displace communities where regulation is weak.

Processing and refining

Processing and refining are geographically concentrated, with China responsible for over 65% of global processing of lithium, cobalt and graphite. This creates supply chain and geopolitical risks. Refining is energy intensive, often reliant on carbon-intensive electricity, and involves hazardous chemicals, generating emissions, toxic waste and worker health risks. Allegations of forced labour highlight material social concerns.

Manufacturing and battery assembly

Battery manufacturing presents lower but still material environmental risks, mainly linked to energy use, emissions and waste. Rapid expansion increases pressure on manufacturers to decarbonise operations and improve transparency. Chemistry selection involves trade-offs between cost, performance, longevity and supply chain exposure.

End-of-life management and circularity

Battery volumes reaching end of life will rise sharply as EV adoption grows. Landfill disposal is not viable, making recycling and reuse essential. The global battery recycling market is expected to grow fivefold by 2030, although large-scale recycling is unlikely before the 2030s. Second-life applications can reduce material demand and emissions.

Mitigation and investment opportunities

Governments are strengthening regulation, including the EU Battery Regulation and Battery Passport. Investors can improve outcomes by strengthening due diligence, encouraging life-cycle assessments and third-party audits, and engaging companies on emissions reduction, worker protections, traceability and circular business models. Collaboration with governments, refiners, manufacturers and recyclers can also support supply chain resilience, innovation and improved data quality across global battery markets. These actions help align capital allocation with long-term climate objectives, risk management expectations and evolving regulatory requirements for responsible investment practices across jurisdictions globally.