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Tracing ESG impacts in Indonesia’s nickel mining

The case for a new digital platform

Indonesia’s nickel sector faces rising scrutiny over its environmental footprint. To secure global deals and credibility, the nation must embrace green mining – through a digital ESG traceability platform that ensures transparency, accountability, and market access.

As Indonesia looks to close critical minerals deals with markets like China and the United States, it will have to demonstrate its mining activities – not generally perceived to be “clean and green” – are indeed sustainable.

As a case in point, a European joint venture had earlier in mid-2024 cancelled plans to build a nickel-cobalt refining complex in Indonesia amidst environmental concerns, dealing a high-profile setback to the nation’s nickel ambitions. The takeaway is clear: Indonesia’s mining sector must shift towards green mining practices in order to access global markets and strengthen its negotiation position in critical mineral deals.

This is a formidable task, not least because there are varying definitions as to what constitutes green mining practices. 

Given that Indonesia holds the world’s largest reserve of nickel – it produced about 40 per cent of the world’s nickel in 2023, according to S&P Global Market Intelligence data – not to mention its significant reserves of copper, tin, and bauxite, its participation in green mining practices is critical not only at a national or regional level, but also at a global level.

However, in terms of nickel production, estimates suggest that only about 1 to 5 per cent of Indonesia’s production could potentially meet the carbon intensity threshold set by the London Metal Exchange (LME) to be considered low-carbon nickel. 

But that is not where the challenge ends: Indonesia’s mining sector also faces difficulties in credibly certifying its green end-products – where they are available – due to the lack of standards and systems that can transparently trace them to their source of origin.

The case for a new traceability platform

Indonesia already has in place its SIMBARA platform for the tracking of minerals, but the platform’s primary focus is on preventing illegal mining, rather than the tracking and tracing of environmental, social, and governance (ESG) impacts. We therefore posit that Indonesia closes this gap through the development and establishment of a new traceability platform.

Fundamentally, a digital traceability system of such a scale should be capable of not only monitoring compliance with ESG standards, but also tracking other critical aspects, such as carbon intensity, energy mix, biodiversity impact, water usage, and supply chain transparency.

While it will no doubt be a complex undertaking, the platform could draw its inspiration from some of the proof of concepts developed by leading organisations in recent years. For instance, the World Economic Forum’s Mining and Metals Blockchain Initiative (MMBI) has developed a carbon tracing platform, which uses distributed ledger technology to track greenhouse gas emissions from mine to final product [1].

Conceptually, these solutions integrate blockchain with technologies such as radio-frequency identification (RFID) to create real-time, automated tracking of metrics from the source to end-user:

  1. Data collection: Energy consumption and carbon footprint data from upstream miners and processors are recorded in a decentralised ledger, where smart contracts verify sustainability compliance before issuing a certificate of analysis (CoA).
  2. RFID tagging: Each production batch is tagged with a unique identifier linked to blockchain records, with automated checks ensuring that only batches meeting sustainability criteria advance through the supply chain.
  3. Point of sale: The CoA serves as a verified record of the batch’s compliance with quality and sustainability standards during transactions. 
  4. Shipment and distribution: RFID-tagged batches are linked to the blockchain, enabling smart contracts to automate the monitoring of sustainability metrics throughout the distribution process.
  5. End-user traceability: Downstream users can verify sustainability credentials by scanning RFID tags to access the CoAs, and report emissions data through automated data collection technologies. 
  6. Performance feedback: Analytical tools may be integrated with the blockchain to aggregate performance feedback and sustainability metrics across the supply chain, providing insights to track progress towards “green” production.

In the context of a national-level platform, additional ecosystem considerations should also include the need for the government to develop governance standards and guidelines for mining players – perhaps through the establishment of regulatory sandboxes for companies to test out their digital traceability solutions – as well as collaborate with domestic and international partners to promote the national platform as a best practice and encourage its widespread adoption.

Shaping the global narrative of mining

As one of the largest mining producers in the world, Indonesia is uniquely positioned to shape – if not lead – the global narrative on green mining practices. The caveat, however, is that this only holds true if Indonesia acts now, and acts quickly; as things stand, there is already a growing risk that global players may seek to fill the void that it has left behind. 

Earlier this year, for example, we observed a growing number of calls by global mining players for LME to introduce a green nickel premium, in response to price pressures stemming from the increased production of non-green nickel by Indonesia. 

If Indonesia is to mitigate the risks associated with the emergence of parallel standards and systems that may not align with or run contrary to its national interests, it follows that it must actively and credibly participate in the ongoing global conversation – starting not least by playing its part in the shaping and transformation of the global mining sector’s evolving ESG standards to ensure that they remain fit-for-purpose going forward.

 

[1] “Blockchain can trace carbon emissions for mining, metals companies, proof of concept released”. World Economic Forum. 15 December 2020.

 

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