From the sky, the Atacama salars look like a glitch in the desert: squares of blue-green water pinned to a white horizon. From the ground, the geometry is plumbing — pipes, wells, and evaporation ponds drawing brine from ancient aquifers. Investors call it the front line of decarbonisation. Communities downwind call it a new form of drought. Between the two narratives sits a badge that promises to reconcile the tension: ESG.

Follow the Label, Follow the Money

ESG — environmental, social and governance — started as a way to steer capital toward lower risk and better behaviour. Today, it marks passive equity funds, green bonds, transition bonds, and private-credit vehicles. The brand suggests that, at minimum, money avoids harm. Yet the trace backs on several “green” flows lead directly to extraction projects that heighten water stress, raise tailings risk, or carry unresolved labour concerns.

The contradiction persists because of where the energy transition’s bottlenecks sit. Solar and wind need metals; batteries need lithium, nickel and cobalt; grids soak up copper. The International Energy Agency expects demand for some of these minerals to multiply in the next two decades. Capital is moving to fill the gap. But in the Global South’s mining belts, extraction risk is not theoretical; it is the ground truth.

Case Study I — Lithium, Water and the Atacama Thesis

Lithium brine extraction in Chile and Argentina pumps saline fluids from underground reservoirs, spreads them across evaporation ponds, and concentrates lithium carbonate from the residual. The physics is elegant; the hydrology is not. Pumping changes pressure balances that can affect freshwater lagoons used by pastoralists and wildlife. Operators point to recycling, monitoring wells, and improved water balances. Environmental groups counter with satellite evidence of shrinking wetlands.

What makes this an ESG story is less the mine than the money. “Green” funds have financed the surrounding roads, ports, and power lines through labelled bonds or sustainability-linked loans. The projects meet checklists: disclosure, climate targets, community engagement. But few instruments price water scarcity as a hard risk factor even where aquifers are non-renewable on human timescales.

Case Study II — Cobalt in the Congo: Labour and Oversight

Roughly two-thirds of the world’s cobalt comes from the Democratic Republic of the Congo, much of it from industrial mines and a portion from artisanal and small-scale operations. The social risk is well documented: hazardous conditions, weak enforcement, and the persistence of child labour in parts of the supply chain. Certification initiatives have expanded, and several major buyers fund remediation and monitoring.

Yet the incentives remain misaligned. ESG equity funds can “engage” with listed parent companies and cite improved policies, while debt channels supply the equipment, trucking, or processing that keeps volumes flowing. If pricing power lies in cathode factories far from the mine, value capture also sits far from the risk. The result: supply chains that pass audits but fail communities.

Case Study III — Indonesia’s Nickel: HPAL and the Acid Test

Indonesia is the world’s dominant nickel supplier and has rapidly expanded high-pressure acid leach (HPAL) processing to produce battery-grade material. HPAL is capital-intensive and chemically aggressive: it uses sulfuric acid to extract nickel and cobalt from laterite ores, leaving behind volumes of waste that must be managed for decades. Operators stress modern waste facilities and prohibitions on ocean dumping; critics point to deforestation, runoff risks, and carbon intensity from coal-powered grids feeding the plants.

ESG-labelled capital finds its way into this ecosystem via transition bonds, syndicated loans with sustainability covenants, and infrastructure funds. The logic is that cleaner batteries justify investment in “greening” the dirtiest step. The risk is that the scale and speed of build-out outpace safeguards — and that environmental liabilities end up socialised while profits are privatised.

Why ESG Still Says “Yes”

Three features of the current ESG architecture explain the paradox:

First, scoring over substance. Ratings aggregate dozens of indicators into a composite number. A firm can offset a high environmental footprint with strong governance or disclosure. For extraction, the hazard lies precisely where disclosure is best — modern mines often report more because they operate more — yet reporting does not cancel impact.

Second, project boundaries. Finance is modular. A bond may fund the road to a mine, not the mine; an equity ETF may hold a diversified miner with a controversial asset that is small in group terms. The label attaches to the instrument, not the full system it enables.

Third, transition exceptionalism. Because the energy transition is urgent, risk managers tolerate higher environmental externalities if the long-term trajectory is lower-carbon. “Do harm now to avoid worse harm later” is not written into the term sheets, but it shadows them.

Flow-Map — How “Green” Money Meets the Mine

What “Better” Would Look Like

The Reform Inside ESG

To be fair, the ESG world is not static. The IFC has tightened green-bond taxonomies and use-of-proceeds audits. The OECD continues to update due-diligence guidance for responsible mineral supply chains. Asset owners under the UN PRI are pushing for scope-3 disclosure and nature-related risk integration. Satellite firms now sell deforestation and water-stress alerts to investors who want to monitor claims in near real time.

The problem is pace. Capital moves faster than standards, and the transition timeline is merciless. The result is a gap where good intentions, marketing, and engineering hurry ahead of governance — and communities are left to catch the bill.

Politics Without Slogans

Calling extraction “neocolonial” and finance “greenwashing” may feel righteous; it rarely fixes a term sheet. The practical politics is more granular. It is about who writes the covenants, who verifies the audits, and who can stop a project when thresholds are crossed. In lithium brine country that threshold is water; in nickel country it is waste; in cobalt belts it is labour. ESG that cannot enforce limits is branding. ESG that can enforce limits is policy.

Analytical Lens — Green Capital, True Cost

What the Atacama, the Congo, and Sulawesi share is not a single villain but a shared arithmetic error. We have priced the climate benefit of cleaner end-use hardware and discounted the extraction cost that delivers it. If ESG is to earn its name in the age of scarcity, it must do the unfashionable thing: slow down some projects, shrink others, and make the remainder pay for the damage they cannot avoid. That would make the transition more expensive at the cash register and less expensive at the aquifer, the river, and the village.