Lithium's Green Paradox: ESG Risks Haunt EV Supply Chain
Protests and water scarcity concerns in South America are putting mining giants like Albemarle and SQM under a microscope, creating headwinds for the entire EV ecosystem.
The global push for electric vehicles, championed by giants like Tesla, is running into a complex and uncomfortable reality: the raw materials powering the green revolution come with their own significant environmental and social costs. Mounting pressure over water rights, indigenous land use, and sustainability in South America’s “Lithium Triangle” is casting a shadow over major producers Albemarle and Sociedad Química y Minera de Chile (SQM), threatening to create turbulence across the entire battery supply chain.
Investor and regulatory focus is intensifying on the so-called "green paradox"—that clean energy technology relies on resource-intensive mining. Lithium extraction, particularly from the brine pools of Chile’s Atacama Desert, is a notoriously thirsty process. Producing a single ton of lithium can require up to 2 million liters of water, a staggering figure in one of the world's most arid regions. This heavy water consumption has become a flashpoint for conflict, pitting the miners against local and indigenous communities who depend on the same scarce resources.
Earlier this year, these tensions boiled over when indigenous groups blockaded roads and disrupted operations at SQM’s facilities, alleging a lack of consultation and voicing concerns over the environmental impact of the company's expansion plans. While operations for competitor Albemarle, which also operates in the Salar de Atacama, were not directly affected, the protests sent a clear signal to the market about the rising operational risks tied to ESG factors.
For investors, these issues are moving from the realm of corporate social responsibility reports to material financial risk. SQM, with a market capitalization of over $14 billion, and Albemarle, valued at roughly $13.5 billion, are foundational pillars of the global lithium supply. Any disruption to their output has ripple effects that reach consumers and EV manufacturers like Tesla, a behemoth with a market cap exceeding $1.3 trillion.
“The disconnect between the clean-tech branding of EVs and the often-messy reality of resource extraction is becoming a major focus,” noted a recent sector analysis. The challenge for companies is that the costs of mitigating these ESG risks—such as investing in less water-intensive direct lithium extraction (DLE) technologies or securing comprehensive community agreements—can add significant expense in a notoriously cyclical commodity market. This pressure is compounded as lithium prices have fallen sharply from their 2022 peaks, squeezing margins and making large-scale investment in greener technology more challenging, as reported by Bloomberg.
The upcoming UN Climate Change Conference (COP30) in Brazil in November 2025 is poised to become a key forum for these concerns. For the first time, the governance of critical minerals for the energy transition is expected to be a central topic. This could pave the way for new international standards on mining, including stricter requirements for community engagement and environmental stewardship, adding another layer of potential regulatory costs and compliance hurdles for producers.
As the world accelerates its transition away from fossil fuels, the scrutiny on the EV supply chain will only intensify. The long-term winners in the lithium space may not be those with the largest reserves, but those who can prove their operations are sustainable, both environmentally and socially. For automakers and battery producers, securing a truly “green” supply of lithium is becoming as critical as securing the supply itself.