A report published on May 26, 2026 by the International Institute for Sustainable Development finds that Chinese companies have made genuine progress on ESG practices in critical mineral supply chains, but that significant gaps remain against international benchmarks. Using Indonesia's rapidly expanding nickel sector as its primary case study, the report exposes failures in community engagement, transparency, and tailings management. The findings carry global weight: China refines 19 of 20 IEA-tracked critical minerals and holds an average 70 percent market share, meaning its overseas ESG performance shapes outcomes for the entire sector.
Introduction
When one country controls roughly 70 percent of the world's critical mineral refining capacity, its environmental and social practices are not a bilateral concern. They are a global one. That is the starting point for a major new report from the International Institute for Sustainable Development (IISD), published on May 26, 2026, which examines how Chinese companies are managing ESG performance across critical mineral supply chains and where that performance is falling short.
The report arrives at a moment of unusual pressure on this question. Building on my analysis of China's processing dominance in June 2026, the supply shock that followed the convergence of the Hormuz crisis and China's sulfuric acid export restrictions has forced policymakers in the United States, the European Union, and across Southeast Asia to look very carefully at the governance conditions attached to the minerals they depend on. ESG is no longer just a compliance conversation. It is a supply chain resilience conversation.
The IISD's findings are neither a condemnation nor a clean bill of health. Chinese firms have made measurable progress. New national frameworks have been introduced. But when tested against the realities of nickel processing in Indonesia, a picture emerges of standards that are improving in design while remaining inconsistent in execution, and of voluntary instruments that carry genuine ambition but limited enforcement teeth.
What the Report Says: Progress and the Gaps Behind It
The IISD report, titled "ESG Standards and Practices of Chinese Companies in Critical Minerals Supply Chains," draws on a literature review and stakeholder interviews with eleven mineral operators. Its central finding is carefully balanced: Chinese companies have strengthened ESG practices in recent years, including through improved supply chain risk management and due diligence, but significant gaps remain compared to international best practices.
The numbers that frame this finding are striking. China is the dominant refiner for 19 of the 20 critical minerals tracked by the IEA and holds an average market share of approximately 70 percent. By ownership rather than geography, Chinese companies account for 40 percent of global copper production and 65 percent of global nickel production. The lone exception to China's refining dominance in the IEA list is nickel itself, and that exception exists largely because of Chinese investment: Chinese firms control roughly 75 percent of Indonesia's nickel refining capacity.
The report also flags a specific credibility problem for Chinese firms seeking access to international capital. Sun Renbin of the China Geological Survey, who contributed to new Chinese Mining Association standards, put it plainly: "The international ESG ratings of Chinese mining companies show weakness. Around 80 percent are rated as industry laggards by agencies such as MSCI, limiting their access to global capital." That is not simply a reputational issue. As green finance conditions tighten and the EU Battery Passport begins requiring accessible carbon footprint data, it becomes a structural constraint on market access.
Indonesia's Nickel Sector: Where the Gaps Become Concrete
The report uses Indonesia's nickel industry as its primary case study, and the choice is instructive. Indonesia holds around 21 percent of global nickel reserves and covered 51 percent of global nickel demand in 2023. Its market share grew from 31.5 percent in 2020 to 60.2 percent in 2024, driven almost entirely by Chinese-backed investment in downstream processing. That investment was built on a genuine technological breakthrough: the commercialization of high-pressure acid leaching (HPAL), which made it economical to process Indonesia's abundant but low-grade laterite ore into mixed hydroxide precipitate, a key battery precursor.
Western companies had tried and failed to make HPAL work at scale in Australia and Papua New Guinea. Chinese firms, led by Tsingshan in partnership with GEM, CATL, and Hanwa, succeeded. Huayou Cobalt and Lygend followed. China now provides 80 to 90 percent of Indonesia's refining machinery imports. CATL and its partners broke ground in 2025 on an approximately $6 billion integrated battery project covering the entire supply chain from mining to battery recycling.
The environmental consequence of this expansion is significant. HPAL processing of laterite ore generates far more waste per tonne of metal than conventional nickel sulfide mining. According to the Indonesian organisation Action for Ecology and People's Emancipation (AEER), each tonne of metallic nickel produced via HPAL generates around 100 tonnes of tailings: sludge contaminated with heavy metals and chemicals from sulfuric acid treatment, classified under Indonesian law as toxic and hazardous materials.
The human toll has also been visible. On February 18, 2026, a landslide in the Morowali Industrial Park killed one employee in a tailings storage area and suspended operations. In March 2025, three of four workers buried in a separate landslide died. In 2023, a furnace explosion killed 21 employees. These incidents sit alongside the report's finding that Indonesia's regulatory framework has identifiable gaps in biodiversity protection, human rights due diligence, community engagement, and sustainability reporting.
China's Evolving Standards Architecture: Genuine Development, Structural Limits
To understand why gaps persist, it helps to understand the standards architecture Chinese mining companies are actually working within. The most prominent domestic framework is the "green mines" system, which China formalized in 2017 and has scaled significantly: by November 2025, more than 5,100 green mines had been established at the provincial level or above. The framework uses a detailed scoring system and has real environmental substance. But it is primarily environment-focused and includes only limited social and governance indicators, fitting poorly with the community engagement and human rights due diligence expectations embedded in global frameworks like GRI and SASB.
On December 1, 2025, the Chinese Mining Association (CMA) released two new documents marking a genuine step forward. Drafted by the Development Research Center of the China Geological Survey, these guidelines provide a four-tier disclosure structure covering 115 granular metrics and a rating system ranging from C to AAA. Chen Yu, senior China advisor at Global Witness, described the documents as China's first ESG disclosure framework specifically for mining, translating the Ministry of Finance's national sustainability principles into practical, sector-level guidance. Deng Yaowen, an independent ESG consultant, called the CMA guidelines a "very positive development" and noted that they appear to cover most key material risks, from climate and tailings to safety and community issues.
The catch is that these guidelines are voluntary. So is the China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters (CCCMC) Guidelines for Social Responsibility in Outbound Mining Investments, which has been in place since 2017. Originally developed with support from the German government and referencing the UN Guiding Principles on Business and Human Rights, the CCCMC guidelines represent genuine ambition. But the CCCMC has no regulatory powers, and its mediation and consultation mechanism, launched nearly two years ago, appears not to have accepted a single complaint, hampered by limited financial and operational resources. Voluntary frameworks matter; enforcement architecture matters more.
Transparency in overseas operations is a further weakness. The IISD report finds that in many ESG reports, coverage of overseas projects consists primarily of expansion announcements rather than information on project-level environmental and social performance. CATL is cited as an example. Its 2023 and 2024 ESG reports mention its factory in Debrecen, Hungary, and note that residents and government representatives were invited to visit facilities. But the reports do not describe the concerns raised or how they were addressed, a material omission given that the Hungarian Supreme Court annulled the project's disaster management permit in November 2023.
What the IISD Is Recommending: From Diagnosis to Policy
The report's policy recommendations are directed primarily at the Chinese government and are built around a coherent logic: voluntary frameworks have gone about as far as they can without institutional and financial reinforcement.
The first recommendation calls for accelerating the alignment of Chinese mining ESG standards with leading global benchmarks through multistakeholder coordination. The second is more novel: introducing financial incentive schemes tied to verifiable ESG performance, including preferential credit terms, tax benefits, insurance advantages, and access to green finance instruments. This is an important signal. It reframes ESG compliance not as a cost centre but as a condition of capital access, which is broadly how the EU and many institutional investors already treat it. For Chinese state-backed financiers who are under increasing international scrutiny, attaching credit terms to performance metrics would also provide political cover for tighter oversight.
The third recommendation calls for bilateral technical cooperation mechanisms on ESG with key resource-rich countries, covering regulatory information exchange, due diligence alignment, and shared verification capacity. The fourth proposes establishing ESG research and training centres in strategic mineral-rich host countries to build local institutional capability and reduce project-level ESG risk. A companion IISD policy brief on Indonesia, published in December 2025, adds texture to these recommendations: mandate ecosystem assessments and biodiversity monitoring; require human rights due diligence and free, prior, and informed consent for projects affecting indigenous and local communities; enforce climate governance systems and decarbonization plans; and strengthen benefit-sharing mechanisms so that local communities receive long-term, tangible returns.
One dimension the report addresses carefully is the framing of Western and Chinese governance standards as inherently in competition. An academic study reviewed for the report finds that, despite conventional portrayals of their standards as disparate, Western and Chinese ESG practices actually evolve in tandem and in conversation. The divergence is largely a matter of emphasis, sequencing, and enforcement density rather than fundamental incompatibility. That is a useful corrective for a policy debate that often defaults to adversarial framing.
What This Means for Buyers, Regulators, and the Broader Supply Chain
For companies sourcing nickel, copper, or cobalt through Chinese-controlled supply chains, the report's findings have direct operational relevance. Some Chinese-backed processors in Indonesia have completed audits under the Responsible Minerals Initiative, including PT Debonair Nickel Indonesia and PT Zhongtsing New Energy, subsidiaries of CNGR Advanced Material, assessed under the Responsible Minerals Assurance Process. The London Metal Exchange's 2019 Responsible Sourcing Policy already requires all LME-registered brands to align with OECD Due Diligence Guidelines and submit to third-party audits. These are not decorative requirements. They represent real market access conditions for a growing share of global nickel trade.
For European regulators, the picture connects to the EU's forced labour enforcement infrastructure, which came online on May 17, 2026, and to the Battery Passport framework introduced in 2024, which enforces accessible carbon footprint data and requires 90 percent nickel recovery from waste batteries. Indonesia's own policy environment is also tightening: the 2026 RKAB nickel ore quota of 270 wet metric tonnes fell well short of expected demand of 345 wet metric tonnes, squeezing feedstock supply for HPAL processors and adding economic pressure on top of the ESG compliance pressure already building.
For Chinese firms themselves, the commercial logic of upgrading ESG performance is increasingly clear. With 80 percent currently rated as MSCI industry laggards, access to international green finance, European downstream buyers, and joint venture partnerships with Western majors all depend on closing that gap. The CMA guidelines and the national sustainability reporting mandates covering 59 percent of China's stock market value by 2026 are steps in the right direction. The question is whether the distance between framework and practice closes fast enough to matter.
Conclusion: Standards Are Necessary; Enforcement Is the Variable
The IISD report is a careful, well-evidenced piece of work that resists easy narratives. It does not portray Chinese mining companies as uniquely bad actors, nor does it suggest that the international standards against which they are benchmarked are without their own inconsistencies. What it does, with precision, is identify where the architecture is weakest: in enforcement, in overseas transparency, in the gap between what voluntary instruments promise and what they deliver.
Indonesia's nickel sector is an almost perfect stress test for these questions. It combines extraordinary resource endowment, rapid Chinese-led industrialization, genuine technological achievement, serious environmental hazards, and a regulatory environment that has struggled to keep pace. Each tonne of battery-grade nickel produced via HPAL generates 100 tonnes of toxic tailings. That ratio does not change because the governance framework has improved on paper.
The likely trajectory over the next 12 to 18 months points toward convergence, if slowly and unevenly. China's national reporting mandates will push larger listed companies toward disclosure standards that are at least partially compatible with global frameworks. The CMA guidelines give sector-level structure to that process. EU market access requirements, the Battery Passport, and the LME's sourcing policy will continue pulling Chinese processors in the same direction from the demand side. The IISD's recommendation to tie preferential credit to verifiable ESG performance is probably the single most powerful lever available, because it aligns financial incentive with governance outcome rather than relying on reputational pressure alone.
Whether that lever gets pulled is a political question as much as a technical one. But the diagnosis, at least, is now very clearly on the table.