The idea that a supply of metals that the modern world sorely needs is hidden beneath thousands of meters of icy, dark water, somewhere beneath any nation’s reach or claim, has an almost mythological quality. copper, nickel, manganese, and cobalt. Everyone keeps promising the green transition, renewable infrastructure, and the raw materials used to make electric batteries. It sounds like a fabrication to support a bold wager. And it is in a lot of ways.
The current state of deep-sea mining is peculiar. For years, the UN-established International Seabed Authority, which is in charge of overseeing what is legally referred to as “the Area,” has been hinting at the possibility of exploitation regulations being finalized by 2025. Attracted by the promise of resources, nations like China, India, Japan, and Nauru are moving forward. Nevertheless, 82 financial institutions that oversee a total of about €24 trillion in assets have firmly and quietly started to withdraw. Not all at once. However, the rate is quickening; in the last 12 months alone, almost half of those exclusionary policies have been implemented.
It’s worth pausing to consider that. The capital markets are already retreating before a single commercial mining operation on the ocean floor has reached scale. Seas At Risk’s Monica Verbeek put it succinctly: why take on massive risk for a sector that destroys rather than creates? Financial institutions appear to be coming up with an awkward response to this straightforward question.
Beneath all of this lies a truly intricate legal framework. According to UNCLOS, the seabed belongs to all of humanity in theory and no nation may assert sovereignty over it outside of its borders. A private contractor must obtain sponsorship from a member state, submit a comprehensive plan to the ISA, and then function through what essentially amounts to a three-tier accountability chain in order to operate there. Due diligence obligations are taken on by the sponsoring state.
The concession is granted by the ISA. In the middle, the contractor is subject to both international governance and any domestic laws that may be in effect in the sponsoring state. For example, when Tuvalu contemplated halting its sponsorship of specific contracts, the implications for investors became acutely apparent. Arbitration practitioners are keeping a close eye on the lack of a clear legal process for disputes resulting from the termination of non-contractual sponsorship certificates.
An additional degree of uncertainty is introduced by investment treaty law. A deep-sea mining investor would have to prove that an investment was made in a host state’s territory in order to file an investor-state arbitration claim, even though the actual mining takes place outside of all national borders. Onshore processing and refining stages have been identified as possible anchors by legal theories surrounding the “general unity of an investment” that have previously been tested in tribunals. In theory, the argument is viable. It has never been thoroughly tested in real life against a deep-sea mining operation. Any venture capital firm should be concerned about that uncertainty alone.
The similarities to other extractive frontier industries, such as early offshore oil, Arctic drilling, and even shale fracking before infrastructure caught up with ambition, are difficult to ignore. A wave of capital optimism was followed by sobering recalibrations for each of those. The enthusiasm of some governments and early-stage investors hasn’t completely absorbed the growing concern among institutional money, and deep-sea mining seems to be in that uncertain middle phase. To put it simply, the notion that seabed minerals are essential to the green transition is hotly debated, according to Emine Isciel of Storebrand Asset Management. According to new research, investments in the circular economy may produce better results at significantly lower environmental costs.
Geology is probably less important to the survival of deep-sea ventures as a viable asset class than governance, which is currently still catching up. The rules are not yet complete. There are holes in the dispute procedures. The science of the environment is still lacking. Additionally, the majority of the financial institutions that would typically finance this type of frontier industry are concluding that the risk profile does not warrant the exposure. That is not a moratorium. However, it may resemble a verdict.
