Crédit Mutuel Asset Management is an asset management company of Groupe La Française, the holding company for the asset management division of Crédit Mutuel Alliance Fédérale.
As the world engages in the energy transition to mitigate climate change, a largely overlooked challenge remains. We observe the rise of electric vehicles, renewable energy and low‑carbon technologies, yet the central element is often ignored: critical minerals. Copper, lithium, nickel, cobalt… the energy transition relies on them.
However, behind this essential progress lies a hidden reality: the extraction of critical minerals requires large quantities of water, a resource already under pressure in many parts of the world[1]. Water is used at multiple stages and plays various roles throughout extraction and processing. It is used for rock grinding, mineral separation, dust control and equipment cooling[2]. In seeking to decarbonize our economies, we are mobilizing a mining sector whose water footprint risks increasing pressure on water resources.
This pressure is particularly concerning, because a significant share of critical minerals production sites (around 16%[3]) is in regions already exposed to high water stress, such as Chile, Peru or Australia. In these arid zones, competition between industrial, agricultural and domestic uses becomes especially intense, heightening socio‑environmental tensions and directly affecting local communities that rely on water for their livelihood. This contrast represents one of the major and still underestimated challenges of the energy transition.
The amount of water required to extract critical metals varies greatly depending on the type of ore and the method used. For lithium which is strategic for electric vehicle batteries, needs are particularly high. Using the evaporation method, it is estimated that producing one ton of lithium (enough for nearly 125 electric vehicle batteries[4]) requires up to 2 million liters of fresh water[5], equal to the annual consumption of 36 French citizens[6].
Electrification needs, which are amplified by the recent rise of artificial intelligence and the rapid expansion of data center, will further increase pressure on the demand for critical minerals and consequently, on the resources required for their extraction. According to IEA (International Energy Agency) scenarios, achieving global carbon neutrality will require a fourfold increase in mineral supply by 2040, with lithium demand alone rising by nearly 400%[7].
This growth is accompanied by a gradual decline in ore quality. For copper, for example, falling ore grades could contribute to a 30% supply deficit by 2035[8]. Lower ore grades mean that larger volumes of rock must be extracted and processed to obtain the same amount of metal, which mechanically increases water needs.
Moreover, climate change adds uncertainty regarding water availability. Increased variability in rainfall, more frequent droughts and the progressive salinization of some aquifers complicate the planning and operation of mining sites. Water risk is now emerging as a major operational and financial risk for actors in the sector.
Levers to reduce the water footprint
In light of these issues, the mining sector does have several levers to reduce its water footprint.
Improving water efficiency is a first priority. Many companies invest in water recycling and closed‑loop systems that can recover up to 95% of the water used in processes in the best cases[9], thereby limiting external withdrawals.
Technological innovations also offer promising prospects. Dry stacking (filtered tailings storage) significantly reduces water use compared with traditional tailings ponds[10]. Desalination can reduce pressure on freshwater resources. This practice is already widely used in Chile, where 30% of the water used in mines comes from the sea[11].
However, these solutions also have limits. Desalination remains costly, energy‑intensive and dependent on the local energy mix. Meanwhile, water recycling quickly reaches technical limits due to the accumulation of contaminants in closed circuits. Finally, all these levers require substantial investments, which can be difficult to reconcile with project profitability, particularly for smaller mines or those located in countries with limited economic margins.
Water: a governance issue
Beyond technical solutions, water management is above all a governance issue. Access to water is becoming a determining factor for social acceptability and operational continuity. Disagreements with local communities or regulators’ requirements can cause delays or even site closures, with significant financial consequences. Water can no longer be considered a simple operational variable; it now represents a strategic risk.
For investors, this means carefully analyzing asset locations, dependence on local resources, the robustness of water management policies and companies’ transparency levels. Initiatives such as the Initiative for Responsible Mining Assurance (IRMA)[12] or the International Council on Mining and Metals (ICMM)[13] help improve practices, though they remain heterogeneous and largely voluntary, limiting comparability across actors and complicating the assessment of water‑related risks.
In this context, the role of public authorities is evolving. Faced with intensified environmental and social tensions, many governments are tightening regulations[14], whether on usage rights, environmental requirements or community consultations. For example, through the Sustainable Critical Minerals Alliance, countries such as Canada, Australia and France have committed to improving the sustainability and transparency of critical mineral supply chains to regulate extraction more strictly and limit environmental and social impacts. These changes could fundamentally transform operating conditions for mining projects.
The energy transition exerts pressure on water resources, yet it remains necessary and thus comes with new environmental challenges. In the short term, efficiency gains in mining processes are unlikely to offset the increase in extracted volumes. Therefore, a systemic approach is needed, combining the development of metal recycling, improved circularity, technological evolution toward less resource‑intensive materials and the explicit integration of water constraints into investment decisions. In this perspective, the Critical Raw Materials Act, adopted by the European Union[15], aims not only to secure but also to make critical mineral supply chains sustainable and resilient to meet climate and energy ambitions.
Ultimately, the energy transition can only be coherent if all accompanying constraints are fully taken into account. Water is essential to this transition and managing it effectively makes it a particularly revealing indicator. It shows that the energy transition requires careful and coordinated management of the resources it mobilizes—otherwise tensions risk multiplying.
Disclaimer
This commentary is provided for informational purposes only. The opinions expressed by Groupe La Française are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. The information contained in this publication is based on sources considered reliable, but Groupe La Française does not guarantee that it is accurate, complete, valid, or relevant.
Published by La Française Finance Services, headquartered at 128 boulevard Raspail, 75006 Paris, France, regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673, and registered with ORIAS (www.orias.fr) under no. 13007808 on November 4, 2016, a subsidiary of La Française. Crédit Mutuel Asset Management: 128 boulevard Raspail, 75006 Paris, is an asset management company authorized by the Autorité des Marchés Financiers under no. GP 97 138 and registered with ORIAS (www.orias.fr) under no. 25003045 since April 11, 2025. Public limited company with capital of €3,871,680, RCS Paris no. 388 555 021.
[1] Half the world’s 100 largest cities are in high water stress areas, analysis finds | Water | The Guardian
[2] Mining water management for a sustainable industry- LG Sonic
[3] World Economic Situation and Prospects 2025
[4] EVs & Batteries: How Much Lithium is Needed to Decarbonise? | Sustainability Magazine
[5] In pictures: South America's 'lithium fields' reveal the dark side of our electric future
[6] Consommation d’eau potable en France - notre-environnement
[7] Global Critical Minerals Outlook 2025
[8] Copper prices have hit record highs, but smelters face mounting strategic pressures – Analysis - IEA
[9] Mining's water recycling rates stagnate
[10] Tailings Management: Dry Stacking for Sustainable Mining
[11] Mining companies are pumping seawater into the driest place on Earth. But has the damage been done? | Global development | The Guardian
[12] IRMA Standard June 2018
[13] ICMM - Water Stewardship
[14] Encouraging sustainable and responsible practices –! Introducing the Critical Minerals Policy Tracker – Analysis - IEA
[15] Critical Raw Materials Act - Internal Market, Industry, Entrepreneurship and SMEs
