Indonesia’s loose labour and environmental standards, which ostensibly stand in stark contrast with the country’s ambitions to become a hub for clean technologies, have started to drive out sustainability-conscious investors. 

On 16 February, Hedonova, a Paris-based hedge fund, exited its 76% stake in the Indonesian nickel mine Mineralindo Morowali. While the fund is still bullish on long-term nickel prices, it cited sustainability concerns as the driving force behind its departure.


Suman Bannerjee, chief investment officer at Hedonova, tells fDi: “The cost of disposing of acidic waste from the nickel extraction process and running a world-class environmental, social and governance [ESG]-compliant mine is no longer [profitable], especially while competing with abundant Chinese capital and the willingness to cut corners.”

Hedonova sold its investments for $31m in an all-cash transaction to a consortium of Chinese mining companies called the Indo-Pacific Net-Zero Battery Materials Consortium. Its decision to ultimately sell to INBC was due to the dominance of Chinese firms in the market as the Parisian fund struggled to find alternative buyers, Mr Bannerjee notes. At the same time, the transaction generated the fund a 300% profit. 

Indonesia has the world’s largest reserves of nickel, a key component of electric vehicle (EV) batteries, according to figures from the US Geological Survey. In a push to develop a domestic industry of nickel processing, the Indonesian government banned exports of unprocessed nickel ore in 2014. Separately, it also introduced domestic processing requirements in 2018 that made it compulsory for any company to process nickel ore within the country prior to export.

Although ruled as “inconsistent” with international trade rules by the WTO in late 2022, the new measures have triggered major new investment into smelting capacity in the country. Chinese investment alone reached $3.6bn in the first half of 2022, largely driven by the construction of nickel smelters, according to figures from the Indonesian ministry of investment reported by local press outlet Benar News. However, this wave of investment has raised eyebrows and sparked discontent among local workers. 

“Indonesian workers live in terrible conditions, are forced to learn Mandarin and are not allowed to unionise,” argues Mr Bannerjee. 

In December 2022, two workers died in an explosion in at the PT Gunbuster Nickel Industry (PT GNI) smelter in North Morowali — one of the nickel smelters under the umbrella of China’s Jiangsu Delong Nickel Industry. Two more workers died after riots broke out at PT GNI last month, prompting local security forces to intervene and quell the protest. 


Concerns over the environmental sustainability of local nickel mining have also surfaced. 

“The by-product of the acid leaching used in nickel mining is a slurry of highly acidic waste which miners will dump into the oceans or pump underground, contaminating drinking water,” says Mr Bannerjee. “The situation has become so severe that there are no vendors available in the country who will adhere to an ESG-compliant way of waste disposal.”

Iman Showfan, head of research at Indonesia’s Mining Advocacy Network, tells fDi: “The nickel mining activities have destroyed the local paddy farms. Acid rain is common, and the thick smoke and dust have also caused respiratory problems in some of the local population.”

The nickel mining activities have destroyed the local paddy farms.

Iman Showfan, head of research, Indonesia’s Mining Advocacy Network (Jatam)

Hedonova’s exit comes as the country is courting investments from major foreign car manufacturers and mining companies. European chemical company BASF and French mining group Eramet are jointly assessing the development of a nickel and cobalt hydrometallurgical refining complex, a BASF spokesperson has confirmed. Speculations are also rising on a potential $5bn investment from Tesla to build its third production factory outside the US.

“Indonesia is acutely aware that it needs to gain the trust and confidence of EV makers in Europe and North America, in particular with respect to the ESG credentials of their products,” says Jim Lennon, consultant and former chair of Commodities at Macquarie.

The issues surrounding nickel mining are part of broader criticisms Indonesia has faced over its ESG standards as the government led by president Joko Widodo walks a thin line between economic development and environmental sustainability. In October 2020, thousands of people took to the streets and a coalition of global investors sent an open letter to the Indonesian government to voice opposition to the proposed deregulation of environmental and workers’ protections in the so-called Omnibus Bill.