Structural Constraints to Sustainable Supply Chain Diversification: Rare Earth Elements, Business Strategy and Resilience in the Energy Transition

ABSTRACT Rare earth elements (REEs) are critical inputs for low‐carbon technologies, yet their supply chains remain highly concentrated and vulnerable. Although diversification is widely promoted as a strategy to enhance supply chain resilience, its feasibility in strategic material systems remains limited. This paper develops a system‐level framework to explain the structural constraints on sustainable supply chain diversification in REE systems. Drawing on global value chains, industrial policy and sustainability perspectives, it conceptualises REE supply chains as socio‐technical systems shaped by interdependent bottlenecks, investment uncertainty, ecosystem lock‐in and geopolitical constraints. The analysis shows that firm‐level diversification strategies do not resolve systemic vulnerabilities, particularly in midstream processing and downstream manufacturing. Instead, resilience depends on coordinated capability‐building and alignment between sustainability, competitiveness and supply security. The findings contribute to research on sustainable supply chain management by highlighting the limits of market‐driven diversification in the energy transition.