Overall, we tend to not think of gold as a ‘green’ industry. Visions of large strip mines, environmental damage, ‘conflict/blood’ minerals, and dangerous labor conditions often fill our heads. There’s a good reason for that perception. Historically, it’s been the case for the industry. So, when it comes to the latest trends in environmental, social, and governance (ESG) investing, many investors bypass gold completely.
But they might want to rethink that decision.
The gold industry is increasingly trying to shed its past image and become more ESG friendly. With new environmental controls, a focus on sustainability, and conflict-free mineral sourcing, gold is quickly becoming an ESG holding.
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Historically Dirty
Overall, the focus of ESG and socially responsible investing (SRI) by investors both large and small has put the spotlight on a variety of industries to improve their practices. The gold sector is no different.
Historically, mining gold has been a very ‘dirty’ process from start to finish. Aside from the actual environmental impact of the mine itself and damage to wildlife areas, the input requirements to physically mine are vast. For example, gold mining takes a lot of water to conduct as thousands of gallons of water are needed to process ore. On average, large-scale surface gold mines can use 16 million to 26 million gallons of water each day. At the same time, because modern mines often find smaller deposits of ore, they use a variety of chemicals to help release the gold from the rock. With this water need comes the large-scale energy needs to run a mine. Air quality issues are often coupled with mining as well.
On the back of this environmental damage comes the mining industry’s social constructs. The gold mining sector has often come under scrutiny for exploiting developing countries and creating less than ideal working conditions for its employees. Kickbacks, bribes, corruption, and conflict minerals have long dotted the gold mining history.
With the environmental issues, social constructs, and various governance problems related to gold mining, the sector has typically fallen flat when it comes to ESG investing and implementing the asset class in a portfolio.
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A Big Revamp
But that might all be changing. Like many sectors, the gold industry is quickly realizing that investors want and demand a better product. To that end, the sector has started a transformation to be ‘better.’
The World Gold Council—which is the main industry group and counts miners, nations, and other gold-related assemblages under its umbrella—has recently developed a new framework for ESG among its members. Dubbed as Responsible Gold Mining Principles (RGMPs), the council is exploring ways for miners to integrate new processes to meet higher standards. This has included tackling some of the major issues with gold mining, namely the environmental impact.
Miners have started to look at renewable and alternative energy sources for their operations. You’re just as likely to see solar panels dotting the edges of mines as you are diesel generators these days. A prime example of this could be mega-miner Newmont’s new ‘all-electric’ operation in Northern Ontario. Here, the firm uses a fleet of all-electric and battery-powered equipment to reduce its carbon output from the operation. Newmont isn’t alone in its decision to incorporate renewables into its operations.
As the industry looks to quell its environmental impacts, it’s looking to do so on the social and governance fronts as well.
The World Gold Council is now looking at gold mining rather than an ‘extractive’ industry as one that can bring value to the table. This includes making sure its operations don’t destroy communities, but actually bring change and economic opportunity. Social and human capital now carry much more weight in investment decisions.
The end all, be all is that the industry is looking toward a more sustainable future and that might just make it ESG-worthy.
New Gold ESG Funds
With that, investors have a few new choices coming their way. Asset managers Franklin Templeton and Sprott recently filed for two new ETFs that will focus on sustainable gold. According to their filings, Franklin will own “London Good Delivery gold bullion bars produced after January 2012 in accordance with London Bullion Market Association’s Responsible Gold Guidance.” The Sprott ETF will buy gold from miners that meet its own ESG criteria.
However, these funds focus on physical gold, not the miners themselves. For that, investors need to do their own due diligence and own individual stocks. And they might just want to. While skepticism remains from many ESG pundits, the gold industry seems to be making efforts, which could lead to better returns for its investors.
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