Re-imaging gold as an ESG investment

Peter Sinclair
Senior Advisor
World Gold Council

In a world where consumers of every age group are increasingly interested in the source of their products and the ethical standards by which they are produced, some may think gold doesn’t stack up as a responsible investment.  Mining is often portrayed as a nasty, destructive industry.  Admittedly, there have been serious missteps in the past – and there have been some high-profile disasters recently too - so there is clearly work to do.  

But the risks and negative impacts associated with producing gold through large-scale industrial mining are nowhere near what they were 20, 10 or even 5 years ago.  The world has changed, and gold mining has changed along with it.  Today, buying gold or gold equities is not only a good investment from an ESG perspective, but given its work in remote, poor an otherwise neglected areas of the world, it can also be one of the best impact investments you can make.  

Here are three reasons for fresh thinking around gold’s ESG credentials.   

Stronger industry standards

Firstly, today modern large-scale mining companies operate to much stronger environmental, social and governance standards than they ever have. These standards are now codified in the Responsible Gold Mining Principles, a demanding and comprehensive set of requirements - 51 in total - covering all relevant ESG topics for the gold mining industry.  These include important topics as water management, climate change, community engagement, Indigenous Peoples, human rights, gender equality and tax transparency.  Implementation and full conformance with the RGMPs is mandatory for World Gold Council members, and signs are that uptake with non-members is picking up steam.  

To meet societal expectations for transparency and credibility, company performance must be publicly disclosed and independently verified.  Third-party oversight will set these Principles apart from many others and provide confidence to the market that the product is ethically sourced.      

Potential for positive impact in poor communities 

Secondly, the gold industry, given its global footprint, is uniquely positioned to materially contribute to - and positively impact - the poorest and most remote communities on the planet.   
A common misperception outside the industry is that communities do not want mining at all. The reality, however, is that attitudes towards mining have changed. Industry is being increasingly recognised as well-regulated, with companies operating more responsibly, bringing benefits that are otherwise not available.  Companies with appropriate impact mitigation and respectful engagement often see communities welcome a new mine.  
Local people also have the ability, in many cases, to withdraw a company’s “social license to operate”, kicking out companies that do not meet high standards. Companies know this all too well, which keeps them focused on ensuring they behave as they should – like a good neighbour.

Communities recognise the benefits that a mine can bring, through jobs, training, and contracts, taxes and social investment.  Economies have been established and grown in many countries on the back of a flourishing mining industry.  It can be the source of great prosperity and wealth, and one of the only ways to keep young people from fleeing rural communities to crowded cities.  Whether you are in a remote, impoverished village in Africa, a First Nations community in Canada, an Andean village in Peru or an aboriginal group in an isolated part of Australia, a gold mine can be the engine of economic and social development where there are virtually no alternatives. 

So forget about mining as an “extractive” industry and re-imagine it as an industry that “adds value” - to countries and communities most in need in concrete ways that other industries cannot.  Mining has the potential to unlock the value of natural resources by turning rock into social and human capital. By introducing new technologies and adhering to the best international environmental and social practices companies can also contribute to boosting governance standards and capacity building. An investment in mining, is therefore an opportunity to contribute to the creation of positive impacts, particularly for people in developing countries where most gold mines are found these days.   

Gold’s lower lifecycle carbon footprint

Lastly, another concept that bucks conventional thinking: emerging evidence shows that gold can, over time, reduce an investment portfolio’s total carbon footprint.  Compared with many other sectors of the economy, the options available to the gold industry to decarbonise their business are advancing at a rapid pace and approaching the necessary scale and cost efficiency for rapid uptake.  Electric fleets, renewable energy sources, automated equipment, precision mining, AI – will be transformative for the industry in the next 10-20 years, significantly reducing the industry’s carbon footprint.  There is talk that carbon-neutral mining is only a generation away.  

Many of the innovations will not only reduce carbon emissions, but also enable reductions in the use of resources – including land and water, significantly reducing waste, and make mining a lot safer.  Mining in the future will have a much smaller footprint.     

Beyond the mine site, the CO2 emissions associated with onward processing of gold are tiny, especially relative to other extractive industries which produce products that are burned or heavily processed downstream.   And gold is 100% recyclable.

Investing in gold as part of a responsible investment strategy may be counter-intuitive to some, but investors and consumers need to re-consider gold’s ESG credentials and its ability to create positive impact at scale.  A report released this week by the World Gold Council showcases the formal gold mining industry’s contribution to the UN Sustainable Development Goals.  The report includes 39 case studies of how the industry is managing its impacts and creating a positive legacy for its host countries and communities.  And the report is only a small sample of the myriad of projects that have a positive impact around the world. 

Gold mining has made enormous strides over the past 20 years.  It is much more strictly regulated around environmental, social and governance issues as embodied in the Responsible Gold Mining Principles.  It is also an industry that has an unparalleled ability to deliver on a genuine social purpose and make a true net positive impact on society.  It can also make a real impact on climate change.  Whether it is how operations are decarbonised or the technologies developed with gold which help reduce emissions, the gold industry is poised to make a serious contribution to a low carbon future. 

Gold is a non-renewable resource.  Mining companies, together with their host countries and communities, need to make sure it is extracted in a way which creates sustainable benefit to the citizens of that country.  Mining can turn valuable natural resources into sustainable social and human capital.  This is an enormous opportunity, and an enormous responsibility. And if done well, it can create massive improvements in the lives of people, and the generations that follow them.