While I was busy pulling together our recent research report on gold mining’s potential ability to decarbonise, I also participated in a number of online events and discussions with climate-conscious investors regarding gold’s credentials as a responsible and sustainable asset. Or perhaps I should rephrase that; I participated in a number of online events with climate-conscious investors during which I sought to introduce gold’s credentials as a responsible and sustainable asset into the discussion, to the surprise of most other participants.
For those of us in the gold market, such engagement offers us an important reality check; we need to face the simple fact that the vast majority of professional and institutional investors, when surveying the current ESG investment landscape, do not consider gold as an appropriate or relevant asset. And, historically, there may be rational reasons for that. Not only do many institutional investors regard gold as an opaque, volatile and ‘emotional’ asset, ill-suited to modern portfolio management, but lingering in their minds are often images of gold mining rooted in the colonial past or reflecting artisanal mining activities, where conditions are very far removed from those of modern corporate gold production. One advisor recently commented to me that most of her institutional investment contacts in Europe simply won’t look at the ‘extractives sector’ given its ‘problematic reputation’ and ‘negative environmental impacts’.
But it can be argued that, as things stand today, such positions might not only be a little blinkered and, in many regards, out-dated and inaccurate, but also a missed opportunity if those investors are interested in their funds being directed towards assets that will deliver a more stable, secure and sustainable future.
I won’t reiterate here my long-held position (backed by a chunky body of research1) that institutional investors could benefit from adopting a broader perspective on portfolio diversification and from looking more closely at gold’s ability to contribute to the optimal performance of portfolios. Also, it is not my intention to defend the whole mining sector, or to underestimate the challenges faced by the sector in its ongoing transformation to become cleaner, safer and more sensitive to all its stakeholders. But I do think it is important to remind investors and stakeholders that the sector will be absolutely vital in delivering the applications, technology and infrastructure needed to move towards a cleaner, safer world.
If, for example, we are to commit to Paris-aligned carbon reduction and climate targets, we will, as the World Bank has repeatedly reminded us (including via its Climate-Smart Mining initiative), inevitably need more mining, not less. Therefore, funding an efficient and accountable mining industry that is focused on delivering strategically vital materials is, it can be argued, absolutely pre-requisite to progress. Without it, the world cannot be confident it will be able to mitigate climate risks while also being able to achieve development goals.