Is it possible to invest in Gold sustainably?

By Mathilde Rouhi

We need more stringent regulations, a deeper understanding of the very real, very material factors at play.

While your usual suspects such as renewable energy, new technology and healthcare currently hold the spotlight as the frontrunners of the paradigm shift towards a future green or circular economy, there is no doubt that a need for solutions in sectors traditionally less associated with sustainability is of growing importance. When building a portfolio, the current professional investor will likely struggle to find sustainable products in all the investable sectors. Gold is considered to be a key part of a portfolio for many, and sustainable alternatives are beginning to surface. But to what extent can it be a sustainable asset and how much of it can fall prey to greenwashing?

Gold- a background

In 2013, gold mining contributed over $171 billion to the world economy,(1) and since the 2007-2008 crash investment has become the second largest source of demand for gold, following jewellery (see fig.1). Used in photovoltaic cells to improve performance, in catalysts to turn carbon dioxide into fuels and to replace platinum to improve the efficiency of hydrogen fuel cells, amongst other things, gold’s unique chemical properties mean that it is also an increasingly attractive material in green innovation. (3)

Yet there are many concerns regarding gold’s sustainability and the supply chain is famously riddled with both social and environmental issues. 60% of gold used annually comes from newly mined sources. (4) Not only does its extraction often destroy natural habitats and pollute water with toxic metals, it also displaces communities and poisons its workers, whose working conditions are often deplorable. (5) Producing a precious metal is also particularly energy intensive, as it must go through mining, milling and smelting processes. In the case of gold, the volume of product to waste ratio makes it a particularly inefficient commodity - one single ring can create up to 20 tonnes of waste. (6) There are very few ethical mines, and the industry is known to exploit child labour and put its workers at risk with techniques such as mixing gold and mercury by hand. (7) For these reasons, it is considered by some as one of the most destructive industries, both on an environmental and social level. (8) When it comes to tackling these issues, there are generally two solutions: recycled gold and responsibly sourced gold, both of which are beginning to be considered in investment solutions.

Recycled Gold

The primary benefit of recycled gold is that it does not require further mining. Like any other metal, it is a finite resource we cannot rely on extracting forever and while traditional mining continues to exploit land, recycled gold aligns with the circular model that sustainable economies are striving to achieve. Its environmental footprint would also be drastically smaller compared to that of traditional mining. However, it could be argued that the benefits of recycled gold are possibly more symbolic than material. Much like other aspects of sustainable investing, the question remains whether completely divesting is as impactful as engagement, enforcing stricter regulations and putting in place incentives to push for change within an industry. To some, recycled gold is just a greenwashing tactic where ‘dirty’ gold is rebranded through the recycling process, gaining ‘ethical’ and ‘sustainable’ brownie points without targeting the actual source of the problem. (9) Consider also that while recycling plastic, for instance, works in tandem with the aim to reduce demand, gold is a substance that has been prized since time immemorial - and its growing presence in tech means it is unlikely to dwindle anytime soon. While the demand for gold in technology is minimal when compared to the jewellery industry (see fig. 1), the way it is being used is fundamentally different. Up until now, gold has always been recycled to some extent (10) but for the first time, we are ‘consuming’ it: in new technologies, it is being used in such minuscule quantities that ‘mining’ used electronics to retrieve them is more inefficient than worthwhile - try to take apart an Iphone and you’ll see how difficult it is to extract the precious materials intricately welded together. (11) Fundamentally, unless gold loses its value, it will always be worth someone’s time to mine it - and recycled gold does little to make a substantial impact on how the industry fails both people and environment. This is where responsible mining comes in.


Fig.1 Annual demand for gold by sector between 2010 and 2019(2)

Responsibly-sourced gold

When mined in accordance to high environmental, social and governance standards, gold can provide employment opportunities, improved infrastructure and tax revenues. Labels such as Fair Trade Gold and Fairmined aim to ensure safe working conditions for miners and reduce environmental impact by promoting the formalisation of the artisanal and small-scale mining (ASM) sector. Areas of focus include social security, gender equality, the elimination of child labour, improved environmental management, fairer market access and improved governance. (12) ASM mines make up about 90% of the industry’s workforce despite generating only around 20% of the total gold mined. They are, however, often most at risk of exploitation.(13) It must be noted that there is a markedly neocolonial developmentalist gaze with these organisations, notably in the power-relations between the ‘teachable’ producers in the Global South and the ‘knowledgeable’ consumers (or in this case investors) of the Global North. However, studies have shown that certifications such as Fair Trade can have significant positive impacts on local producer and artisan communities. (14)

On a broader level, the World Gold Council published The Responsible Gold Mining Principles in 2019 and the London Bullion Market Association (LBMA) is on its eighth publication of its Responsible Gold Guidance document.(15) Things are clearly moving in the right direction.(16) However, a brief look at the World Gold Council and LBMA members and there seems to be some of the biggest names in the gold mining industry. (17) 

To what extent these are truly pioneers in sustainability is largely up for debate, especially as many are firmly against these large-scale multi-national precious metal mining companies precisely because of their historical tendencies to exploit local communities and displace indigenous people through ‘politics of greed’. (18)

The problem also lies in that much of these standards are voluntary or rely on accurate reporting on behalf of the mining companies. (19) As with any ‘sustainable’ universe, we must also be wary of transparency masquerading as sustainability. Looking at current documentation made available with the London Bullion Market Association for instance leaves much to be desired. Phrases such as “refiners should encourage suppliers to commit to and acknowledge in writing their compliance” and “encourage producers to minimise adverse impacts on biodiversity” (emphasis mine) are rife – how do we define the act of ‘encouragement’? Furthermore, the specific legal terminology used for identifying the origin of gold seem to only go as far as “reasonable and good faith efforts” which, as opposed to “best efforts” or “reasonable best efforts”, are arguably commitments that do not necessarily require much action.(20) Like the UN Principles of Responsible Investment, it doesn’t take much to commit to agreeing with the principles; the timeframe and extent to which they are executed though, is another matter. Should we be demanding more from so-called ‘responsible’ frameworks while still acknowledging the complexity of these issues?

Conclusion - worth its weight in gold?

Will ‘sustainable’ gold change the world? Probably not (yet), but as we have seen, the demand for this precious metal is only likely to rise with new technologies and visions of an ever more electrified future. If we are to believe that ethical or sustainable investing will become the new (gold) standard, we must encourage companies to take the right steps towards accountability and actively improving their industry across all sectors. This can be done through investment and engagement, but also needs government support. While current attempts are a step in the right direction, we must also be wary of jumping at the first opportunity to rebrand every sector with a new shiny green label. 

We need more stringent regulations, a deeper understanding of the very real, very material factors at play and not be tempted - if I may- by fool’s gold.


Footnotes:
  1. https://www.gold.org/about-gold/gold-supply/responsible-gold
  2. https://www.gold.org/goldhub/data/monthly-central-bank-statistics
  3. https://alsanagroup.com/is-gold-a-sustainable-investment/
  4. https://www.fairtrade.org.uk/media-centre/blog/top-10-facts-about-fairtrade-gold/
  5. https://www.earthworks.org/campaigns/no-dirty-gold/impacts/ For specific examples, see ‘Central African Republic: Urgent need for Government to Suspend Gold Mining in Bozoum’ Amnesty International (2020)  See also Cody, Anna. ‘Complete Honduras Report’ (2001) 
  6. https://www.ft.com/content/25fa5f58-2857-11e8-9274-2b13fccdc744
  7. The Guardian and see O’Driscoll, Dylan. ‘Overview of child labour in the artisanal and small-scale mining sector in Asia and Africa’ University of Manchester (04/10/2020) 
  8. https://www.earthworks.org/campaigns/no-dirty-gold/impacts/
  9. https://www.reflectivejewelry.com/news/recycled-gold-vs-fairtrade-gold?AspxAutoDetectCookieSupport=1
  10. https://www.bbc.co.uk/news/magazine-21969100
  11. https://www.bbc.co.uk/programmes/p06hmcwx there are now more phones in the world than there are people. And their average lifespan is about 2 years.
  12. https://www.fairtrade.org.uk/buying-fairtrade/gold/ ; https://files.fairtrade.net/standards/2015-04-15_EN_Gold-and-Precious_Metals.pdf
  13. https://www.earthworks.org/campaigns/no-dirty-gold/impacts/
  14. Hussey, Ian and Joe Curnow. ‘Fair Trade, neocolonial developmentalism, and racialized power relations’, a journal for and about social movements, Volume 5 (1): 40 – 68, (2013)
  15. https://www.gold.org/about-gold/gold-supply/responsible-gold/responsible-gold-mining-principles
  16. ‘Gold Mining’s Contribution to the UN Sustainable Development’ World Gold Council (2020) Goals’ https://s3-prod.pionline.com/s3fs-public/2020-10/Sustainable-development-goals-report
  17. https://www.gold.org/who-we-are/our-members 
  18. https://www.reflectivejewelry.com/news/recycled-gold-vs-fairtrade-gold?AspxAutoDetectCookieSupport=1
  19. ‘Responsible Gold Mining Principles’, World Gold Council (2019) See more: Responsible Gold Mining Principles  and ‘LBMA Responsible Sourcing Programme: Responsible Gold Guidance’, LBMA (Version 8, 2018)
  20. There is ambiguity in commonly used legal standards in the US, see Dodd Frank and Mondaq