Worth Its Weight In Gold?

Terry Haymann, World Gold Council, UK, provides insight into gold’s role as an environmental, social, and governance compliant asset.

It is sometimes easy to forget that gold plays a critically important role in many aspects of everyday life – it is all around us, oft en hidden from view. Especially during the COVID-19 pandemic, one of the biggest challenges society has faced in decades, gold helped to make lives easier. Every time someone video called their family and friends, this was made possible through the gold in the microchips in phones, laptops, and wireless infrastructure.

In addition, gold nanoparticles are a major component in rapid tests, helping to realise results quickly, as it is the gold that is responsible for the indicator on the test changing colour. Many countries have relied on these tests to get back to something approaching ‘normality’.

Furthermore, gold is a unique metal which does not corrode or tarnish over time. It is, in eff ect, the ultimate recyclable product. This longevity and permanence is one

Figure 1. The World Gold Council's Responsible Gold Mining Principles.

Gold and ESG

Over recent years, the industry has seen more focus from consumers and investors on environmental, social, and governance (ESG) principles and the future of the planet. There has been greater interest in responsible sourcing, with consumers wanting to understand if the products they buy have been ethically sourced. This has been a broad movement across all business, and it is to be welcomed. As should be expected, this has led to questions as to whether gold can be considered as ‘ESG compliant’. Of course, there is no universal definition of what is meant by ‘ESG compliant’, and this is a complex topic, with many considerations. However, the WGC considers gold to be an excellent asset class for investors who are looking to support high ESG standards.

There are really two questions to consider when it comes to gold. Should the gold production process – and in particular gold mining – be considered ‘ESG compliant’? And even further, should gold itself – an inert, shiny yellow metal – be considered ‘ESG compliant’?

Figure 2. AngloGold Ashanti has partnered with the Ghanaian government in the fight against malaria. Source: AngloGold Ashanti.

of the reasons why gold has become intimately linked with legacy and inheritance in many societies, and why it is both given and received as a ceremonial gift in many cultures around the world. Furthermore, because it is a highly-liquid, enduring store of value, gold has provided financial security for individuals and countries for millennia.

The process of finding and producing gold also plays a vital role in supporting social and economic development. Responsible gold miners make significant contributions to society by bringing jobs and opportunities to communities around the world, especially in remote areas. Over the last year, World Gold Council (WGC) members have supported the communities and countries in which they operate in the fight against COVID-19 – from providing tests and access to personal protective equipment and hospitals, to giving support through financial donations. Gold mining has focused on protecting lives and supporting community resilience.

Gold mining

Looking first at gold mining, the WGC firmly believes that responsible gold mining supports sustained social and economic development – and therefore, should very much be considered as a positive impact when viewed through an ESG lens. Of course, mining is, by its nature, extractive. And there have been a number of unfortunate incidents related to mining over recent years. Nobody in the sector is unaware of that; in many ways, that creates an even greater incentive for this industry to carefully consider how it can better support the lives of all those connected to mining.

In order to instill confidence, clearly define expected best practices, and to show transparency in how responsible gold miners operate, the WGC in 2019 launched the Responsible Gold Mining Principles (RGMPs). The RGMPs are a framework which clearly set out expectations as to what constitutes responsible gold mining. They include 51 principles looking at all material ESG factors associated with gold mining. This includes

water management, climate change, gender diversity, anti-bribery and community engagement, just to name a few. The aim was not to ‘reinvent the wheel’, recognising that there are many standards and frameworks out there which the WGC have built on in developing the RGMPs. However, prior to the RGMPs, there was not one framework that spoke specifically to responsible gold mining.

It took 2 years of intensive consultations with civil society, investors, non-governmental organisations, governments, and other stakeholders to develop the RGMPs. Through these consultations, which included formal submissions from more than 200 individuals and organisations, as well as numerous conversations, the WGC made the RGMPs more robust and gained confidence that companies who conformed to the RGMPs would be recognised as responsible by consumers, investors, and the down-stream gold supply chain.

UN Sustainable Development Goals

During the development process for the RGMPs, they were also mapped against the United Nation’s Sustainable Development Goals (SDGs). The WGC believes that when undertaken responsibly, in conformance with the RGMPs,

Gender in the mining industry

One area that received significant input during the consultation process was the approach to gender, at and around the mine site. The input on this topic was taken on board and is explicitly addressed in the RGMPs.

Principle 6.6: Women and Mining has two components, the first of which requires companies to identify and resolve any barriers to the advancement and fair treatment of women in the workplace. The second component of the principle creates a clear expectation that companies should contribute to the socio-economic empowerment of women in the local communities around their operations – not only as employers, but also through the supply chain, training, and community investment programmes.

Principle 7.2: Understanding Communities states that companies, when engaging with local communities, must be especially alert to the dangers of causing harm that disproportionately aff ects women, children, Indigenous Peoples, and other potentially vulnerable or marginalised groups.

These principles have been singled out for praise by Women in Mining UK, a non-profit organisation that promotes and progresses the development of women in the mining and mineral sector.

Conformance with the RGMPs requires implementing companies to obtain external assurance, in much the same way that companies obtain assurance on their financial statements. As part of the consultation, the company obtained feedback on the assurance framework. It is important that assurance is recognised as the WGC is setting the bar high when it comes to the RGMPs. It has put together a 3 year implementation timeline for full conformance. Whilst many companies already operate to the level set out in the RGMPs, the documentation and management systems are not always in place to allow them to demonstrate this to an external assurance provider. All members of the WGC, 33 of the world's leading gold mining companies, are committed to the RGMPs, and this has now become a membership requirement. But the RGMPs are designed to work for all gold mining companies globally; and the WGC is pleased to see a broad range of mining companies commit to them, and hopes that this will be increasingly required by providers or capital. Figure 3. Resolute Mining has invested in 20 micro-projects near its mine in Mali to help improve integration with the local economy and esure sustainability. Source: Resolute Mining. Figure 4. One of the world's largest solar arrays in Burkina Faso at one of IAMGOLD's mines. Source: IAMGOLD.

Figure 5. Sensitivity of annual returns.

the gold mining sector significantly contributes to sustained social and economic development and progress towards the SDGs for those communities and countries that host gold mining operations.

In 2020, the WGC released a report entitled Gold Mining’s Contribution to the UN Sustainable Development Goals. The report features over 40 case studies looking at 15 of the 17 SDGs. SDG 17 (global partnerships) is key to the success of the SDGs, and in the report it is highlighted how companies are tackling disease, showcasing for instance AngloGold Ashanti’s partnership with the Ghanaian government in the fight against malaria. Their outreach programmes, together with improved community access to diagnostics and therapeutics through the mine’s hospital facilities, resulted in the incidence of malaria being reduced by 74% over 3 years and the methodologies of this programme being used to reduce malaria in other parts of the country.

In the report, the WGC also highlights how gold mining supports economic development through the construction of schools, livelihoods programmes for communities, teaching farming and business skills, creating direct and indirect jobs, and improving infrastructure. WGC members are doing incredible work to support local communities: from Golden Star Resources building 43 school classrooms and dormitories near its operation in Ghana; to Resolute Mining investing in 20 micro-projects near its mine in Mali, selected by the local authorities to help improve integration with the local economy and ensure sustainability.

Ultimately, if they are to be successful and be welcome neighbours, gold mining companies must strive to work with their host communities to turn mineral wealth into a means of advancing human development. Gold mines bring opportunities and act as an engine of economic growth, especially in poorer, more remote locations where there are oft en few alternative avenues for economic activity and community advancement. Looking ahead to 2030, there is much that needs to be done and COVID-19 has meant that achieving the SDGs will require even more of a concerted eff ort from government and businesses. The gold mining industry is well placed to further advance the SDGs and the leading gold mining companies are committed to doing their part in supporting their host governments and communities over the next decade and beyond.

Climate change

In addition, it is important to note what gold miners are doing to tackle climate change. The gold mining industry is in a good position to decarbonise, including by switching from fossil fuels to renewable energy alternatives. There are many examples where gold miners are taking the lead, including, for example, the world’s first all-electric mine – the Borden mine in Ontario, Canada, operated by Newmont – and the installation of one of the world’s largest solar arrays in Burkina Faso at an IAMGOLD mine, which not only supplies the mine but also the surrounding communities. The WGC believes that the rate of transition means that it is credible that gold mining will reach net-zero by 2050, in alignment with the Paris Accord.

Gold as an ‘ESG compliant’

So, coming back to the second question, should gold itself be considered as ‘ESG compliant?

Research undertaken by the WGC shows that investing in gold means that an investment portfolio can reduce its greenhouse gas (GHG) emissions exposure over time. This is because once gold is mined it has virtually no emissions associated with it. The downstream use of gold – bars, jewellery, and for electronic products – does not have a significant impact on gold's overall carbon footprint or global GHG emissions.

Importantly, holding gold in a portfolio can increase the resilience of that portfolio to climate shocks, according to the WGC’s initial research. It examined the exposure of diff erent investment assets to four climate-related scenarios. This included a range of temperatures and the potential impact on returns over a timescale looking from 2030 to 2100. The findings suggest that gold will perform better than the likes of equities, commodities, and real estate. As such, gold is increasingly likely to be sought as an ESG-compliant asset that helps investors mitigate climate-related risks in their portfolios.

Conclusion

Whilst the gold industry has done a lot to improve – and better communicate – its ESG credentials, from responsible gold mining to tackling climate change, more work needs to be done to ensure that gold continues to be a ‘go-to’ asset for investors and a cherished product for jewellery consumers. However, it is clear that gold, an essential part of everyday life, can support sustainable development and is a key enabler of the transition to a lower carbon economy.