Is gold a valid choice for responsible investors?

New report suggests industry could decarbonize

Is gold a valid choice for responsible investors?
Steve Randall

Investors are increasingly demanding sustainable investments and are keen to ensure their portfolio upweights low and zero carbon assets.

But investors have traditionally seen gold as a safe haven, especially at times of turmoil in the equity and bond markets. And mining industries may not tally with their desire for more responsible investing.

"Investors all over the world, from large institutional investors to small millennial retail savers, have become increasingly aware of their portfolios' environmental footprints. The global challenge of transitioning to a negative carbon footprint poses a massive challenge but also opportunity and will reshape the value of assets and companies across sectors of the global economy,” said Dr Ben Caldecott, Director of the Oxford Sustainable Finance Programme and an Associate Professor at the University of Oxford.

However, a new report from the World Gold Council examines how gold's role as an investment asset might be affected by climate-related physical and transition risks in comparison to other mainstream investments.

Terry Heymann, chief financial officer at the World Gold Council, says that the organization recognises that climate change imposes very substantial risks to the global economy.

“This new research demonstrates that gold has an important role to play in supporting the transition to a lower-carbon economy, both through decarbonisation efforts and as a compelling investment as investors look for resilient assets in their portfolios, which are less likely to be negatively impacted by the physical and transition risks associated with climate change," he said.

Gold impact

The report found that gold’s downstream uses, such as jewelry, bullion, and electronic components, do not add materially to its overall carbon footprint.

Further, there is reason to believe that changes in energy and fuel usage in gold mining can mean that production can transition towards a net zero pathway in a practical and cost-effective manner.

It also highlights the resilience of gold as an asset class.