Can Gold Investing be Part of an “ESG” Investment Strategy?

In recent years “ESG” funds have become a popular choice for investors.

These three letters stand for environmental, social, and governance. ESG funds are designed to include stocks of companies that satisfy strict standards with regard to these three categories. For example, companies deemed worthy of the ESG label commit to these sustainability factors in three ways:

Environmental:

The company ensures that their business minimizes waste. Some companies go further by building their operations around renewable energy. The key focus within this category is to minimize the business's impact on the environment via energy efficiency and use of eco-friendly materials. Additionally, an environmental focus includes parameters for the treatment of animals.

Social:

The company adheres to a set of standards relating to social issues like equal pay, gender equality, and healthy working conditions. To meet these social standards the company must also provide and maintain a safe and healthy working condition for employees. Many companies within the ESG sphere also exercise social responsibility by making charitable donations.

Governance:

The governance factor relates to the company’s internal controls. In other words, the business must ensure there are no conflicts of interest among the stakeholders. The company must also act in the best interest of the shareholders by monitoring the decisions of the management. A sustainable, and responsible governance policy also means that the business avoids engaging in any political contributions aimed at gaining favorable treatment from regulators.

ESG investments have become popular as investors seek to balance the two goals of asset growth and long-term sustainability.

The ethos underpinning the three areas of environmental, social, and governance has been particularly attractive to a new, younger demographic entering the investing world. Moreover, these funds have, on average, delivered favorable returns.

This combination of performance and responsibility has elevated ESG funds to the public consciousness. Consider research from the Global Sustainable Investment Alliance which shows that sustainable investing assets have increased by 38% over the last four years.

Additional research from Morgan Stanley shows that 8 in 10 Millennials are interested in the ESG investing strategy. This groundswell of interest is noteworthy because this same demographic is projected to hold approximately $19 trillion in assets within the year.

However, can someone who is committed to ESG investing strategy include gold in their portfolio?

Some gold mining operations indicate that the answer might be yes.

Consider Angkor Resources Corp located in Cambodia. The leadership within the company has initiated a corporate social responsibility program. The company takes an active role in helping the community grow crops, renovate local schools, and some education programs. Though small, the company is becoming an example to others in the industry.

Other mining operations like Anglo-American are stepping up. The company is using reverse-osmosis technology to convert waste water into drinkable water for local communities surrounding Johannesburg.

Others, like Iamgold Mining has installed solar-powered wells around their Essakane mines in north-eastern Burkina Faso, West Africa. According to Barron’s, “the infrastructure has boosted incomes while reducing informal gold panning.” Moreover, Barron’s reports that Iamgold “has spent four times more on local goods and services than the Canadian International Development Agency provided the Sahel nation for its entire 2011-12 fiscal year.”

Broad-based support for ESG strategies among gold miners still has a lot of room to grow. However, small and large firms like Angkor Resources, Anglo-American and Iamgold show that gold can coexist with an ESG investment plan.

 

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