How ESG Initiatives Will Drive the Future of Gold Investing

The importance of environmental, social, and governance (ESG) issues to investors is playing an out-sized role in decision-making today. More individuals and businesses are trying to understand how their actions will impact others. An example of this phenomenon can be found in one of the least expected places: a colony of 25 rare chinchillas.

The short-haired chinchilla is an endangered species after being hunted to the brink of extinction. However, what makes this particular colony of rodents especially valuable is not just their endangered status, it’s what sits below the ground they inhabit. The colony is atop 3.5 million ounces of gold in the Salares Norte open pit mine in Chile.

Today, the mine is still in the permitting phase. The project, headed by the South African Gold Fields company, represents an $860 million investment. To move forward the project is obligated by Chilean law to relocate each of the 25 chinchillas. The latest reported figures show that Gold Fields has spent approximately $400,000 in an attempt to safely trap the animals. The expense illustrates that capturing the chinchillas and relocating them is harder than it sounds.

Chilean environmental manager Luis Ortega explains that two, non-lethal, attempts must be made to capture each rodent and each can last for a maximum of 10 days. If unsuccessful, the mining company must pause their efforts for 20 days before trying again.

Abiding by these regulations before mining begins is more than a legal requirement, it is also characteristic of business today. Consider research from FTSE Russel which found that a little over half of investors globally are implementing or evaluating ESG characteristics in their investment decisions. These investors are driven by more than a sense of responsibility to society and the planet. They are also driven by the search for annual returns.

Studies show that ESG investing strategies offer a long-term growth advantage. “Investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments,” concludes research from The Morgan Stanley Institute for Sustainable Investing. This finding makes intuitive sense because businesses that focus on sustainability prioritize renewable resources and a reduction in waste. Both of these practices reduce expenses in the long run which, in turn, improve profitability.

Another study from Harvard concluded that investing $1 in an equally weighted portfolio consisting only of high sustainability firms at the start of 1993 to the end of 2010 would out earn the same investment in a non-ESG portfolio by 46 percent.

The Gold Fields chinchilla project illustrates that gold mining operations can also abide by ESG standards. What makes ESG investing so powerful is the confluence of environmentalism, efficiency, and ethos. Businesses become more responsible to the planet while benefiting from improved use of resources while fulfilling investors’ growing need for ethics in their portfolio.

The World Gold Council has codified this movement with their “Responsible Gold Mining Principles,” which is a list of ten characteristics that, as a whole, represent responsible gold mining. These principles include things like safety and health, human rights and conflict, and working with communities. ESG-driven plans are a rare instance in which all parties benefit.

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