ESG Club
explored (with finance climate risk ana- lysts at Urgentem) how gold might con- tribute to the reduced carbon footprint of equity and bond portfolios, and impor- tantly, how it might assist in aligning portfolios to key climate targets. This builds on our earlier works to quantify gold’s emissions across the supply chain and to map out, in a detailed and granular fashion, its opportunity to decarbonise. In the lead-up to COP26, the primary focus was, understandably, on the ‘race to zero’ and corporate expressions of com- mitment to achieving net zero carbon by 2050. But, over the two weeks in Glasgow, we witnessed a clear shift in investor pri- orities and expectations regarding decar- bonisation prospects and actions. One of the lessons learnt from our recent engagement is the weight now given to near-term actions and emissions reduc- tion milestones over the next decade. Commitments may be a useful signal of intention, but swift actions, resulting in demonstrable and measurable change, are now the priority for many investors.
Compared to many other industries, gold is in a relatively positive position with regards its potential pathway to net zero. Decarbonising gold is all about how gold mining changes its power sources – how it consumes and generates electricity – and it is, therefore, very much aligned with the needs of the global economy. In some contexts, however, gold will be key actor in supporting and accelerating the changes needed to decouple economic growth from its centuries-old dependency on fossil fuels. There are already notable examples of relatively remote locations, from Northern Canada to Burkina Faso and the DRC, where gold mining has been the main catalyst in bringing clean energy
to communities.
One of the weaknesses of COP26 was, perhaps, that it did not adequately address the concerns of vulnerable nations – par- ticularly, those lacking the resources to maintain socio-economic growth while, concurrently,
building the capacity to implement adaptation and resilience
Portfolio decarbonisation trajectories – Net Zero 2050 scenario Decarboinsation trajectory (Indexed)
0,1 0,3 0,5 0,7 0,9 1,1 1,3 1,5
Portfolio composition (%s): Equities; Fixed Income (Corp. Bonds); Gold
Eq 70% FI 30% Gold 0% Eq 30% FI 70% Gold 0% Eq 65% FI 25% Gold 10% Eq 60% FI 20% Gold 20% Eq 55% FI 15% Gold 30% Eq 50% FI 10% Gold 40% Eq 45% FI 5% Gold 50% Global Net Zero 2050
local economies and
PI Partnership – World Gold Coucil
plans. Calls for greater clarity on how decarbonisation and protection is facili- tated and funded in poorer locations will probably get louder and more frequent as we move towards to COP27. The event’s Egyptian hosts have already signalled that more space and priority
will likely be
given to the voices of ‘frontier’ and devel- oping economies.
While, for many investors, how gold is mined may be a long way from their immediate concerns. And those consider- ing or invested in bullion and bullion- backed products (such as ETF/ETPs) would also be right in assuming there are few direct carbon or climate impacts linked to these assets. But looking back on our discussions in Glasgow and look- ing forward to further conversations in Sharm el-Sheikh, and all
those in
between, it may surprise many investors how relevant gold might be in supporting resilient portfolio strategies and sectoral decarbonisation with ‘real economy’ impacts. It can – and often does – make a difference.
Source: Urgentem
1)
https://www.economist.com/international/2021/11/11/what-happened-at-cop26 2)
https://www.bloomberg.com/news/newsletters/2021-12-08/climate-alliance-fall-short-on-shareholder-votes-green-insight
Issue 109 | December-January 2022 | portfolio institutional | 35
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