Is ESG Investment the Future of Gold & Silver?

Published on April 10, 2021

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Stephen Flood
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Is ESG Investment the Future of Gold & Silver?

‘ESG’ is a great buzzword in investing right now. For years the momentum has been building for the idea that retirement savings should do more than keep you secure, it also should help the planet. Obviously, no one wants to hurt the planet since its our only home. ESG Investment is shorthand for Environmental, Social and Governance, which are the three lenses through which investments are to be ranked. High ranking companies get more money from investors than low rankers. The competition to rank high is fierce since having more investors is an important thing for companies. ESG is part of the broad socially responsible investing trend that focuses on development of a more sustainable financial system.

This quote from Civitas Post gives reference for the speed of growth seen by ESG investing within Ireland.

“Over 600 funds or funds of funds were registered in 2020 with over US$ 90 billion in assets being injected into the Irish ‘fundsscape.’ There was a double-digit growth in the funds industry as more fund promoters and managers chose Ireland as their funds domicile. Notably, investors are now tending to be drawn to ESG funds which provide environmental, societal and financial returns.”

With nearly 100 Billion Euro forming up last year we should expect a portion of this money wanted allocation in physical metal, right? Nope. But it should.

In a Complex World…

Many of those ESG investment pools decided to own Tesla despite it making products that need mining of lithium and cobalt for batteries. Many funds also decide to own British Petroleum despite the thinking oil is bad for the planet. Few investors have qualms about owning Facebook despite the privacy breaches. The world is complex and so improving the world through money is not a simple idea. ESG investors are excited about helping others but not exactly agreed on what that means. There are more topics involved than just carbon, but ending oil is the most exciting topic in ESG today. Since mining companies use diesel for energy and chemicals for refining, they often rank poorly at ESG agencies.

ESG ranking is a relativity system. Companies produce annual reports describing how much carbon they saved or reduced. Investors use reports from ESG rating agencies to make decisions. ESG rating agencies compile public information to set their ranking. So information is available only on newly mined gold from producing companies.

However, what about the metal that has been mined previously over the last 7000+ years? As we know, most of the ~6B ounces of gold that has ever been mined is still in existence given the recyclability and other characteristics of the metal. And your physical gold and silver bars have no company behind it publishing annual reports with which to climb into this competition. No CEO goes on television to explain how this year your gold bar was truly green.

Let’s take a moment now to imagine what such a physical bar company might be able to report. Possibly something like the statements below could come from our imagined CEO of Physical Bars in the Basement, Inc.

Environmental – in 2020, as in every year since it was mined and refined, your physical bar produced ZERO carbon emission. Clearly our business model works to help the planet work. Since gold and silver are the most recycled items on Earth, we use available data to estimate 1987 as the weighted average production year on all above ground gold. A significant portion of you own bars mined and refined using only steam or labour! The bar you own now might be made from metal originally mined and refined 1000 years before internal combustion ever delivered greenhouse gas into the air. Certainly, this feels better than turning trees into paper or coal into bitcoin.
Social – Again in 2020 the physical gold and silver has preserved accumulated wealth for hundreds of millions of people whom the fiat banking system does not reach. As we have each year for thousands in a row physical gold in jewelry form simultaneously represented the wealth needed to buy income generating assets and to launch new generations of a family into better living conditions. And gold and silver does this without charging ongoing fees. Gold has been serving these roles in many societies for many years.
Governance – Your physical gold and silver stands without the backing of any particular company or government. This decentralization is a great idea that bitcoin hopes to emulate. No company director can issue new shares of your physical gold to themselves and central banks can’t print it.

These three talking points that a CEO representing physical bars could make open the conversation of a compelling case that physical precious metals are contenders for the ESG crown. Should readers have their own ideas to add please share them.

Why Physical Metal is an ESG Investment

It is important to note that there is no single, accepted methodology for calculating ESG ratings. Various ratings agencies often have wildly different assessments of the same company. At a minimum this proves frustrating to investor interests. Further complicating the problem is the fact that most data used in ESG ratings looks backward.

Will your physical metals become the hottest ESG item going anytime soon? Not until investment promoters begin to expand their definition of what ESG really means. Until then the metals will do what they always do, wait patiently while conserving wealth without inflation or representation. Will your local bank ever put physical gold on its ESG approved investment list? Maybe if you send them this article.