What is the World Gold Council’s programme on gold and climate change?
Our programme, which examines gold’s relationship to climate change, is now in its fourth year. It has developed sufficiently to allow us to demonstrate a detailed understanding of gold’s current and potential future climate impacts, while also mapping out the industry’s – specifically, gold mining’s – ability to transition to net-zero. Importantly, this has included looking at practical solutions, at the site level, in a range of environments.
In addition, we have undertaken work to provide an estimate of what impacts various climate scenarios might have on gold’s performance as an investment asset over time. This latter research is something we are currently engaged in developing further.
But we are also very actively engaged in discussing the current climate agenda with key stakeholders, investment strategists, and advisors. This engagement is important as the world is currently very much at a tipping point, with investors, regulators, and policy makers all moving swiftly to try and catch up with climate science. Therefore, it’s important we ensure the gold sector is both aware of and responsive to any consequent changes. We also wish to ensure that investors and “influencers” are aware of gold’s potential ability to contribute to climate risk mitigation, with both gold mining and gold as an asset having a potential role to play.
What are the impacts of gold mining on climate change and how do you see the industry changing in recognition of the drive to achieve net-zero goals?
As with all sectors, gold mining companies vary greatly regarding their approaches to climate-related risks and their capacity to respond. But I think the majority of industry leaders are rapidly coming to understand the need for a clear strategy for reducing their emissions, while also defining their future intentions and demonstrating progress via better reporting and disclosure. Investors and, increasingly, regulators are demanding these changes and I think the sector’s awareness of these expectations continues to grow.
Although, on a global scale, gold contributes a relatively small amount – an estimated 0.3% or so – to total annual emissions, gold production remains a highly carbon-intensive process. This is largely reflective of the very substantial energy needed to power mining operations, with electricity generation and consumption responsible for around 75-80% of gold mining’s carbon footprint. Fortunately, there is now a range of increasingly accessible and cost-effective options available which should allow gold mining companies to move away from fossil-fuel generated power and embrace lower carbon sources. Our analysis suggests that, alongside the ongoing decarbonization of local electricity grids, and much reduced production from older higher-emission sites, the increased use of renewables for mine site power generation can enable the sector to move towards net-zero and Paris-aligned climate targets.
Clearly, there is still a lot of work to be done, and the industry is in the early stages of its journey towards net-zero emissions, but there is certainly cause for optimism that, ultimately, this goal is achievable.
How does the greater discourse on decarbonization and energy transition play into discussions coming from the gold industry?
The gold industry is in a relatively positive place with regards to its ability to decarbonize. This is because it is well positioned to take advantage of the substantial changes and opportunities that the global energy transition is creating – from developing technologies to reduced clean energy costs. However, the wider discourse on climate and energy strategies has, to date, been mainly shaped by the major groups of institutional investors that have probably been the key source of momentum behind the drive to meet Paris climate targets. And mining has, perhaps, been too peripheral in many of these discussions.
There is now a risk that mining might get left behind as investment principles, reflective of the need to avoid or mitigate climate risks, are translated into benchmarks and a concurrent shift in fund allocations occurs. When you consider that far more mining, not less, will be needed to implement the transition to a net-zero carbon economy, I think the whole sector needs to make the case more clearly and coherently that it understands this opportunity and is fit for purpose to meet it. But mining’s transformation will also need a supportive policy and investment landscape. The World Bank has done some solid work on this, but I think it’s a point that still needs to be more widely understood.
While gold may not yet be central to many of these discussions, it has more to offer than is generally realized, particularly as its potential ability to decarbonize in line with Paris targets represents an opportunity to demonstrate sectoral leadership, while further reshaping investor perceptions of the industry.
How can investors integrate ESG into their gold investment decisions and actions?
I think that gold is probably a far more responsible and sustainable asset than is widely perceived. Gold – at least as produced by responsible miners and as it enters the formal supply chain (for example, as relayed to the market by LBMA-accredited refiners) – already has to demonstrate a fairly high standard of integrity and provenance. But allowing investors and stakeholders to understand what represents “responsibility” and “sustainability” in practice, and thus enabling them to have greater confidence in gold’s ESG credentials, will be made a lot easier with the wider acceptance and implementation of the Responsible Gold Mining Principles, which the WGC launched in late 2019. These principles represent a detailed framework by which gold mining can clearly demonstrate high standards, as verified by independent assurers, across a wider spectrum of environmental, social, and governance issues. WGC member companies, representing over half of global corporate gold production, are already embedding the Principles into their businesses and we expect the wider sector to converge towards adoption over the coming years.
Of course, the most pressing ESG issue shaping investment decisions is that of climate change, but, as I’ve stated, gold is an a relatively strong position in terms of its potential decarbonization pathway, and its risk hedging capabilities should be of interest to climate-conscious investors seeking to build resilience into their portfolios which will, inevitably and increasingly, be buffeted by climate-related impacts.
The accelerated use of advanced technologies to reinforce energy and operational efficiencies might be expected to have positive impacts
How has the COVID-19 pandemic accelerated the focus on green metals mining and investing?
There has been a great deal of discussions over the last year regarding how, on the road to recovery from the pandemic, we might seek to “build back better” and I think there is, broadly, a consensus, at least in principle, that we should take urgent policy and investment actions directed at delivering a more robust, fair, and sustainable economy as part of the recovery. And mining clearly has a key role to play; as I mentioned above, the energy transition will be impossible without more metals and mined products will be needed to help construct the cleaner, smarter infrastructure necessary to underpin the “green growth trajectory”.
But, at the same time, there is a perception that mining is, inherently, not “green” and I think this perception may still hold the sector back and limit supportive investment, unless it can articulate its strategic importance as an enthusiastic participant in the race towards a greener future. The opportunity is clear and very substantial. The Net Zero Asset Managers Initiative, for example, was only launched in December 2020 but is reported to have already committed over US$9 trillion of assets under management towards a net-zero future.
From the gold sector’s perspective, I think the recent strides forward in formalizing what responsible mining looks like in the 21st century, and the opportunity for the industry to decarbonize production, both represent significant opportunities to appeal to a broader set of investors.
Which countries/jurisdictions do you see leading the way with the transition to low-carbon mining?
I think the actions needed in specific countries and jurisdictions to implement or support the energy transition will vary very widely. Our research has shown that in some countries – for example, Mali, Mauritania, or the Democratic Republic of Congo, where there is no grid-sourced power supply – the only option likely available to most mines is to move away from the use of diesel or HFO in generating power at the mine site operations and to increase the role of renewable energy sources.
Although solar PV currently appears to be the dominant renewable technology at sites that have led the shift to lower carbon power, the choice of which renewable sources will be optimal will also be determined by location. Countries such as Ghana and Côte d’Ivoire, for example, have a lot of potential for hydropower and quite high solar radiation, but hardly any wind. Whereas the drier and more desert-like countries, such as Senegal, have few opportunities for hydropower but abundant sunlight and substantial wind.
In countries where grid power is readily available, the prospect of an effective transition will be shaped by what energy source drives the grid, and whether that is also likely to include more renewables and utilize less fossil fuels over the near future. In Nevada, for example, we expect the carbon intensity of local grid-sourced electricity to fall by around 36% over the next decade.
On the other hand, reliance on coal to power centralized grids, such as South Africa’s ESKOM or in regions of Russia, can pose a significant obstacle to local gold mines that may have few alternatives but grid-connectivity. However, even in high-emission grid locations, we have seen some promise of accelerated progress on decarbonization.
What are some short-term vs long-term goals for miners looking to tackle their emissions and climate issues?
There is a pressing need for action to be taken by companies to decarbonize in the short term and this is true of all sectors, not just gold mining or mining more generally. It is widely acknowledged that the next decade is crucial, otherwise emissions reduction and the urgency of belated structural changes will likely be too disruptive and less effective in delivering carbon neutrality by 2050. This – a clear plan and disclosure on progress – is what investors and policy makers are now insisting upon. Any delays in making plans to tackle emissions will likely result in companies being labelled laggards, which will in turn have significant impacts on, for example, the cost of capital, credit ratings, and the size of the pool of potential investors, in addition to raising red flags for stakeholders.
Fortunately, for gold miners, near-term actions to decarbonize production are increasingly accessible and affordable, and we expect plans to embed these options into corporate strategies to accelerate and expand across the sector. The move to renewables will be key. Initial industry moves suggest a phased approach is likely to be preferred over the very short-term, with the use of hybrid energy solutions, including the increased use of gas as an “intermediate” lower carbon energy source, alongside the introduction of renewables.
Beyond the decarbonization of power, the increased electrification of transport and operations should support further emissions reduction and, over the longer term, the accelerated use of advanced technologies to reinforce energy and operational efficiencies might be expected to have positive impacts. Where aspects of gold production are not amenable to direct decarbonization, a company might embrace high-quality carbon off-setting via, for example, verified nature-based solutions and carbon sinks. Similarly, the development of carbon removal and storage technologies will offer companies greater options if their emissions reductions are not sufficient to achieve net-zero targets over the longer term.