The threats posed by climate change aren’t new: scientists have been warning about their impacts since the 1980s. But public awareness of the issue has skyrocketed over the last 18 months.
That could be down to the ‘Greta effect’ – named after the teen activist who has done so much to bring climate change to the forefront of the public imagination. Or it could just be that the effects are becoming rapidly and terrifyingly apparent: out-of-control wildfires in Australia and California, melting glaciers in Greenland, and massive species loss from the UK to the Amazon.
So, if you’re an investor, you may well be wondering how to make your portfolio more climate-friendly. If so, there’s good news for gold buyers. The World Gold Council produced a report in 2018 which considered this exact question. They compared the greenhouse gas emissions for gold mining as opposed to coal and steel, and gold comes out far lower.
Mining companies are also actively working to reduce this footprint further. Goldcorp’s Borden mine, for example, is set to become the world’s first all-electric underground gold mine. The mine will replace current diesel-fuelled mobile equipment with Battery Electric Vehicles (BEVs).
This equipment will annually reduce GHG emissions by 70% (6,600t of CO2e). Electric engines are three times more efficient than their diesel equivalents and reduce megawatt hours (MWh) by 33,000 per year.
Gold and tech
The energy transition will also require new technologies that involve the use of gold. There are plenty of ideas currently being developed in this exciting area. Gold catalysts, for example, can help convert CO2 into useful fuels. Gold nanomaterials make hydrogen fuel cell performance more efficient, and gold can also improve efficiency in photovoltaics which capture the sun’s energy.
“Given gold’s growing role as a strategic investment asset, the need for greater awareness of its climate-related impacts is a priority issue for many investors,” says Terry Heymann, Chief Financial Officer at the World Gold Council. “Our initial findings, based on the limited research, help investors better understanding gold’s greenhouse gas emissions profile and gold’s role as part of a diversified portfolio.”
So, holding gold as part of a portfolio may well help reduce its vulnerability to climate change, too. As the report points out: “Heightened market volatility and uncertainty from climate-related risks are likely to be supportive of further investment demand for gold, as gold’s roles as a risk hedge, portfolio diversifier and market insurance asset are well established.”
The energy transition
Reducing our dependence on fossil fuels, and finding new, renewable sources of energy to replace them is key. Of course, it’s not an easy task. While some countries have made great strides towards an energy transition – in 2018, for example, the UK’s renewable energy capacity surpassed that of fossil fuels for the first time – globally, fossil fuels are still being consumed on a massive scale.
In 2018, energy demand grew by 2.3%, with fossil fuels making up 70% of that growth: the fastest this decade, mainly driven by demand in the US and China. However, there was also good news, with use of solar and wind power rising rapidly. Use of solar energy alone was up 31%.
But changes to the way we consume energy don’t have to be bad news for investors. David Nelson at the Climate Policy Initiative points out, even though the market would be very different.
Nelson points out that fossil fuels are high risk, high reward – an oil company can spend millions drilling and never find anything. And once they do, the price of a barrel is dependent on many other factors, such as the current political climate.
But in global energy market based on renewables, supply would be far more predictable and therefore energy and electricity prices would be more stable.
“The risk of building a wind or solar park is lower, and once the park is running, operating costs are much smaller and more predictable,” Nelson writes. “The amount of wind or sunshine might vary, but the production risk is very small compared to oil exploration. Prices tend to vary mostly because oil, gas or coal prices vary, influencing electricity markets.”
Everyone wants to see workable solutions to climate change, and investors are no different. It could well be that gold – a safe haven investment for so many centuries – could have yet another vital part to play in our future.
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Important disclaimer: this document is not an official research report and the views expressed in it are those of the authors. The authors are not registered research analysts and there is no assurance the trends mentioned will continue or that the forecasts discussed will be realised. Gold as a commodity is not a specified investment for the purpose of giving advice under the Financial Services and Markets Act 2000, therefore, this does not give rise to rights to claim compensation under the Financial Services Compensation Scheme.