Should Gold Be Considered an ESG Compliant Asset?

Should Gold Be Considered an ESG Compliant Asset?

Increasingly, companies are turning to ESG (environmental, social, and governance) analysis to determine the impact of their businesses on the environment and society. This includes the use of ESG-focused ETFs. However, recent research by EY shows that the lack of real-time information limits the value of ESG data.

Recycled Gold

Investing in recycled gold is an ESG (environmental, social and governance) compliant asset. It offers a sustainable alternative to traditional mining. In fact, it is an attractive alternative for sustainable investors.

Recycled gold is a critical component of the gold supply chain, says In fact, it accounts for over one third of the global gold supply. Jewelry, in particular, accounts for over 90% of the recycled gold supply.

There is still no consensus on what constitutes recycled gold. But, the industry has started to work towards a common definition. In 2018, Dell became the first personal computer manufacturer to use recycled gold from e-waste.

The recycling of waste mountains into precious metals has the potential to contribute to the circular economy. It can also help in reducing waste generation. In 2019, 53.6 million tons of electronic waste were generated worldwide.

Gold Mining Sector

Historically, the gold mining sector has faced scrutiny for its environmental impact and social constructs. Increasingly, the industry has recognized the need for rigor in ESG reporting. The industry’s main industry group, the World Gold Council (WGC), has developed Responsible Gold Mining Principles. These set ten ESG principles and address environmental impact.

The industry has made progress in improving its practices, but a lack of consistent definitions and forward-looking data are stymieing progress. Asset managers are still struggling to meet investor expectations.

A recent survey by EY showed that almost half of asset managers believe that there is not enough real-time information available on ESG issues. Some of the issues that asset managers face include conflicting definitions of ESG, national identifiers, and not yet adequate nonfinancial disclosures. The challenge is compounded by a lack of consensus on ESG ratings.

ESG Ratings

Among the many challenges companies face are complex ESG landscapes. This is compounded by a number of rating agencies who provide conflicting rankings and data.

A company’s “smart” ESG score can be a source of confusion for managers and investors. While ESG is not a new fad, it is becoming a larger part of the finance world. Some large asset managers use rating agency scores as verification of their ESG investments.

An ESG rating is a metric of a company’s performance on an array of ESG issues. The score reflects a company’s exposure to material ESG risks. Those risks could affect a company’s ability to meet its financial obligations, attract talent, or repay its debt.

There are many factors to consider when evaluating an ESG score. The most important is whether the score is a true measure of a company’s ESG performance or simply a ranking of its performance in a category.

ESG-focused ETFs look very much like tech-sector ETFs

Buying ESG-focused funds can be a great way to invest in companies that have positive environmental and social impacts. The financial benefits of such an investment are real, and investors are increasingly looking to make investments with these qualities in mind. However, evaluating ESG stocks can be difficult.

One of the best ways to evaluate an ESG-focused fund is to look at the criteria that are being used to screen the companies. These criteria can vary from fund to fund. Some funds may be based on MSCI indexes, while others may have more aggressive screening procedures.

For example, the Morningstar Minority Empowerment Index invests in large and mid-cap US companies that have effective diversity policies. It also allows for a wide variety of economic sectors to be included in the index, allowing for more diversity in the portfolio.

EY survey shows lack of real-time information limits value of ESG data

Despite the growth in ESG-focused reporting, there is still room for improvement. An EY survey recently found that many companies have gaps in the ways they report on ESG. Moreover, a misalignment exists between investors and companies when it comes to expectations for long-term value creation. This will affect their ability to access capital and to progress on sustainability goals.

There is a need for better data management, including a central repository for ESG information. This will help investors make more informed decisions. However, fewer than half of investors have a sophisticated data management approach. It will also be important to build a culture of ESG-driven decision making.

As part of its research, EY surveyed 320 institutional investors from 23 countries. The report focused on how the investment community views ESG disclosures and how companies can improve them.

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