With the rise of global environmental and social awareness, investors are seeking cleaner alternatives to the typical investments, or at least cleaner suppliers of the same investments. This includes gold.

Some investors want the benefits of investing in gold but without aiding the negative environmental impact and unfair labor practices it has historically been associated with. It’s a balancing act: on one hand, profitability and stability; on the other ethical practices – all while focusing focus solely on the Ethical, Social and Governance (ESG) investments.

In today’s article, we will explore how ethical investing in gold can meet both financial and ethical goals, as well as what other options are available – including digital gold – as an alternative for conscious investors.

Socially Responsible Investing: A Shift in Investor Priorities

Ethical investing, also known as socially responsible investing (SRI), means that one’s investments are ethical, socially and environmentally, and still generate profit to the investor. Essentially, one does not need to trade their morals for profit.

According to the US SIF Foundation’s 2022 report, the net total of sustainable investment AUM at the start of the year was $8.4 trillion, which equals to 13% of total US assets under professional management.

For many investors, gold serves as a hedge against market volatility and currency devaluation. However, traditional gold mining practices raise ethical concerns, from environmental degradation to labor exploitation, leaving investors questioning how they can invest in gold responsibly.

Key Considerations for Ethical Gold Investing

1. Environmental Responsibility Mining gold requires a large amount of resources, often involving toxic chemicals like cyanide and mercury, which can pollute water sources and harm ecosystems.
   
   To put the ecological harm in perspective, modern gold mining generates 20+ tons of waste for one single gold engagement ring (and here I thought the emotional baggage alone was heavy enough). If you want up-to-date information, there exists a live tracker counting the amount of waste produced by gold mining.
   
   This has led to growing calls for mining companies to adopt environmentally friendly practices, such as lower impact mining techniques, rehabilitating legitimate mining sites, using recycled water, and more.

   
   

2. Social Responsibility The industry has seen human rights violations and poor labor conditions at a massive scale, especially in developing countries where there is little oversight. Ethical investors are more inclined to support companies that respect labor rights, provide fair wages, and ensure safe working conditions.

   
   In order to identify companies that support labor rights, fair wages and health & safety policies, organizations like Fairtrade and Fairmined offer certifications to companies that pass their criteria.
   
   They essentially certify the company and the gold it sources. This means that they meet social and environmental standards, offering ethical alternatives for those who prioritize responsible sourcing.
   
   

3. Transparency and Governance Many ethical investors, and the general population, are supportive of further transparency in the supply chain. Many companies now provide detailed reports on their ESG performance, which allows investors to make informed choices. Through this transparency, investors can track the ethical practices of companies, and if necessary, hold them accountable for any violations committed.

Ethical Investment Options in Gold

For investors looking to add gold to their portfolios and adhere to ethical principles, there exist several options:

1. Certified Ethical Gold Purchasing or supporting companies that meet social and environmental standards is easy if they prominently display their certifications. As mentioned above, certifications like Fairtrade and Fairmined ensure gold is responsibly mined when it comes to human rights and environmental impact.
   
   

   It is important to note that investing in certified ethical gold may be more expensive due to rigorous compliance standards, but it provides investors with confidence that their money supports responsible practices.
   
   

2. Recycled Gold Another option for ethical investors is recycled gold, which is repurposed from existing products – mostly jewelry but also includes electronics and car parts. It is reportedly said that recycled gold has a significantly lower environmental impact because it eliminates the need for new mining operations.
   
   Many jewelry brands, for instance, now use recycled gold as part of their sustainability efforts, offering investors and consumers a way to own gold jewelry without contributing to the demand for freshly mined resources.
   
   However, other reports claim that recycled gold is no cleaner than freshly mined gold, and therefore damaging the environment in equal measures.
   
   It is found that some of the ‘recycled’ gold is actually sourced from illegal gold mining operations. This means that the so-called recycled gold – gold meant to reduce, reuse, recycle – is sometimes a front for illegal gold miners to profit off their illegal activities.
   
   This shouldn’t be said to deter anyone from buying recycled gold; rather, an ethical investor or a conscious buyer should do proper research on the seller to ensure that their recycled gold is actually recycled. Companies like Fairever are a good place to start, or simply look for the certifications on the suppliers’ websites.
   
   

3. Digital Gold and ESG The newest innovation in today’s modern world is digital gold, or gold-backed tokens. In our other articles, we delve deeper into what is digital gold and what its benefits are. However, in today’s context, we can gain an understanding of the sustainability that digital gold offers.

   
   Digital gold is usually backed by real gold held somewhere. It is purely tokenization of real gold held in a vault somewhere. The sustainability comes not just from where the gold is mined from – if it’s sourced from reputable sellers – but also from the logistical and operational mitigation intrinsic in gold-backed tokens.

   
   Essentially, when an investor buys digital gold, they are foregoing the Environmental impact caused by transportation, adding the Social impact by allowing fractionalized ownership of gold (anyone can buy whatever amount they can afford), and Governance impact by creating full transparency through distributed ledgers and smart contracts.

ESG Matters in Gold Investing

Modern investment strategies are adopting ESG principles to ensure the highest level of ethical gold for any conscious investor. Employing ESG principles is important because:

1. Environmental Responsibility ESG standards ensure that mining companies use practices that minimize environmental harm, such as adopting renewable energy, avoiding toxic chemicals, and managing environmental impacts.
   
   

2. Social Responsibility ESG also covers health & safety regulations, fair wages, human rights, and labor rights for workers. No one should work under unsafe or unhealthy conditions. It also covers local and cultural cooperation, ensuring that the local communities are not displaced (unless absolutely necessary, and even then, they are supported in some way) or negatively impacted from any mining operations.
   
   

3. Governance and Transparency Lastly, ESG principles encourage ethical legal conduct, management of impacts, and supply chain transparency. This enables investors to verify that their investments align with their ethical values. Digital gold covers most of these principles, if not all, providing comfort to investors when adding gold to their portfolios.

The Financial Appeal of Ethical Gold Investing

Beyond ethical considerations, gold mining companies would do well to consider implementing stronger ESG policies. A study by NYU Stern found a positive relationship between ESG and financial performance on stock price of 58%. For investors, investing in ESG-focused businesses reflected a positive increase as well – around 65%. It pays green to be green.

Other studies found that companies with robust ESG practices tend to experience less volatility and better long-term performance.

How to Invest in Ethical Gold

1. Research Gold Providers’ ESG Policies Companies – gold producers or digital gold platforms – that have strong ESG policies would place them prominently on their websites. Some companies, especially producers, publish annual reports detailing their environmental and social initiatives, making it easier to choose companies that align with your values.
   
   

2. Check for Certifications For physical gold, providers would have a section on their website listing their certifications. Look for Fairtrade, Fairmined, LBMA Responsible Gold, and others. These certifications verify that gold has been sourced ethically and responsibly. If there are certifications you are unfamiliar with, research those as well.
   
   

3. Consider Digital Gold Gold-backed tokens like DAU are backed by real assets which provide a more environmentally friendly alternative to traditional gold ownership. Additionally, there is a clear tracing of where DAU sources its gold from, ensuring that the gold bought is ethically sourced.

   
   Digital gold also benefits from blockchain transparency, allowing investors to verify that their investments are managed responsibly.
   
   

4. Diversify with Recycled Gold Recycled gold is a practical choice for environmentally conscious investors. Many retailers now offer products made from recycled gold, enabling investors to support sustainable practices without compromising on quality or value.

   
   However, as mentioned earlier, it is important to identify the sources of scrap gold used in the recycled gold to eliminate the chances of illegal gold.
   
   

5. Monitor ESG Metrics If you invest in gold stocks or funds, monitor ESG metrics to assess how well a company meets ethical standards. Many investment platforms now include ESG scores, providing insights into a company’s environmental and social impact.

Balancing Profitability with Purpose

In the gold sector, we see continued practices that pose major ethical concerns towards the environment, workers, communities, and trust. However, as more investors put ethical investments to the forefront of their minds and portfolios, we will likely see a larger shift towards ethical practice within the industry.

Companies forgoing ESG principles for the sake of their bottom line would see less investors’ money come through, and therefore would be forced to adopt policies that benefit the environment, their work force, and governance as a whole.

For those seeking to make an impact, SRI in gold represents a powerful way to balance profitability with purpose. Whether through digital gold platforms, certified ethical gold, or recycled options, investors today have more opportunities than ever to align their portfolios with their values.