Since the earliest civilisations of Mesopotamia, gold has been a highly valued and sought after material. While initially used for religious ceremonies and decorations, in around 1000BC Ancient Egyptians began to use it as a trading commodity. Hence, for much of human history, gold has been used by most civilisations as a medium of exchange and store of value. Gold is remarkably durable and does not easily fragment while each piece of gold, no matter how large or small, is easily recognisable. 
The hold gold has over our understanding of value is summed up by Peter Bernstein in his book The Power of Gold: “gold endures as a standard of value. From the Golden Rule to the Olympic gold, it has commanded far more respect than any other substance in human history.”
However, since the 1970s, gold has largely lost its role as a medium of exchange. When President Richard Nixon suspended the ability to convert US dollars into gold, the metal effectively ceased to play any major monetary role. But while its use as a medium of exchange has disappeared, it has maintained its status as a store of value. As a result, exposure to gold is still seen by many investors as a core part of a diversified portfolio.
Gold’s enduring appeal
Gold is favoured due to its still relative scarcity and ability to preserve its value over time. Gold has also historically been negatively correlated to equities, with the price of the metal appreciating in times of negative sentiment. Therefore gold is held by many investors as both a store of value and a diversifier. According to UBS report in 2020, the average family offices hold 3% of assets in gold and that 49% of them intend to increase their holdings. 
But while gold remains popular among investors, many of these same investors are increasingly concerned about the environmental impact of their portfolios. According to a report from Bloomberg Intelligence, ESG assets are on track to exceed $50 trillion by 2025, representing more than a third of the projected $140.5 trillion in total global assets under management. 
The environmental impact of gold
This presents a potential contradiction to investors. One the one hand, gold is a core part of a diversified portfolio, according to many. On the other hand, investors want to reduce the environmental and social damage caused by the assets in their portfolio. The process of mining and extracting gold is seen as potentially environmentally and socially adverse. With this in mind, several attempts have been made to make gold greener.
One solution to this is to increase the role of recycled gold in investor’s portfolios. Many investors gain physical exposure to the spot price of gold through exchange-traded commodities (ETCs) that are backed by physical gold bars which are held in custody. If a portion of those gold bars were to be made up of recycled rather than mined gold, the environmental impact of holding gold is potentially reduced.
All of our economic activities have an impact on the environment. However, some do more damage than others. Typically, mining is seen as an activity with a higher environmental impact. When it comes to gold, the mining process entails shifting huge volumes of natural material. This can cause damage to local ecosystems. The amount of rock that must be moved to obtain 1 kilogram is also increasing. This is due to the ratio of gold to rock declining, as accessible gold mines become exhausted. 
The gold mining process is also very energy intensive. The extraction and grinding of ore requires almost 90,000 KJ per gram of gold produced. That is equivalent to about one day of electricity use for the average American home. 
Accessing recycled gold
One way for investors to reconcile this problem is to invest in recycled gold. Recycled gold is over 90% less carbon intensive than mined gold. 
Indeed, for this reason, outside of financial markets, recycled gold is becoming increasingly favoured. There is a growing number of discarded phones and other e-waste globally, encouraging some large hardware manufacturers to opt for recycled gold. For example, Apple now uses 100% recycled gold in the plating of the main logic board and the wire in the front camera and rear cameras. According to Apple, 2.6 million tonnes of mined rock equivalent have been avoided by using recycled content in the iPhone 13. 
However, thanks to the efforts of The Royal Mint Physical Gold ETC (RMAU), recycled gold may start to play a greater role in investor portfolios. The Royal Mint recently outlined its aims to increase its use of recycled gold on a best endeavours basis, meaning a portion of the ETC will be backed by gold bars composed of 100% recycled gold. The Royal Mint has an extensive physical coin and bar business which it can draw upon to source recycled gold.
Best in class gold miners
Of course, as preferable as recycled gold may be, the reality is that we may still need to extract more out of the ground to satisfy demand. As the World Gold Council notes, “Alongside its more established uses in electronics, dentistry and engineering, the unique properties of gold mean that it is increasingly being used as the foundation of new techniques and technologies in healthcare, environmental science and advanced coatings.” 
But if gold mining is set to continue, this presents another potential option for sustainable minded investors: support the gold miners with the best and most sustainable practices. The AuAg ESG Gold Mining UCITS ETF seeks to offer exposure to an equal-weighted basket of 25 ESG screened companies that are active in the gold mining industry. The ETF tracks the Solactive AuAg ESG Gold Mining Index which focuses on companies that have low ESG risk characteristics.
It does this through the use of Sustainalytics to screen the mining universe for their ESG credentials, attributing a risk score based on their findings. Only the top 25 lowest ESG Risk companies are included within the index. The ESG credentials of ESGO have also been recognised by leading financial data firm MSCI, which has awarded the fund a AAA ESG rating. 
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