Gold can reduce a portfolio’s carbon footprint without sacrificing returns, council says
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THE WORLD Gold Council has published a report highlighting the benefits to introducing gold as a strategic investment to a global balanced portfolio.
In the report titled Gold and climate change: Decarbonising investment portfolios, the council collaborated with specialist climate risk consultancy Urgentem Research to quantify the impact of introducing gold as a strategic investment to a global multi-asset portfolio from a climate transition perspective.
The report found that holding gold in a diversified portfolio could help reduce its carbon footprints without sacrificing returns.
“This analysis lends credence to the suggestion that gold might contribute to portfolio resilience in the context of climate transition risks. Using a range of measures, we note that an allocation to gold can have a demonstrable impact on reducing the emissions profile of a portfolio and facilitate closer alignment of portfolios with Net Zero carbon scenarios,” said the report.
John Mulligan, Director, Climate Change Lead, said the council’s new research clearly highlighted the significant role that gold could have in making a positive impact on portfolio performance from a climate transition perspective.
“Gold typically outperforms when markets are stressed, and climate-related risks are going to challenge all markets more often and more severely. Gold’s diversification potential is going to be increasingly relevant, and this research reinforces its strategic benefits as a risk mitigation asset. But investors also need to be confident that their holdings can contribute to the decarbonisation of the global economy and that their portfolios are increasingly aligned to Net Zero pathways. Our analysis strongly suggests that gold can help support this transition,” Mulligan said.
The report builds on the World Gold Council’s earlier works of 2018 and 2020 and the analysis adopts a very conservative scenario by assuming that the gold in these portfolios will largely be sourced from newly mined supply and that investors in bullion and bullion-backed products, therefore, “inherit” the embedded carbon footprint associated with new gold production.
“In practice, gold would be sourced from the plentiful above-ground stocks, so our findings very likely overstate the embedded emissions associated with gold holdings in a portfolio,” said the report.
Key findings from the report were that including gold as a portfolio asset could have a positive impact on portfolio performance from a climate transition perspective. The report also found the benefits of holding gold in a globally diversified portfolio include reducing the portfolio’s overall carbon footprint, increasing portfolio alignment to climate targets and decarbonisation pathways.