This is part 2 of a series on ethical investments in mining and metals firms. See part 1 if you missed it yesterday.
A significant development in recent years has been the rise of so-called ethical investment funds. Every defined contribution pension plan has a small group of members who want their fund’s investments to reflect their own ethical values, even if no 2 investors are likely to totally agree on what constitutes ethical and what doesn’t.
Take the case of gold, there are numerous cases of environmental devastation linked to gold mining, very often linked to (but not restricted to) poisoning of water and soil with arsenic and mercury used in the extraction process.
Yet firms such as Newmont Mining, which has been repeatedly accused of such failures still makes it onto the Dow Jones Sustainability Index. So, if the major miners like Newmont, Rio Tinto and so on cannot be considered as ethical companies in part because of their size, influence over third party certification reports and legal clout whenever a protest is raised, what about smaller, artisanal miners who single source and have to work more closely with organizations such as Fairtrade and Fairmined?
According to Fairtrade International, about 100 million people worldwide earn a living from artisanal and small-scale mining. Although artisanal miners produce only about 10% of the world’s gold each year, they make up about 90% of the workforce in gold mining, providing important financial support for their local communities.
Artisanal, Free-Range Mining
Those that work with organizations like Fairtrade are also encouraged to not use chemicals but to develop chemical-free gravimetric methods for gold recovery, but most are also too small to appear on the NYSE or FTSE.
So, if not miners then, moving down the supply-chain, what about refiners? Does a recycling company constitute a truly ethical metals community investment? In the case of gold, recycling already accounts for a third of the global supply and as only 9% of consumption goes into must-have applications like electronics and medical equipment, much of the product from mined sources goes into jewellery and, sustained by the financial community, our longstanding belief system that there is something intrinsically valuable about the yellow metal.
If the value to the global community of what the firm produces is any consideration, in our determination of ethical or not, then maybe refiners should feature more highly than miners?
It could be argued that metals that have high recycling rates, such as aluminum, silver, gold, the PGMs and even steel, have a lower environmental impact than those that tend to be consumed and lost at the end of life.
Often the energy use in recycling is a fraction of refining from ore. Should aluminum then be considered as an ethical metal in spite of the mind-boggling amount of energy and associated greenhouse gases involved in its original refining process, simply because it has such a high recycling rate? Should electric arc furnace steel producers be favored from an investment standpoint over those going the blast furnace route?
It challenges the concept of what is an ethical investment. Certainly there are miners, refiners, recyclers and processors that operate in ways that do not exploit workers or host countries, launder money or fund corrupt regimes, but all mining has some environmental impact just as virtually all economic activity has some environmental impact.
Rather than shun the metals community in its various forms, ethical investors should embrace the least bad, those that maintain the highest standards and lending support to their share price may just help encourage the laggards to raise their game.