Gold funds face challenges over responsible sourcing claims

Newly launched gold funds that label themselves as responsible investments risk being accused of making exaggerated and misleading claims.

Several gold funds have recently sought to shake up the €100bn fund sector by positioning themselves as sustainable.

The funds include Basler Kantonalbank’s Physical Gold Fairtrade Max Havelaar fund, AuAg Funds’ ESG Gold Mining Ucits ETF (ESGO) and the Royal Mint Responsibly Sourced Physical Gold ETC (RMAU).

Kenneth Lamont, senior research analyst at Morningstar, said self-labelled sustainable gold funds, however, buy the same sort of gold bars as most other gold funds.

“The new crop of green gold products hold only responsibly sourced gold bars,” Lamont said. “[But] trumpeting this too loudly could be seen by some as greenwashing. In some ways, it is a technicality.”

While new funds only buy “‘green’ gold bars which have been issued recently”, so too do many older gold funds, he added.

He said older funds had “vaults full of non-green stamped gold”, but that this could be traded out over time for “green” options.

However, Hector McNeil, co-founder of HANetf, which brought the Royal Mint and AuAg funds to market, said “nobody” would subscribe to the idea that investors can hold traditional funds and “wait for the world to get greener over time”.

Many physical gold funds, including the 10 largest products, abide by the London Bullion Market Association’s responsible sourcing guidance. The guidance aims to ensure that gold is responsibly sourced and that there is integrity throughout related supply chains.

For example, Invesco’s €14.1bn Physical Gold ETC’s bars are all minted post-2012, with the firm saying it adheres to the LBMA’s guidance “in compliance with the highest ethical standards”.

Meanwhile, iShares said its €13.7bn Physical Gold ETC only accepts gold that meets the LBMA’s good delivery rules, “ensuring that 100 per cent of the gold bullion backing [the] ETC is responsibly sourced”.

Despite so many gold funds abiding by the LBMA’s guidance, there remains room for asset managers to try to stand out from their peers by brandishing their responsible investment credentials.

ESGO was promoted as “the first ESG Gold Mining ETF in Europe” when it launched in 2021. RMAU, which was rolled out in 2020, claimed to be the first to use recycled gold bars.

McNeil said the Royal Mint product was “unique” because it used the Mint’s supply chain management and operational capabilities as a coin and bar manufacturer.

Basler Kantonalbank’s Physical Gold Fairtrade Max Havelaar fund, which was launched in June, said its approach ensured that its gold “was not mined on the backs of exploited miners”. The fund has now set up a share class allowing retail clients to invest.

“Institutional clients are often very well aware of the controversial character of gold as an asset class. For them, our new fund is a very attractive investment alternative,” said Basler Kantonalbank.

Basler Kantonalbank added that its Fairtrade gold fund differed from other gold funds in setting strict standards at mine sites and “along the entire supply chain”, which are checked by an independent body.

The LBMA and Fairtrade approaches are “complementary”, the firm added.

Neil Harby, chief technical officer at the LBMA, said the association’s responsible sourcing programme and initiatives such as Fairtrade were “certainly well aligned”.

Where the initiatives differ is in the “public claims made about ESG credentials and provenance” that form a “major part of the Fairtrade initiative”, Harby said.

The LBMA is consulting on how refining companies “can also claim such [ESG] credentials”.

However, even as the gold industry works to improve its reputation on responsible sourcing, data suggest that most asset managers still have further to go in being able to present their gold funds as sustainable investments.

Only four of 52 gold mining funds are classified as article eight under the EU’s Sustainable Finance Disclosure Regulation, Morningstar data show. Article eight funds should consider environmental or social factors in their investment process.

Across 115 gold and gold mining funds, 10 are classified as sustainable investments by Morningstar. These are funds where sustainable investing is “central to the investment product’s overall investment process”, based on its prospectus or other regulatory filings.

Physical gold funds had €86.8bn in assets under management while a further €13bn was held in funds investing in gold mining companies, according to Morningstar data at the end of September.

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