Gold can ease the way to a “decarbonised” investment portfolio

News Arnulf Hinkel, financial journalist – 05.11.2021

© Umicore

The extremely real and ever-growing threat posed to humanity by climate change is a fact widely recognised by private citizens, policy makers and CEOs worldwide. It is also clear that the transition to a more neutral carbon footprint will require a great deal of effort and sacrifice – including and above all, financial. The effects will be felt as much by private households as by companies and investors. The latter will have to restructure their portfolios to meet climate standards and uphold a certain portfolio performance level during the transition phase.

New study shows benefits of gold in reducing carbon footprint

Gold is a store of value and safe haven in times of geopolitical and economic crises. It can also hedge a typical stock/bond portfolio against the risks associated with global efforts in the transition to low carbon emissions. Based on this assumption, the World Gold Council and Urgentem, a leading provider of transparent carbon emissions data and climate risk analytics for the financial industry, developed a model for the transition phase to a lower carbon footprint to simulate the impact of various allocations of gold to portfolios composed of 70 per cent stocks and 30 per cent bonds.

Reduction of portfolio’s carbon footprint by up to 17 per cent is possible, according to analysis

The ecological footprint of a portfolio is determined by its composition. With a10 per cent admixture of gold, it could be reduced by 7 per cent; an admixture of 20 per cent could reduce it by as much as 17 per cent. These figures are among the results published in the study “Gold and climate change: Decarbonising investment portfolios”, based on climate and financial data collected over the past five years. The ecological footprint of gold was, of course, taken into account for the study.

Arnulf Hinkel
Financial journalist

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