Could Sustainability Regulations be the “Yellow Swan” event for Gold ?

Gold has long been a structural part of investor portfolios, benefitting recently from renewed tailwinds from a myriad of macro and geopolitical drivers. While we adhere to many of them, this report delves into the potential implications of upcoming corporate sustainability due diligence regulations and extrapolates the investment implications that may be overlooked by market participants.

The gold market is characterized by a unique concentration at the refining stage. A selected group of Swiss and European privately held entities dominate this segment. The impending implementation of the EU's Corporate Sustainability Due Diligence Directive (CSDDD) and its Swiss counterpart could have profound implications for these refiners, potentially reshaping supply dynamics and influencing gold prices.

Our investment philosophy focuses on identifying unacceptable adverse impacts, working backwards through the value chain, understanding the underlying incentive structures, and identifying the pivot points and bottlenecks most likely to amplify systemic change. We aim to pinpoint potential catalysts and assess their implications across asset classes and sectors. We also look to work with our clients in how to trigger them.

James Cameron’s record-breaking box-office hit “Avatar” (2009) used the appeal of entertainment to reach the widest possible audience with a powerful anti-colonialist message. He sensitised audiences to the detrimental impact that extractive industries can have on natural habitats and ecosystems.

Gold mining faces several ESG challenges, notably those related to human rights and environmental degradation. Issues such as the displacement of indigenous communities and the use of hazardous chemicals like mercury and cyanide in the extraction process are particularly concerning. These practices not only endanger the environment but also pose significant health risks to local communities and workers.

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