Invest in gold with a clean conscience?
Advocates for the world's poor see a golden opportunity for investors to make money and champion social justice at the same time by raising their voices as shareholders in gold-mining companies.
But encouraging best mining practices through investing is apt to require an uncommon level of creativity. The reason: America's socially responsible (SR) mutual funds aren't joining the effort, which means US investors eager to make a difference may need to find other avenues.
At issue are massive earth-moving enterprises to extract the precious metal from deposits in some of the world's most remote places. The chemical-intensive process has left some ugly marks in recent years, such as cyanide-contaminated rivers in Ghana, pollution resulting in criminal charges in Indonesia, and throngs of angry protesters in Peru.
Now high gold prices, which topped $1,000 per troy ounce for the first time this month, are rewarding investors – and providing an economic rationale for new mining initiatives in lands never before touched by heavy equipment.
"Because the price of gold and other metals is so high," says Keith Slack, extractive industries program manager at Oxfam America, an antipoverty group, "and there's such a demand for those products, mining companies are going into more and more developing areas in Latin America, Africa and Asia.
"Investors can play an important role [by saying] they want to see these operations done more responsibly," Mr. Slack continues, "by taking into account the environment and concerns of the local community."
Some institutional investors are being proactive. Administrators of New York City pension funds have called on gold giant Freeport McMoRan to improve its policies in the wake of reports of bribery and other misdeeds involving its security forces in Indonesia.
"We have industry-leading human rights practices," responds Freeport-McMoRan spokesman William Collier via e-mail, "yet seek to continually improve our performance."
Christian Brothers Investment Services, which invests funds for Roman Catholic institutions, last year won support from 92 percent of Newmont Mining shareholders for a resolution urging an investigation of the causes of rifts with multiple indigenous communities. (A report is expected later this year.)
And in Canada, Vancouver-based Ethical Funds is bringing social concerns of its Canadian investor base to the boardrooms of Gold Corp. and Barrick Gold, the world's largest gold producer.
"This is a rapidly evolving field," says Bob Walker, vice president for sustainability at Ethical Funds. "There's a lot to respond to here, on both the human rights side and the finance side, and we think [companies] need to move as quickly as possible.… We hope they'll come to view us as a resource on these issues."
American SR funds, however, are taking a hands-off approach. Jay Falk, president of research firm SRI World Group, says via e-mail that he knows of no US-based SR funds taking an active role in gold-mining issues. That's because gold-mining firms seldom pass an SR fund's social screens due to their checkered track records.
"We see a large business concentration in gold as a serious negative for a company," says Jeff MacDonagh, SRI portfolio manager for Domini Social Investments. "Most of these companies have pretty serious environmental and employee safety problems.… It becomes pretty difficult for an investor who cares about environmental and social issues to hold a company with big interests in gold."
Debate: Avoid bad companies, or try to reform them?
These divergent approaches reflect a longstanding debate within SR investing: Is it better to keep problematic sectors and companies out of a portfolio, or invest with hope of persuading them to do better? Activism has recently been gaining favor: Shareholders last year filed 68 percent more resolutions on social issues (368) than they did in 1999 (219), according to Washington, D.C., research firm RiskMetrics. But gold-mining stocks seem to remain too problematic, too high-priced, or both to inspire SR investment.
Mining companies routinely consult local stakeholders, in part because "your right to expand or operate is affected by your record," according to Carol Raulston, spokeswoman for the National Mining Association, a US-based trade group. She says the industry is nevertheless still grappling with what to do in overseas situations where, for instance, the government issues a mining permit but certain people who live near the site raise objections.
"It all gets wrapped up in what constitutes 'consent,' " Raulston says. "In some cases, it's been very complicated."
By shunning gold-related investments, SR funds have missed out on a bright spot in an otherwise gloomy investment landscape. Before gold prices slid a bit last week, investors seeking refuge from a weakening dollar and a plunging stock market had driven up gold prices by more than 40 percent since September. That has boost the value of gold-related exchange-traded funds and mining companies.
Oxfam's Slack offers no investment advice, but he observes that those who steer clear of gold stocks have no voice within the companies that are having an impact on the lives of vulnerable populations around the world.
Activists easy to ignore
"Because gold is hot commodity right now, and there's a lot of investment in it," Slack says, "it's probably easier [than in the past] for mining companies to ignore people who don't invest."
Individual investors eager to profit from gold with a clean conscience still have a few options. They could piggyback on the efforts of Christian Brothers, which commends Newmont for doing extensive interviews in aggrieved indigenous communities and establishing a multilevel review process. This strategy would entail buying Newmont stock, keeping tabs on the company's progress, and voting shareholder proxies.
"Investors can find the company that's 'best in class,' that's doing the least amount of damage humanly possible, that has the systems in place to protect people's health, and [that has] the least environmental impact possible," says Julie Tanner, corporate advocacy coordinator at Christian Brothers. "The company that's able to do that is going to be the one that's going to thrive."
Another option is to invest in jewelry retailers that have pledged support for The Golden Rules. This voluntary code calls on gold miners to obtain "free, prior, informed consent" from local communities and take steps to protect the environment. Example: Tiffany's, a leader in the No Dirty Gold campaign to clean up mining practices, says the largest portion of its gold comes from a single US mine that "operates in a sustainable and environmentally sound manner."
For investors who want to own the actual metal, however, jewelry is not the way to go: The markup on a gold ring is almost always too hefty to recoup upon resale. Investors can instead buy bullion from a dealer, but it's difficult – if not impossible – for buyers to know where, when, and how their gold was mined, says Peter Schiff, a Darien, Conn., securities dealer and author of "Crash Proof: How to Profit from the Coming Economic Collapse" (Lynn Sonberg Books, 2007).
His recommendation for ethically minded investors: Buy gold coins minted perhaps 50 or more years ago. The metal is just as valuable as any gold mined today, he says, and the premium paid for an aged coin can be recouped (at least in large measure) from another buyer down the line. On the social side, investors may gain peace of mind from the fact that their precious metal isn't a byproduct of projects that displaced communities or fouled ecosystems – at least not recently.
