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Gold companies have a ways to go on ESG compliance, but here are the leaders

Commentaries & Views

As investors become increasingly concerned about environmental, social and governance (ESG) issues, companies are finding a growing need to release ESG-related data. In particular, gold producers have had some of the biggest problems with ESG compliance, for obvious reasons.

However, while many of them are making improvements, significant holes remain in ESG data among gold producers. In a recent report, Scotiabank analysts looked at 10-year trends for ESG data among gold companies to determine where information is lacking, where they've been improving, and how they continue to lag other sectors.

Environmental factors

In the area of environmental factors, they found that gold producers are improving their efforts in using recycled water, although they continue to struggle with carbon emissions and energy usage.

According to Scotiabank, gold producers have increased from using 30% recycled water in 2012 to 42% in 2021, the most recent year for which data is available. However, while increasing their usage of recycled water, they've also been using more fresh water relative to their total production output, which partially offsets the benefit of using a greater percentage of recycled water.

Additionally, Scotiabank found that hazardous waste produced at the industry level remains low at 3 kilograms/ gold equivalent output in 2021. At the same time, the total waste removal relative to gold equivalent output stabilized over the last four years ending in 2021.

On the other hand, gold producers continue to struggle with their carbon emissions and energy usage. Carbon dioxide emissions relative to output have remained fairly flat over the last three years, while energy usage relative to output has been increasing since 2016.

Why the gold sector's environmental targets may be overly ambitious

Scotiabank analysts noted that newly discovered orebodies are becoming harder to find and more complex in nature. They believe both factors are driving gold producers' carbon emissions and energy usage problems.

The analysts explained that the complexity of these new deposits, especially in terms of recovering the ore, means more energy is needed to recover the metals in the processing facility and convert them into the final product. They added that companies with existing mining operations that are aging are having the greatest difficulties with processing the ore and converting it because mining is moving away from the current infrastructure.

The result is increasing distances for hauling the ore from open pit mines and deeper depths for underground mines. The Scotiabank analysts believe these factors are to blame for the persistently high carbon emissions and energy usage by gold producers.

As a result, they believe the widespread industry forecasts set by numerous senior gold miners to reduce emissions by 2030 and reach carbon neutrality by 2050 will be extremely challenging.

Top performers in environmental factors

According to Scotiabank's analysis, the top performers in the environmental piece of ESG include Centerra Gold and Compania de Minas Buenaventura, which had the lowest carbon dioxide emissions per gold equivalent output in 2021.

They found that Compania de Minas Buenaventura, Dundee Precious Metals and Torex Gold Resources are leading in terms of using the least energy, while SSRM, BVN, AU, GFI and EGO use the most recycled water.

Social factors

According to Scotiabank, gold producers have steadily improved their health and safety track records. In fact, 2021 was a record year. Over the 10 years ending in 2021, gold producers have emphasized changing employee attitudes toward health and safety, and total injuries reported have dropped by about 25% over that period.

Aside from health and safety, Scotiabank also found that donations from gold producers have averaged about $7 per gold equivalent output, which has been relatively flat over the last five years. Additionally, workforce gender diversity has remained somewhat flat at around 12%.

Meanwhile, the industry employee turnover rate remains at around 9%, down from its peak of 12% in 2018. Scotiabank found that to be a surprise given the robust commodity market and tight labor force. However, the firm also noted that the COVID-19 pandemic may have impacted employee retention because turnover was low as mines shut down and employment-related uncertainty surged.

Thus, employee turnover may start to increase, and some companies did mention increased turnover on their conference calls in 2022. Scotiabank explained that stronger commodity prices lead to a tighter labor market with more employee choice and competition in the coming years.

Top performers in the social factor

Perhaps unsurprisingly, gold royalty and streaming companies have the lowest turnover and highest percentage of female employees, with Wheaton Precious Metals, Franco-Nevada and Royal Gold being the leaders. Since these companies focus on gold royalties and streaming, they have smaller workforces mainly at corporate officers.

The gold producer with the lowest employee turnover is Eldorado Gold, while the producer with the highest percentage of female employees is Gold Fields Limited. On health and safety, the leaders are Barrick Gold, Newmont, and Kinross Gold, while Iamgold, Newcrest Mining, and Dundee Precious Metals donate the most money.

Governance factors

Finally, Scotiabank found that gold companies have been improving gender diversity in their boards, although they would do well to increase diversity at the executive level. The firm found that about 31% of the boards at gold miners were made up of female directors in 2021, up from 5% a decade before.

However, gold companies haven't improved gender diversity at the executive level, which averages 14% over the last decade, although it ticked up to 16% in 2021. Scotiabank said gold companies should focus on improving this metric in the coming years.

Top performers in governance factors

According to Scotiabank, the top performers in board gender diversity were Eldorado Gold, Torex Gold Resources, and Endeavour Mining, while the companies with the highest gender diversity among their executives were Torex Gold, AngloGold Ashanti, Newcrest Mining, and OceanaGold.

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