Gold
Feature Articles
Opaque Supply Chains in Spotlight, Production Costs Rise
April 2021
Increasing consumer interest in responsible and sustainable gold is pushing the world's top jewellers and watch makers to reassess their supply chains. Miners will continue to face increased scrutiny to improve their environmental, social, and governance credentials, particularly after a string of high-profile disasters.

AME expects bolstering ESG credentials will increase production costs by 5% over the next five years—from implementing emissions reduction technologies to improving worker safety. Meanwhile, the use of recycled gold is also set to increase as a greener alternative to mining. 

 

Luxury Brands Under Pressure

Human Rights Watch has ranked 15 luxury brands on their responsible sourcing, which together generate more than US$40bn in annual revenue, or about 15% of global jewellery sales. While none achieved the top ranking of "excellent" in its latest study, US jeweller Tiffany & Co and. and Danish retailer Pandora were ranked "strong", while Italy's Bulgari, France's Cartier and US-headquartered Signet were ranked “moderate”.

 

 

Faring less well, Britain's Boodles, Swiss luxury brand Chopard and American jeweller Harry Winston were ranked “fair”, while Hong-Kong based Chow Tai Fook, Germany's Christ and India's Tanishq were tallied as “weak”. Because of a lack of disclosure, India's Kalyan, Japan's Mikimoto, Switzerland's Rolex and India's TBZ could not be ranked. Following the release, however, Mikimoto announced it “guarantees that all our diamonds are conflict-free” and that “all the gold we use is from refiners accredited by the London Bullion Market Association”.

Despite the HRW being disappointed with the speed of progress, 11 of the companies had improved due diligence since the organization's first report in 2018.

 

 

Pandora, the world’s largest jewellery manufacturer by production volume, recently announced its plans to become carbon neutral and use only recycled metals by 2025. The company also said it now publishes the names of both its gold and diamonds suppliers in an effort to improve transparency.

Bulgari says it became one of the first brands to successfully renew the Responsible Jewellery Council (RJC) code of practices certification for the next three years, “complying with the new, demanding standards released by the organisation in April 2019. Meanwhile, Boodles said all of its gold is now from a single mine origin in Mali and Chopard is sourcing gold from Fairtrade mines.

Ensuring transparency and traceability along every step of the supply chain is not an easy task, with the pandemic set to complicate matters. The report said that “although certification standards should set a high standard, they have not always done so”. It highlighted the fact that that standards—set by the RJC, the Kimberley Process certification scheme and the World Diamond Council’s System of Warranties Guidelines—do not require full traceability, transparency, or on-the-ground human rights assessments from their members. Still, jewellery companies expect these accreditation standards to play a large role going forward.

 

Recycled Gold Gains Ground

The use of recycled gold is gaining traction. It accounted for 28% of total global gold supply of 4,633t in 2020, according to the World Gold Council.

Pandora's pledged use of only recycled gold and silver in its pieces by 2025 would help to "mitigate some of the risks associated with human rights issues in the supply chain”, said Mads Twomey-Madsen, the company’s head of sustainability. Meanwhile, Annoushka’s new bridal collection, Love and Commitment, launching in May will mark the UK brand’s first made from 100% recycled gold. Another UK brand Monica Vinader switched to recycled silver in April last year and as of last month, only uses recycled gold vermeil.

 

 

Jewellers also encouraging clients to bring him unloved gold jewellery in exchange for credit. Monica Vinader has GBP20 credit voucher scheme for gold and silver from any brand. Brazilian jeweller Ara Vartanian will pay 5-10% more for unwanted gold than the market value—which led to its use of 74% recycled gold in 2020, up from 39% in 2019.  The next step will be to pinpoint the source of the recycled material, a concept that is gaining popularity.

The London Bullion Market Association said in its first annual Responsible Sourcing Report last year that “recycled gold due diligence may vary significantly over the wide range of suppliers and materials that are commonly received and processed”. It has recommended bullion centres focus on the responsible sourcing of recycled gold to help advance standards.

 

Looking to the Source

While AME estimates that over 80% of jewellers do not currently identify the mines of origins for their gold, it is likely to become a key focus as the trend towards sustainability is not going anywhere, anytime soon. There are 40m people working in artisanal and small-scale mining, including 1m children, according to HRW. The organization has recorded a wide range of abuses in this sector—from child labour, which has risen due to the pandemic, to pollution.

On a brighter note, many miners are seeking to prioritise ESG governance as shareholders demand change following a series of highly publicised disasters. Vale's deadly dam collapse in Brazil and Rio Tinto's destruction of sacred rock shelters in Australia have not done wonders for the industry's reputation as a whole.

The world’s largest off-grid solar-battery hybrid system for the mining industry was commissioned on Apr. 12 at B2Gold's Fekola gold mine in Mali. The 30MW solar plant and 15.4MWh battery storage will reduce carbon emissions by 39ktpa. Chile's mid-tier miner Cemin Holding Minero announced in early April a deal with France's ENGiE to receive 1.4GWh of green electricity for its Pullalli underground gold mine and processing plant. The switch will reduce emissions by 1,090tpa.

Barrick Gold Corp raised its GHG emissions target in April to 30% by 2030, from a previous level of 10%. On the social front, the Canadian gold miner established community-led development committees at all its operational sites in 2020, which invested US$26m in initiatives last year and US$30m on Covid-19 related support measures. The company’s 2019 Sustainability Report was the first in the industry to publish a detailed ESG scorecard, based on key metrics and rating itself against its peers.

Boardrooms, have too, been shaken up in response to ESG criticism with senior management increasingly having backgrounds in governance and sustainability.  AngloGold Ashanti last year appointed as non-executive director a mining governance adviser to the UN Economic Commission for Africa, Kojo Busia, while Barrick appointed World Bank executive director Anne Kabagambe to its board in November.

Jewellery companies are selling an image of beauty and purity, which they won't want to be tarnished by harmful mining practices. Consumer awareness on sustainability will grow as the world moves to a lower-carbon and more environmentally conscious future. After all, consumers will always have the power to effect change.