Insights into Gold ETPs and Metals Funds: ESG as key considerations for investors

14 May 2024

A recent study by Tabula Investment Management looking into commodity flows this year, sheds light on the intricacies of gold ETPs and metals funds, highlighting the critical role of ESG considerations.

Tabula’s research unveils a cautious optimism among professional investors regarding European-listed physical gold ETPs. According to the study, 84% of respondents anticipate positive flows this year, with 17% foreseeing robust activity. Diversification remains a key driver for investing in metals, cited by 61% of respondents, alongside increased competition (48%) and a growing emphasis on sustainability and ethical sourcing (44%).

Surveying 200 gold investors managing over €800 billion in assets across European pension funds, wealth managers, insurers, and family offices, Tabula’s research uncovers a forward-looking sentiment. While 67% of respondents across key European markets predict significant increases in allocations to metals and metal miners, a more conservative 41% foresee similar upticks in allocations to physical commodity exchange-traded products.

ESG integration in investment strategies

Tabula’s recent launch of the SMO Physical Gold ETC underscores the growing importance of ESG considerations in investment decisions. The study highlights investors’ prioritisation of ESG factors, particularly the traceability of gold, as a key determinant in selecting gold ETCs.

Nearly 90% of investors believe less than half of the gold held in physical gold ETCs is traceable to source, the study found.

Setting new standards: transparency and accountability

The SMO Physical Gold ETC sets a new standard for transparency and accountability. With full traceability of gold bars from mine to vault and exclusion criteria for controversial sources, this innovative ETC caters to the requirements of investors looking to integrate ESG criteria.

“The gold sector and metals in general are expected to benefit from positive flows this year and next year, with metals and mining funds and commodity ETCs set to see the strongest flows,” says Tabula CEO Michael John Lytle. “The attraction of the sector for diversification is the key draw for listed gold products, but the sector’s focus on ESG and ability to deliver for investors on that front is becoming increasingly important.”

Tabula CIO Jason Smith added: “Our research shows that for many investors, ESG credentials are an important factor for competition among gold ETCs. Responsible sourcing and traceability are issues that need to be addressed if a provider is serious about ESG.”

The SMO Physical Gold ETC uses gold from a small number of named mines, has full traceability across the supply chain, and is designed to provide the same level of liquidity, efficiency and security as other physical gold ETCs.

Single Mine Origin (SMO), an independent company set up in 2017, conducts due diligence and ongoing monitoring of the participating mining companies, mines and refiners, and oversees and documents every step of the supply chain. The result is a transparent and trusted standard for responsibly sourced gold.

The SMO Physical Gold ETC has US$33 million in assets and is listed on the London Stock Exchange. It has a TER of 0.29% and has been launched in partnership with leading global gold custodian HSBC.