There are “serious weaknesses” in the London Bullion Market Association’s (LBMA) Responsible Gold Sourcing Programme that are failing to prevent human rights abuses and illicit trade, according to an open letter signed by five civil society organisations (CSOs).

The letter is a blow to ETF issuers that claim their gold products are environmental, social and governance (ESG) friendly due to the fact they explicitly hold gold bars that are sourced from the LBMA’s responsible programme.

The five organisations, Global Witness, Rights and Accountability in Development (RAID), SwissAid, Fastenopfer and Society for Threated Peoples, warned investors cannot have confidence LBMA-approved gold refiners are not associated with conflict gold or gold originating from a mine with a poor human rights record.

One key concern highlighted was the LBMA’s “retreat” from its position that refiners should suspend trade if there is a possibility that the gold sourced is illicit to a new position that “disengagement should only be considered a last resort”.

“This suggests the LBMA does not apply its own standard and instead dramatically lowers the bar. It creates confusion and risks signalling to refiners that rules can be bent,” the letter continued.

“Moreover, it runs contrary to the letter and the spirit of the underlying OECD Guidance, according to which companies should disengage with suppliers which have not themselves stopped sourcing when there is a ‘reasonable risk’ that these suppliers are linked to human rights abuses or armed groups.”

The letter said three CSOs have independently raised specific cases highlighting allegations that LBMA-approved refiners were associated with conflict gold. Global Witness and SwissAid published two separate reports last July which highlighted investigations into how Valcambi was sourcing gold from UAE-based refiner Kaloti which was linked to Sudanese conflict gold.

Meanwhile, RAID warned the LMBA of the whitewashing of serious human rights abuses at Barrick’s North Mara Gold Mine in Tanzania.

Overall, the letter identified 11 issues the LBMA needed to “urgently” address:

  • Lack of transparency in annual reporting
  • Origin of refined gold is not correctly reported
  • Weak guidance on suspending trade with problematic suppliers
  • Low quality of audits
  • Lack of disclosure of audit findings
  • LMBA lacks access to crucial information
  • Questionable independence of auditors
  • Opaque review processes
  • Findings are withheld when incidents are investigated
  • Lack of sanctions
  • Lack of independence

“Based on civil society’s research, it is clear that there are serious weaknesses in the programme and that downstream customers cannot have confidence that the LBMA’s Good Delivery gold is free of human rights abuses and not linked to conflict and illicit trade,” the letter warned.

How ETF issuers react to the letter remains to be seen but it certainly raises questions about whether the “rigorous standard”, as one issuer described the LBMA’s programme, is suitable for ESG investors.

ESG and gold: A justified allocation or simply greenwashing?

While claims that responsibly sourced gold is ESG ‘compliant’ are questionable at best due to the environmental impact involved in mining, the news that the programme fails to address human rights abuses and conflict trading will certainly give investors including gold ETCs in their ESG portfolios plenty of food for thought.