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Cleaning Up the Gold Value Chain in Brazil

In a world faced with growing geopolitical tensions, climate change, and nature loss, it is more critical than ever to align the global financial sector with fairer outcomes for people and the planet.

Gold wields significant influence on global trade, investment, and growth. In times of market uncertainty, including now, investors retreat from equity to hold gold.

As a gold-producing country, Brazil relies heavily on the mining of metals and minerals which contributes up to 4 % of gross domestic product (GDP). Gold is pivotal in this sector, with reserves reaching an all-time high of 129.65 tonnes in the first quarter of 2023.

About 61% of national gold production is extracted from the Amazon, of which an estimated 54% is illegally mined for a net worth of roughly US$1.86 billion. This illegal activity is extremely lucrative and destructive, contributing to 10% of illegal deforestation in the Amazon and severe violations of Indigenous People’s rights.

As highlighted by NatureFinance, two essential factors have recently reshaped the landscape of the Brazilian gold trade. Most notably, the election of President Lula and his clear stance against “garimpo,” also resulting in renewed protection of Indigenous lands and people.

During the first six months of the presidential term, deforestation has fallen by over 33% — partly due to the Brazilian Institute of Environment and Renewable Natural Resources (IBAMA) resuming command and control of its environmental monitoring activities.

Advances in traceability technology are another major factor, enabling the tracking of gold from extraction to its final point of sale, for instance, in Switzerland, which accounts for approximately 70% of global gold trade volume. Gold also accounts for up to 70% of Brazilian exports to Switzerland.

New and innovative technologies, including “geo-forensic passports” and blockchain, provide a transparent and trustworthy chain of custody for gold. As a result, there is a growing demand to revisit the standards that ensure gold’s integrity by determining the precise origin of gold and that trace it along the various steps of the value chain.

As this market continues to evolve, digital technologies are set to play a complementary role in policy-making and regulatory oversight in the gold value chain. The need — and call — for increased transparency and accountability is clear on all sides, and major players in the global trade have a critical role to play.

Switzerland is at the forefront of initiatives and financial instruments from the University of Lausanne’s rapid, low-cost method to validate the origin of gold samples to the recently launched Swiss Positive Gold Fund and the work of the Swiss Better Gold Association.

Technologies and new initiatives are equally being developed in Brazil — such as the Igarapé Institute’s Responsible Gold Purchasing Procedure (PCRO) and the Eco-Crime platform to support the elimination of illegal gold from production and trade.

As discussed by critical voices and experts, these efforts are a good start but far greater bilateral cooperation between Brazil and Switzerland and a focus on practical solutions is needed.

The Brazilian Indigenous Rights group Kandidé Ethno-Environmental Defense Association is calling on financial actors to recognize the impacts on Indigenous people of the Amazon who are constantly exposed to environmental crimes (including deforestation, illegal mining, and land grabbing) and where the financial sector remains linked to this violence and destruction.

A group of high-level leaders, indigenous peoples, and local communities called for the harmful impacts of nature crimes — including illegal gold — to be addressed. A recent Taskforce on Nature Markets report sets out multiple pathways including efforts to halt illegal gold from entering the jewellery market or bank reserves.

Source: Impakter