Rising investor demands for detail on transition planning and coal phase-out from mining firm come amid attempts to acquire Canadian rival.
Mining major Glencore’s shareholders are demanding answers over its coal strategy and its Paris-alignment at its 2023 annual general meeting (AGM), held 26 May.
At the meeting, the US$64.8 billion mining firm faces a shareholder vote on its climate plan, as well as a shareholder resolution requesting disclosure over how its projected thermal coal production aligns with the Paris Agreement’s target of limiting global warming to 1.5°C.
Asset owners see the Glencore AGM as a ‘red letter day’ for the mining’s giant’s business strategy and its commitment to supporting a transition to a net zero world.
Matthias Narr, Head Engagement International at Ethos Foundation, a Swiss foundation which promotes socially responsible investment amongst pension funds, told ESG Investor that Glencore’s climate strategy process is “lacking granularity, especially around their plans for coal production and investments”.
Narr said coal is “really [Glencore’s] core business” which is why the shareholder resolution was filed, in an attempt to get a “bit more disclosure on coal, especially how they forecast the production”.
The resolution was co-filed by the Australasian Centre for Corporate Responsibility (ACCR) and responsible investment NGO ShareAction, as well as a global coalition of institutional investors, including Legal and General Investment Management, Ethos Foundation, Vision Super and HSBC Asset Management.
Now backed by Allianz Global Investors (GI), Brunel Pension Partnership, Scottish Widows, Border to Coast and Man Group – plus support from proxy advisors Glass Lewis, ISS and PIRC – it seeks greater insights into the specific plan to align thermal coal production with emissions reductions commitments.
Kimon Demetriades, Stewardship Analyst at Allianz GI, told ESG Investor that recent Glencore climate plans had seen “decreasing support”, with investors “growingly disappointed” with the firm’s transition pace, and possible “direction of travel of the implementation of the strategy”.
Shareholders’ call for clarity
Ethos Foundation Narr underlined that investors want to know what direction Glencore’s production is moving in to have a “better idea of whether they want to remain invested” in the mining firm.
Presented in December 2022, a Glencore investor day presentation showed that the firm’s coal production will remain flat until 2025, and that there “seems to be no sign of the linear downward-facing trend” that is needed to reach the goals of the Paris agreement according to Narr.
“The company claims to be Paris-aligned but I think it’s hard to believe this based on their current disclosures,” he added.
Allianz GI’s Demetriades flagged the shareholder resolution’s “three clear asks” centring on Glencore’s thermal coal production alignment, related capital expenditure allocated to this production, and the disclosure of “any inconsistencies between this pathway and the International Energy Agency’s (IEA) Net Zero scenario timeline for unabated thermal coal”.
“Although Glencore have made improvements to their disclosures; the key aspect of coal production and alignment with net zero scenarios is still unclear,” he said.
“We understand the need for affordable or reliable energy sources, but also that unabated thermal coal continues to pose a risk to the meeting of global climate objectives,” Demetriadias added. “We would like to see the company engage shareholders on the outcome of this vote, evaluate investors’ concerns on insufficient actions and develop a strategic response”.
The IEA specifies there is no need for new coal mines or extensions beyond 2021. Further, it calls for “no additional new final investment decisions” for new unabated coal plants, with the least efficient coal plants phased out by 2030, and the remaining coal plants still in use by 2040 retrofitted.
Samantha Chew, Stewardship Lead at Aegon UK, told ESG Investor the insurer and pension provider have called on its key asset managers to vote for the shareholder resolution due to the “lack of clarity in Glencore’s climate report on how the company is going to ‘manage the decline of fossil fuel portfolio in a responsible manner’ per the company’s public commitment.”
She added: “We encourage Glencore and its peers to continue developing a more credible, transparent approach in managing climate risks and phase-outs for high emitting assets incompatible with a 1.5°C pathway.”
Despite ‘dark green’ investors divesting from Glencore, Narr remains encouraged by 24% of shareholders voting against Glencore’s climate plan at last year’s AGM which showed there was a “sizable minority that were not super happy with the climate report”.
“I think if we land on single digits [of support], I will be really disappointed,” Narr said. “More than 20% in favour of the resolution would be a very clear signal to the Glencore board that they need to provide additional disclosure.”
Cutting out coal
Despite a lack of clarity on its intentions, coal has been at the centre of Glencore’s recent strategic thinking.
The firm offered US$23.2 billion to buy Canadian diversified mining company Teck. Teck had planned to split its operations into two arms, but Glencore made a counter proposal, which would combine the two firm’s metals-mining assets, also merging its coal businesses in a separate entity.
This would birth CoalCo, a standalone coal and carbon steel materials business comprising Glencore’s and Teck’s coal assets, Glencore’s ferroalloys assets and Glencore’s coal and ferroalloys marketing businesses.
This separate company would then be floated on the New York Stock Exchange.
Narr noted that Glencore’s previous strategy had been to hold its coal assets and “do what they call responsibly managed decline”, but the “Teck situation had changed that narrative a bit”.”
Giuseppe Bivona, a Partner at activist investor Bluebell Capital Partners – which has urged Glencore to get rid of its coal interests – said that the Teck deal marks the first time the Glencore’s management has acknowledged its need to spin off coal.
Selling off the combined coal business would be highly profitable for the mining firm. It could also make Glencore be more valuable through focusing on copper, which is in demand for renewable energy technology.
Glencore’s coal division accounted for 53% of its earnings last year, but is perceived to be lowering the firm’s overall valuation due to the associated climate risks of the product.
After Teck withdrew its own proposals to split its businesses, Glencore reiterated that its offer still stands.
“Against this background is even more important that they are very explicit and very granular in their disclosure around their coal strategy, what they want to do with it, how much they want to invest and how this is Paris-aligned,” Narr said.