Investors Push For Glencore To Keep Coal Assets Despite Rising Emissions

Despite recording a significant rise in carbon emissions, investors are urging Glencore GLCNF to persist with coal production, citing financial viability and environmental considerations. The push comes amid a plan to acquire a large portion of Teck Resources TECK, a Canadian miner with significant ecological problems.

The acquisition, valued at $6.9 billion, will see Glencore bolster its coal capacity, adding 20 million tons of steelmaking coal annually. Analysts project that this strategic move could generate between $5 billion to $6 billion in free cash flow, highlighting the financial appeal of maintaining coal operations.

However, the surge in emissions, up by 8.8% in 2023 primarily due to increased coal production, has raised concerns among shareholders. Glencore’s latest report indicates a deviation from its previous stance on emissions, and it is now open to consulting shareholders regarding the potential spinoff of coal assets.

The company's stance on coal production has evolved. Initially, management argued that abandoning coal would have little impact on its emissions. Yet, at the latest earnings report, Chief Executive Gary Nagle expressed openness to consulting shareholders on the possibility of spinning off its coal assets.

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In contrast to Glencore’s intentions, several top investors have voiced opposition, according to Reuters, arguing for the need for a more gradual transition away from coal. They believe that a responsible wind-down of coal operations would better serve the interests of both shareholders and the environment, minimizing the impact on workers and communities.

"Companies need to have credible strategies that support real-world decarbonization," said Andrew Mason, head of active ownership at Glencore's shareholder Abrdn SLFPY. Mason clarified that a timed phase-out would create a better transition with minimal impact on workers and communities.

Despite Glencore’s commitment to reducing emissions, including a 15% reduction target by 2026 and a 25% reduction target by 2030, the recent emission surge underscores challenges in aligning production with climate goals. The company’s emissions remain a contentious issue, particularly concerning Scope 3 emissions originating from customer usage of commodities like coal and oil. The move to withdraw the coal production cap coincides with activist campaigns urging Glencore to retain its coal division rather than divest it.

The new plan sets a 25% emission reduction deadline by 2030 and aims to achieve Net Zero by 2050. Still, moving the corporate goalposts is drawing criticism and raising questions about Glencore's commitment to climate action. Naomi Hogan, Company Strategy Lead at the Australasian Centre for Corporate Responsibility, issued a stark warning.

"To have the world's largest thermal coal exporter effectively walking away from Paris alignment is an enormous risk to Glencore's investors and a risk to all portfolios exposed to the systemic risks of climate change. It represents a reckless bet against an orderly and timely energy transition," she said.

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