Glencore Abandons Coal Demerger at Investors’ Request

Company cites “evolving views on ESG” as a key reason behind the decision to keep its fossil fuel business.

Commodity trader and miner Glencore has abandoned plans to spin off its huge coal business in response to pressure from investors, the company has said.

The Anglo-Swiss group revealed the dramatic U-turn in a statement on Wednesday, saying 95% of investors who had expressed a view on the matter supported retaining the coal division for its “cash generating” potential.

It cited “evolving views on ESG”, increased investor support for its strategy of slowly winding back coal business, and a recognition of the difference between metallurgical coal and thermal coal as driving factors for the decision. In the statement it referred to metallurgical coal as “carbon steel materials”, drawing accusations of greenwashing.

“Glencore’s designation of metallurgical coal as ‘carbon steel materials’ looks alarmingly like greenwashing and raises questions about the company’s commitment to being honest about its exposure to climate transition risk,” said Naomi Hogan, Company Strategy Lead at the Australasian Centre for Corporate Responsibility (ACCR).

The company will use the revenue from its coal business to invest in non-fossil fuel mining, including metals that are vital for clean energy technologies, such as copper.

“Following extensive consultation with our shareholders, whose views were very clear, and our own analysis, the board believes retention offers the lowest-risk pathway to create value for Glencore shareholders today,” company Chair Kalidas Madhavpeddi said.

“The expected cash-generative capacity of the coal and carbon steel materials business significantly enhances the quality of our portfolio, by commodity and geography, and broadens our ability to fund our strong portfolio of copper growth options, as well as accelerate shareholder returns.”

The company said it would continue the “responsible decline of its thermal coal operations over time”.

Divest or wind down?

The decision means Glencore is one of the last major global diversified miners to retain its thermal coal division, the most carbon-intensive among commonly used fossil fuels.

Anglo American sold its thermal coal portfolio in 2021, while BHP announced in 2022 that it would close its last such mine in 2030. Both still mine metallurgical coal used in steelmaking in a vast mining region in Queensland, Australia, where Glencore also operates.

Rio Tinto, meanwhile, sold its last coal mines – both thermal and metallurgical – in 2018, and now produces no fossil fuels. BHP sold its oil and gas business to Woodside in 2022 in an all-share deal.

Thermal coal, used to generate electricity, is the most polluting fossil fuel, but is also among the easiest to replace with low-carbon alternatives. This leaves it heavily exposed to reputational, regulatory and stranded-asset risk, leading many investors to avoid it.

Metallurgical coal, for its part, is less controversial – not because it is less polluting, but because there is currently no commercially viable alternative to it in the steelmaking process.

Glencore had planned to follow Rio Tinto in exiting both thermal and metallurgical coal mining entirely. Earlier this year, it acquired mining group Teck’s metallurgical coal business, Elk Valley Resources (EVR), after which it had planned to create a standalone coal company. But after extensive shareholder engagement, Glencore decided to drop the plan.

“Some shareholders stated that this was a decision for the board alone to make, but of the others, the overwhelming majority had a clear preference for retention,” CEO Gary Nagle said on Wednesday. “This was primarily on the basis that retention should enhance Glencore’s cash-generating capacity to fund opportunities in our transition metals portfolio, such as our copper growth project pipeline, as well as accelerate and optimise the return of excess cash flows to shareholders.”

A look at Glencore’s half-year earnings, released on Wednesday, illuminates this thinking. In the six months to June 30, the company made earnings before interest, tax, depreciation and amortisation (EBITDA) of US$6.335 billion. Of that, its coal business brought in US$2.706 billion. During the same period last year, when coal prices were much higher, it was by far the most profitable division, bringing in EBTIDA of US$5.851billion.

The acquisition of EVR will only add to that. In 2023, the coal division contributed over CA$5 billion (US$3.64 billion) to the company’s approximately CA$7 billion gross profit. “Shareholders recognised that cash is king,” Nagle said.

Climate impact

Glencore is a wildly polluting company, emitting greenhouse gases equivalent to a medium-large industrialised country like the UK. Last year its Scope 1, 2 and 3 emissions were 433 million tonnes of carbon dioxide equivalent (CO2-e), of which 406 million were Scope 3. That was before the acquisition of EVR, which Teck estimated produced Scope 3 emissions of 70 million tonnes of CO2-e last year.

Scope 3 emissions include emissions from the entire value chain, including those released when customers burn the company’s coal.

For a carbon-intensive business, Glencore has relatively ambitious climate targets. By 2035, it has committed to halve its Scope 1, 2, and 3 emissions from a 2019 baseline, with goals to hit net zero by 2050.

Spinning off the coal business would have made this target much easier to reach. The decision to scrap the demerger now means the company must create a new climate action plan, according to the ACCR.

“With the EVR acquisition complete and the coal business to stay, Glencore’s climate plan is now outdated [and it] needs to move swiftly and give investors much-needed visibility on how it plans to manage its increased exposure to climate transition risk,” said ACCR’s Hogan.

“With the expansion of the coal portfolio comes an opportunity for Glencore to provide investors with a credible plan to responsibly wind down its coal assets in line with the Paris Agreement.”

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