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Glencore sees logic in keeping coal, the market may disagree

While it’s arguable that this is actually a better outcome for the environment, it’s also possible that Glencore is setting itself up for a conflict with shareholders, both existing and potential, who are likely to demand firmer action on coal than a long goodbye, even if an extended exit is more profitable.

Ivan Glasenberg, the chief executive of the diversified miner, told the Financial Times Mining Summit last week that Glencore is not planning to replace its coal mines as the reserves are exhausted.

Glencore is the world’s largest coal exporter and pledged in February last year that it would cap output at its then annual capacity of 145 million tonnes.

But Glasenberg appears in no rush to join his global peers in selling off coal assets, saying that this would do little to reduce Scope 3 carbon emissions, which are created when the fuel is burned by the end user.

“I don’t see how spinning off coal mines will help us reduce Scope 3 emissions,” Glasenberg told the summit.

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He may be correct that a better outcome for the environment is for Glencore to maintain ownership of its coal mines and gradually close them over time, rather than selling them to a less scrupulous investor who may seek to extend their lifespan.

But investors are increasingly likely to hold a different opinion, given the growing focus on environmental, social and governance (ESG) issues.

Hardly a day goes by without pension funds, investment companies, banks or development financiers announcing their withdrawal from coal investments.

While other fossil fuels such as oil and gas are also called out, coal is still the primary target for any group aiming to boost ESG credentials.

A recent example is the decision by Japan’s Mitsui & Co to sell its remaining stakes in coal-fired power plants by 2030, as it shifts to natural gas to meet a 2050 target of net zero emissions.

Another example is the move by a group of investors, managing a combined $5 trillion, to lower their portfolio carbon emissions by as much as 29% over the next five years.

The Net-Zero Asset Owner Alliance, a group that includes the biggest U.S. pension scheme CalPERs and German insurer Allianz, aims to align their portfolios with the 2015 Paris Agreement on climate change, Reuters reported on Oct. 13.

Coal on the Outer

The trend against investing in coal has been accelerating in recent years and Glencore is likely to find itself swimming increasingly against the tide.

Glencore also has a solid renewable energy story to tell, being a major producer of the metals needed for batteries and electrical systems that promote the use of non-fossil sources on energy.

The company is the world’s top producer of cobalt and is also a major miner of nickel and copper.

However, Glencore may find it hard to sell its role in powering the energy transition as long as the albatross of coal is hanging around its neck.

Global peers such as Rio Tinto, Anglo American and others have already sold their coal assets, or have announced plans to do so.

While it’s true that merely selling the assets does nothing to cut the volume of coal being produced, it does allow these companies to market themselves as part of the solution to climate change, rather than part of the problem.

It could also be argued that Glencore’s share price has underperformed relative to its sector competitors, although there are other factors at work beyond ESG concerns.

However, Glencore’s shares are down 29.4% in London so far this year, while Anglo American has slipped 10.2% and Rio is actually up 1.9%.

Glasenberg faces something of a paradox in that Glencore keeping its coal mines may be better in the long-term for the environment, but by doing so his company may be punished by those seeking to protect the same environment.

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