In a striking reversal, Glencore, the FTSE 100 commodities giant, has decided to abandon its plans to spin off its coal business. This decision comes after overwhelming pressure from shareholders who prefer to retain the lucrative but heavily polluting division.
The proposal to list the coal division as a separate company on the New York Stock Exchange was met with resistance from more than 95% of Glencore’s investors. The shareholders argued that the coal business enhances the company’s “cash-generating capacity,” which in turn would “accelerate and optimise the return of excess cashflows to shareholders,” according to the company’s statement.
“They recognise that cash is king,” said Gary Nagle, Glencore’s CEO. Nagle had initially proposed the restructuring plan last year, aiming to create more shareholder value by listing the coal division separately. The plan involved merging Glencore’s coal business with the steelmaking coal division of Teck Resources, a Canadian company recently acquired by Glencore, and listing the new entity in New York.
The US markets were seen as a more favorable environment for fossil fuel companies, where investors are generally more lenient towards polluting industries compared to their European counterparts. This viewpoint was echoed by Tribeca Investment Partners, an Australian hedge fund, which earlier this year urged Glencore to retain its coal division and shift its primary market listing from the UK to Australia. The hedge fund argued that the London Stock Exchange is no longer a hub for mining investments due to the “low appetite for mining investment” among climate-conscious European investors.
Despite these pressures, Nagle acknowledged the evolving landscape of environmental, social, and governance (ESG) issues. He noted, “The ESG pendulum has swung back over the last nine to 12 months. The world has recognised the need for coal as we decarbonise.” This statement is likely to provoke strong reactions from environmental groups that have long campaigned against coal due to its significant contribution to global emissions and the climate crisis.
Glencore’s decision to retain its coal division comes amidst a significant financial slump. The company reported a 33% drop in its underlying profits for the first half of the year, falling to $6.3 billion from $9.4 billion in the same period last year.
Adding to its challenges, Glencore faces legal troubles. Former executives, including its billionaire ex-head of oil trading, have been charged with conspiring to make corrupt payments to benefit the company’s oil operations in West Africa between 2007 and 2014. Alex Beard, who led Glencore’s oil division from 2007 until his retirement in 2019, alongside former executives Andrew Gibson, Paul Hopkirk, Ramon Labiaga, and Martin Wakefield, are facing charges following a Serious Fraud Office investigation into allegations of bribery at the company.
In response to these allegations, Nagle emphasized that Glencore has implemented a “best in class, gold-standard compliance programme,” aimed at fostering a “responsible and ethical” business culture. “It’s something we work on every day,” he said.
As Glencore navigates these turbulent times, the decision to hold onto its coal division underscores the complex interplay between profitability and sustainability in the corporate world. While the move satisfies shareholder demands for short-term financial returns, it also highlights the ongoing tension between economic interests and environmental responsibility.