Glencore’s decision to scrap its plan to spin off its coal businesses highlights the complexity of the relationship between carbon-intensive companies, their pro- and anti-fossil-fuel investors and environmental activists.
On paper, the scheme made sense. Glencore would be rid of its dirty coal businesses and the ESG discount attached to them; it would gain better access to bank funding and gain a sharemarket ratings uplift because of its cleaner focus on future-facing commodities. Shedding the coal assets might have meant the remaining Glencore would shed its most emission-intensive assets – but, of course, they wouldn’t simply disappear.Instead, they would be held within a new pure-play entity that would have every incentive to expand its production, in a US environment that is far more supportive of fossil fuel producers, particularly if Donald Trump regains the presidency.
Chief executive Gary Nagle said that shareholders still recognised that “cash is king,” and that the coal operations did generate “huge amounts of cash.” Major oil companies like Shell and BP have backtracked on plans for early exits from fossil fuel production, increased their investments in oil and gas, and shifted their timelines for reducing carbon emissions in recognition of both their investors’ desire for higher returns and the world’s need for oil and gas – and coal – until there is a larger and more stable clean energy base in place.
While there hasn’t been any obvious uplift in valuation from their reduced carbon footprints, ESG investors and external activists have lost leverage over them and of the coal produced from those mines as a result.
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