A year ago, the world’s biggest resources companies were apparent slaves to the ESG movement. Many of them were open to ejecting their dirtiest fossil fuels from their portfolios to attract the cherished “green” premium offered by investors who wanted to own more climate-friendly companies.
Today, these very same companies are resisting the pressure to ditch their fossil fuels in the name of making their environmental, social and governance credentials more attractive – and they are getting away it.
How to explain the reversal? Turns out that the ESG-inspired sales and spinoffs were not as climate friendly as advertised and the entire industry is rethinking its approach to the “E” part of the ESG equation.
At one point, coal seemed a goner, yesterday’s commodity – and good riddance.
The world’s top mining companies – BHP, Vale, Glencore, Anglo American and Teck, among them – were under enormous pressure to clean up their portfolios. The assumption was that the ESG crowd would punish those companies that kept coal and oil; to some degree, they did. A few big oil companies came under the same pressure. For instance, Dan Loeb’s Third Point hedge fund demanded that Shell split its petroleum exploration division from its natural gas and renewable-energy businesses (Shell said forget it).
Early this year, there was a flurry of coal sales and spinoffs, though it was Rio Tinto that got the ball rolling on this trend – it unloaded its coal assets in 2018. One of the recent biggies was Anglo American’s spinoff of its South African thermal coal business (thermal coal is burned to produce electricity). In June those assets landed in a new stock exchange-listed company called Thungela Resources.
There were a flurry of lesser deals, with mining and oil companies selling various hydrocarbon operations to private companies. Then it all stopped, backfired even.
A good number of ESG investors realized that merely transferring a dirty asset from one company to another did nothing to help the planet, since the coal would still be burned. Any transfer might even be a net-negative because, more often than not, the new owners did not have the same ESG and transparency standards as the previous owners, which were big public companies exposed to environmental cleanup pressures.
Anglo was rather embarrassed by its own coal spinoff. Shortly after Thungela was launched, the new company announced it would boost production from the coal projects it had inherited from Anglo. So much for cleaning up the planet.
Only a few months later, the fossil fuel companies that kept their dirtiest assets received a boost from no less than Larry Fink, chairman of BlackRock, the world’s biggest asset manager. Speaking at the Green Horizon Summit, he called the sale of hydrocarbons to private companies the “biggest capital market arbitrage” and said it had to stop. “That doesn’t change the world at all,” he said. “It actually makes it, the world, even worse, because it moves from public disclosed companies to private enterprises.”
Still, a few fossil fuel players remain under pressure to follow the Anglo route. One is Glencore, the world’s biggest supplier of seaborne thermal coal. This week, the small activist London hedge fund Bluebell Capital Partners called on Glencore to spin off its thermal coal business.
Bluebell said Glencore should “chart a new future” without coal and called the company’s plan to wind down, and eventually close, all its coal mines within 30 years to reach its net-zero commitments, “morally unacceptable and financially flawed.”
Bluebell’s campaign will go nowhere. Its holdings in Glencore – market value £47-billion ($80-billion) – are undisclosed and thought to be tiny. Almost all of Glencore’s shareholders have already endorsed the company’s climate plan, which is dominated by the coal wind-down and the use of coal profits to finance a deeper dive into energy “transition” metals, such as cobalt, an essential component of electric-car batteries.
It is easy to be cynical about the industry’s hydrocarbon reversal. In mid-2020, when the world was gripped by the COVID-19 recession, thermal coal prices at Newcastle, the enormous Australian coal-loading port, dropped to US$48 a tonne. The price promptly soared as the European gas shortage forced Britain, Germany and other countries to run their coal burners flat out. In October, coal hit an astounding US$253. Today, the spot price is US$155 – still triple its low.
The point being, coal is essentially free money for the mining companies that didn’t give it up. Glencore’s coal production costs are only US$55 a tonne and it’s spending no money on coal development. Investors are well aware that companies heavily exposed to coal, such as Glencore and Canada’s Teck Resources, are rallying on the stock market. So they can have it both ways. They can reap the financial rewards of the dirtiest fuel while arguing that keeping the coal divisions is environmentally acceptable, as well as being a useful counterbalance to soaring prices for Russian gas.
Who would have thought a year ago that mining companies stuffed with coal would go from ESG pariahs to luvvies? But that’s what happened, and it’s why coal will not gently fade away anytime soon. Sorry, planet.
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