Ritika Janiya
One of the world’s largest commodities firms, Glencore, has decided not to spin off its coal unit after investors owning over 95% of its stake implored the firm not to sell it. They believe the coal business will earn higher profits, which they say will outweigh the environmental implications. Environmental campaigners have raised their brows over Glencore’s decision to keep the coal business.
The world’s biggest commodities firm, Glencore, reversed a decision to spin off its coal business in the wake of a hard push by investors. The firm had spun plans to separate its coal division and had it listed as a new company on the New York stock exchange. Over 95% of Glencore investors held that it would be best to stay with the coal business since it made a lot of money. This move typifies how much investors prize profits over principle, even if it means persisting with a business engined by pollution.
The giant company in the FTSE 100 Index, Glencore, based its reasons mainly on concerns that the coal division would help generate more cash. This excess fund could, in fact, be recycled back to the shareholders, thereby keeping them happy. Glencore’s CEO, Gary Nagle, elaborated on the matter further by saying, “They understand. Cash is king, so that means really the business is about generating cash and the shareholders.
Earlier this year, Nagle unveiled a plan that led to spinning off the company’s coal business. The concept was to integrate Glencore’s coal operations with the coal business of Teck Resources, the company in Canada, which Glencore had acquired in recent times. The new combined company would then be sought to be listed in New York. The fact that the plan actually stated that the two businesses would be run independently in two distinct markets, in fact meant that the better value would be reached for shareholders. These would mean that each of the companies would focus on each of the respective strengths.
This is also part of the answer, because the United States market is historically more forgiving to industries dealing in fossil fuels, like coal, than their respective European counterparts. So, in other words, investors in the U.S. will basically invest in a company that is pollution-heavy if it has the potential to make money for them. Glencore was one of them.
This year, a letter from the Australian hedge fund firm Tribeca Investment Partners advised Glencore not to spin off its coal division but keep it. The hedge fund strongly hinted that Glencore should switch its main listing from the London Stock Exchange to Australia. This proposal was put forth because the London Stock Exchange was not seen as an amicable platform to the mining companies, especially those dealing with coal, since the creation of sensitivity towards the environment was developed in the minds of the European investors. Australia seemed user-friendly, as Glencore also has immense stakes and has more than 17,000 staff in its payrolls at various coal mines operating in Australian territory.
Gary Nagle admitted that the industry remained in a flux. He said that people’s perceptions of ESG had changed a lot during the past year, describing how what he described as the ‘ESG pendulum’ swung back to being more realistic in terms of acknowledging the role of coal at the same time that the world worked toward reducing emissions of carbon. What Nagle’s comments reflect is the tight-rope walk that companies such as Glencore have to balance, between pursuing profits and being sensitive to environmental concerns.
However, it is going to nose the decision of Glencore, already facing the wrath of environmental groups. Being the most polluting of all fossil fuels, the burning of coal makes a significant impact on overheating the globe. Radical environmentalists say that, by hanging on to a coal business, Glencore is continuing to FeEP a business that’s accelerating climate change. This is considered a serious global issue by many, and they hold the view that one of these solutions for a sustainable future is reducing reliance on coal.
Glencore decided to go against shareholders and not sell off its coal division, even amidst the controversy that surrounded the issue. The controversial decision to vote not to spin off its coal division came even as the company announced a 33% profit plunge for the first half of the year. In fact, for the period, Glencore registered profits of $6.3 billion compared to $9.4 billion this time last year. It is very likely that the pressure from the decline in the profits has pushed the company into wanting to hold onto its most profitable divisions, which include coal.
The coal business in Glencore has not been their only challenge. Some of its former executives have been charged with corruption. Some of the executives charged include the former man in charge of Glencore’s oil division, Alex Beard. The accusation is that he paid bribes between 2007 and 2014 to facilitate the company’s oil operations in West Africa. The UK government agency, the Serious Fraud Office, has been working to investigate these charges against him for some time.
Gary Nagle, CEO of Glencore, stated that the company now has the will to be running its business on a responsible and ethical footing. He confirmed that indeed Glencore had a “best in class, gold-standard compliance program” that will make sure it obeys the rules and acts ethically. According to Nagle, this is what the corporation works on daily in order to have a good reputation and sustain it.
In conclusion, Glencore’s decision to keep its coal business is another move in the constant tug of war between profitability and environment-related social responsibilities. While this might make financial sense for the company and its investors, it also throws a spotlight on a few key questions in terms of the role of coal in a world edging closer to combating climate change.
