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Glencore

Coal and climate change

Home / EOS Case Studies / Glencore

Glencore is one of the world’s largest diversified and vertically integrated producers, processors and marketers of commodities, which includes coal, oil, copper, zinc, nickel, ferroalloys and aluminium, as well agricultural products such as grains, oil, cotton and sugar. The business is exposed to risks arising from climate change, with a significant annual carbon footprint of more than 35 million tonnes CO2. It is also the world’s largest exporter of seaborne-traded coal, producing approximately 130 million tonnes of coal in 2015, as well as trading or representing nearly a further 100 million tonnes on an agency basis. Other commodities are also potentially subject to regulation and changing demand in low-carbon scenarios.

Background
Following the success of the climate change resolutions filed at some oil companies in 2015, we raised the idea of filing similar proposals on the disclosure of climate-related risks with the chairs of three major diversified mining companies, one of which was UK-listed Glencore. We believe that a carefully crafted, supportive but stretching shareholder proposal can play a positive role in encouraging best practice during the transition to a low-carbon economy.

Our engagement
The shareholder resolution, co-filed by a large number of Hermes EOS clients, asked for enhanced disclosure of Glencore’s approach to climate change risk, including its management of operational greenhouse gas emissions, strategic portfolio resilience to low-carbon scenarios, research and development of low-carbon solutions, its public policy position on climate change, as well as its overarching corporate governance framework and link to key performance indicators.

At our first meeting with the company to discuss the proposed resolution, we were encouraged by the indication of personal support for the approach. We therefore proceeded to gather the necessary support of 50 co-filing shareholders, which was achieved before the end-December 2015 deadline. The company later indicated its formal support for the resolution. We spoke at Glencore’s AGM in support of enhanced disclosure of climate-related risks and welcomed the chair’s commitment to responding to the requirements set out by shareholders. The resolution successfully passed with 98% of votes.

Changes at the company
In a working group meeting after the AGM with senior executives from the coal business, we were pleased to hear that the company is taking seriously the potential risk to its business of reduced demand for coal resulting from climate change policies. We discussed the company’s analysis of the risks from low-carbon scenarios and the resilience of its coal assets and made some suggestions to enhance its communication to investors, including an explicit reference to demand scenarios consistent with limiting climate change to 2°C. We also heard of the company’s plans to develop a strategy for the reduction of its own greenhouse gas emissions footprint and requested that the plans be published as soon as possible to accelerate the implementation of emissions reductions.

At the company’s Sustainability Day, we welcomed the formal launch of its report on climate considerations for its coal business, which set out a comprehensive analysis of the resilience of the company's coal business to low-carbon scenarios. Glencore acknowledges the risks from a reduction in demand for coal resulting from low-carbon policies but notes that this should be signalled by major policy shifts, particularly in Asia which, in its view, would involve long lead times before any material change in the fuel mix of power stations and subsequent reduction in demand for coal. During this period, the company believes it should have time to adjust the profile of its capital expenditure, which generally has a payback of fewer than 10 and often fewer than five years. Although we appreciate the company’s depth of analysis of low-carbon scenarios, we have suggested that it conducts a stress-test of the consequences of lower demand for coal consistent with a 2°C climate scenario to understand the impacts on global seaborne coal demand, prices and portfolio value.

In addition to managing climate risks, the company concentrates on improving its health and safety performance with the ambition to eliminate all fatalities to zero. The board has put a major focus on managing catastrophic risks in the business, seeking greater transparency at the board level on how to handle the issue. Glencore has also assured us that it has made good progress on rolling out its anti-bribery and corruption policy and associated procedures, together with regular training. It will now focus on improving the strength of its community relations, which includes helping to reduce the dependency of local communities on mining activities so that they are more resilient to potential cuts in production in the face of lower global commodity prices.

Overall, the company’s risk management and related disclosure framework appear to have improved over recent years, as has the breadth and depth of reporting in its annual Sustainability Report. We look forward to the continued improvement in the sustainability credentials of the company, which should ultimately lead to greater long-term value creation for investors and their beneficiaries.

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Bruce Duguid Bruce Duguid is a director at Hermes EOS and leads engagements with environmentally-exposed companies across the mining, oil and gas and utilities sectors, as well as corporate governance engagements in the UK. He is the lead author of the Institutional Investors Group on Climate Change’s 'Investor Expectations of Mining Companies – Drilling Deeper into Carbon Asset Risk’. Prior to joining Hermes EOS, he was head of sustainability at the UK Green Investment Bank, where he spent four years working on the project to establish the bank and then building its sustainability function. Before working in sustainability, Bruce worked in corporate strategy as a management consultant at the Boston Consulting Group and as head of strategy at Visa Europe. He is also a qualified lawyer in England and Wales and holds a degree in Natural Sciences from Cambridge University.
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Golden Agri-Resources

Engagement objectives:

Environmental: Climate change risk disclosure

Social and ethical: Health and safety

Social and ethical: Social licence to operate

Strategy, risk and communication: Mining asset oversight