A year ago, the world’s largest resource companies were clear slaves of the ESG movement. Many of them were open to taking out their dirtiest fossil fuels from their portfolios in order to attract the cherished “green” premium offered by investors who wanted to own more climate-friendly companies.
Today, these same companies are resisting pressure to eliminate their fossil fuels in the name of making their environmental, social and governance credentials more attractive – and they are doing it.
How to explain reversal? It turns out that 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 Tech, among them – were under enormous pressure to clean up their portfolios. The assumption was that the ESG mob would penalize companies that hold coal and oil; To some extent, he did. Some big oil companies also came under the same pressure. For example, 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).
Earlier this year, there was a flurry of coal sales and spinoffs, though it was Rio Tinto that got the ball rolling on the trend — it unloaded its coal assets in 2018. A big deal recently was Anglo American’s spinoff of South African Thermal. Coal business (thermal coal is burned to generate electricity). In June those assets landed in a new stock exchange-listed company called Thungela Resources.
Mining and oil companies struck a flurry of short deals, with the selling of various hydrocarbon operations to private companies. Then it all stopped, even the reverse.
A good number of ESG investors felt that simply transferring dirty assets from one company to another did not benefit the planet, as coal would still be burned. Any transfer can also be 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 large public companies exposed to environmental cleanup pressures.
Anglo was embarrassed by its own Coal spinoff. Shortly after Thungela started, the new company announced that it would boost production from coal projects inherited from Anglo. So much for cleaning up the planet.
Just a few months later, fossil fuel companies gave their dirtiest assets a boost from Larry Fink, president of BlackRock, the world’s largest 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. “It doesn’t change the world at all,” he said. “It actually makes it, the world, worse, as it shifts from publicly disclosed companies to private enterprises.”
Still, some fossil fuel players remain under pressure to follow the Anglo route. One is Glencore, the world’s largest supplier of marine thermal coal. This week, shorthand activists at London hedge fund Bluebell Capital Partners called on Glencore to shut down its thermal coal business.
Bluebell said Glencore should “chart a new future” without coal and called for the company to reach its net-zero commitments to plan and eventually close all of its coal mines within 30 years. , “morally unacceptable and financially flawed.”
Bluebell’s campaign won’t go anywhere. Its stake in Glencore – market value £47-billion ($80-billion) – is unknown and is believed to be small. Nearly all of Glencore’s shareholders already support the company’s climate plan, which calls for a deep dive into energy “transitioning” metals, such as cobalt, an essential component of electricity, down the wind and use of coal’s profits. financed to set up. car battery.
It’s easy to be cynical about the industry’s hydrocarbon reversal. In mid-2020, when the world was in the grip of the COVID-19 recession, thermal coal prices fell to US$48 a tonne in Australia’s huge coal-loading port, Newcastle. The price immediately soared as European gas shortages forced Britain, Germany and other countries to shut down their coal burners. In October, coal hit an astonishing US$253. Today, the spot price is at US$155 – still three times its low.
The point is that coal is essentially free money for the mining companies that didn’t give up. Glencore’s coal production cost is only US$55 a tonne and is not spending any money on coal development. Investors are well aware that companies with exposure to coal, such as Glencore and Tech Resources of Canada, are rallying in the stock market. So they can get it both ways. They can reap the financial rewards of the dirtiest fuel, while arguing that coal divisions are environmentally acceptable, as well as a useful counterbalance to rising Russian gas prices.
Who would have thought a year ago that coal-laden mining companies would move from ESG shifts to Laviz? But it has happened, and it is the reason why coal will not be slowly eroding anytime soon. Sorry, planet.
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