Glencore Faces Increased Climate Action Demands Over Coal Profits

Glencore is coming under increased scrutiny from investors over the climate impact of its coal mining operations. This is putting pressure on the world's largest shipper of coal, which is one of the most polluting fossil fuels.

At a May annual meeting, shareholders with more than $2 trillion in assets under management will vote on a resolution urging the company to explain how its thermal coal business aligns with efforts to limit the increase in global temperatures to 1.5 degrees Celsius. HSBC Asset Management and Legal and General Investment Management are among the signatories to the document.

As concerns about climate change clash with the extreme profitability of coal, Glencore has announced that it will be phasing out its coal production by the year 2040. In the first half of 2022, Glencore posted a record core profit of $18.9 billion — including $9.5 billion from the unit that produces coal — largely thanks to soaring prices of the fuel. However, the company has stated that it will be redirecting its focus in the coming years in order to address the growing concerns around climate change.

Glencore's earnings from coal surged in the first half of the year, as demand for the dirtiest fuel remained strong. The company's coal production rose by 8% in the first half, while its coal sales increased by 11%.

Glencore has promised to cap coal production at 2019 levels and reach net zero emissions by 2050. Last month, the company announced it would not develop one of the largest planned mines of the fuel in Australia. Some investors remain concerned about Glencore's plans, and almost a quarter of shareholders voted against its climate report in October.

Glencore has said that its next Climate Progress Report, due to be published in March, will provide an update on the progress of its 2020 climate strategy.

Activist investors have been putting pressure on energy companies to do more to limit climate-damaging emissions for years, and in 2021 a small climate-focused fund succeeded in taking over a portion of Exxon Mobil Corp.'s board.

The resolution, co-filed by NGOs ShareAction and the Australasian Centre of Corporate Responsibility, will need to answer the question in a detailed report if the resolution finds 75% backing. If a 20% threshold is reached, the company will be required to respond but not on the terms dictated by the resolution.

A higher degree of transparency is necessary to clarify how the company's exposure to thermal coal is aligned with the 1.5C pathway and corresponds to its net zero commitment, said Dror Elkayam, an ESG analyst and investment steward at Legal & General.

In 2021, Glencore traded 67.7 million tons of thermal coal through its marketing business, and mined 103.3 million tons of coal through its industrial business. The majority of that coal was thermal coal used in electricity generation.