Coal king Glencore rewrites the rules on ESG investing

Glencore is reframing the debate on coal’s future. Some of Australia’s biggest investors will be quietly cheering the miner on.

Glencore’s McArthur River mine in the Northern Territory.

Glencore chief executive Gary Nagle will test the ESG purists as he reverses plans to jettison coal and instead focus on harvesting the rivers of cash it generates.

Some of Australia’s biggest investors, including super funds will be quietly cheering him on.

For now Glencore’s own investors are happy to let yield win out over green investing, but that also marks a decisive shift in how big money is approaching ESG.

Big investors including Australian super funds have shown they have a higher threshold for energy pragmatism over green investing than their European counterparts.

Through its history as a commodities trader dating back to pugnacious long-time boss Ivan Glasenberg, Glencore, the world’s biggest thermal coal miner, has long resisted pressure to shun coal and was a reluctant mover on ESG conventions.

Despite taking the green hits, Glencore stuck with it and now the investors are moving in Glencore’s favour. Nagle has broken ranks with the mining pack on coal and in doing so has given his investors cover.

It’s been a twisted path for Glencore to get to this position.

Last year’s $US7bn ($10.7bn) buyout of Elk Valley Resources from Canada’s Teck was pitched to help the Anglo-Swiss Glencore bulk up on steelmaking coal to give its existing operations scale and more investor appeal to be spun out.

Glencore chief executive Gary Nagle. Picture: Bloomberg

However, Nagle had a change of heart after citing overwhelming feedback from Glencore’s own shareholders that “supported the retention” of the thermal and met coal businesses. Shortly after the November deal he started getting approaches from big shareholders, but it was Australian activist investor Tribeca that led the charge urging Glencore to stick with coal.

Tribeca also pushed for Glencore to move its primary listing from London to the ASX where super investors were prepared to run a wider lens over coal’s role through the energy transition.

Think of the model of AGL or Origin Energy, where big super has been prepared to back the profits of today’s dirty coal-fired power plants in order to harvest the cash to fund the transition to a renewable energy future.

In AGL’s case, the giant Loy Yang brown coal plant will stay open for another decade.

Last year Macquarie Group made more profit from oil and gas trading and storage than it did green investing, yet it kept pushing record highs.

Glencore says keeping the coal operations “should enhance Glencore’s cash-generating capacity” to fund opportunities to buy greener friendly metals such as copper.

The coal operations where prices have remained elevated will also “accelerate and optimise” the return of excess cash back to shareholders.

So too the long-mooted coal exit was inconsistent with ESG principals, Glencore added, given its stated plan to run down its thermal coal mines over their life. This policy replaced a Glasenberg-era climate pledge of keeping an annual cap on coal production at 150 million tonnes annually.

Glencore’s move will certainly clear the path to put investor pressure on other diversified miners looking to exit coal. BHP has already sold off its lower-quality met coal operations to Whitehaven. Its Mt Arthur thermal coal mine is slated to close by 2030.

Elsewhere, Anglo American is in the process of selling its met coal operations for a mooted $5bn, which includes Australian mines. BHP’s since-shelved takeover of Anglo spurred on the exit. Other names such as Rio Tinto and South 32 have already exited coal.

To show the mood is changing among investors, even New York-based BlackRock, the world’s biggest asset manager that has been at the front of ESG push, is quietly curbing some of its green animal spirits.

BlackRock CEO Larry Fink’s full-throated approach to ESG investing in the past has seen him subject of political attacks which was impacting the $US10 trillion ($15 trillion) investor as some US state governments cut pension plan mandates.

This year has been one of transition for Fink. He has pulled back from ESG advocacy to acknowledge there is a balance that needs to be struck between energy transition and the need for energy security, particularly in the aftermath of Russia’s invasion of Ukraine. Where gas was once shunned, it is now a key plank in the transition, Fink says.

Glencore is now adding coal to the mix.

 

Nick Scali’s big day

For much of the year Anthony Scali, the Nick Scali boss, quietly goes about his business of selling stylish couches and tables. But for a single day every six months, all hell breaks loose around him.

That day has come around again; mark it down for Friday.

Through no fault of the Scali family – except their choice of timing to release accounts – the $1bn-plus retailer carries the weight of expectation of the nation’s financial markets.

Even central bankers, those who make the informed call on interest rates, are quick to tear apart Nick Scali’s numbers and plug them into their models of the economy. The full-year numbers this Friday are carrying even more expectations.

Reserve Bank governor Michele Bullock in Sydney this week. Picture: John Appleyard

Nick Scali has a capacity to surprise in either direction. It is usually the first of the big discretionary retailers to release its accounts.

Its customers have mortgages and Nick Scali sells big-ticket items where spending decisions can be pushed back. It is more than a one-day meme stock; it’s the first real-time snapshot into the mood of middle Australia.

This gives you a sense of why. In February, on the release of its half-year accounts, Scali’s shares surged 16.6 per cent, defying talk of a consumer strike.

The release of full-year numbers in August last year resulted in its shares jumping more than 13 per cent. The previous February they slumped 13 per cent. The August before that they fell 5 per cent. You get the picture.

So far this year, Nick Scali’s shares are up nearly 20 per cent and, with the mood that Australia’s consumers have had enough and with cash rates now likely to stay higher for longer, there’s a lot riding on these numbers.

Nick Scali is first up and the big guns of discretionary retail are set to follow in coming weeks when JB Hi-Fi, Wesfarmers, Premier Investments, Super Retail and Harvey Norman release their accounts.

Scali, the chief executive, studiously avoids talking about his results’ day share price moves and would rather let the numbers do the talking.

Across town and in a different category there was a sense of the tough time retailers are feeling.

Mosaic Brands, the owner of string of fashion brands such as Millers, Noni B, Katies and Rivers is among the first of the high-profile ASX names to seek protection under the new “safe harbour” rules coming out of the Covid-19 pandemic. This protects them from insolvent trading exposure

The retail market is tough, although Mosaic has made a number of its own missteps – particularly around over-ordering inventory. Mosaic shares fell 13 per cent, although they are tightly held.

Nick Scali is known for selling stylish couches.

All this adds into the mood of the consumer.

The Reserve Bank has an extensive business liaison program in place to build an informal picture of the economy.

Retailers have been giving a consistent message to the RBA. Recent mid-year sales activity have boosted sales but the downturn has come back. Many are still hopeful tax cuts and continued wages growth will underpin sales through to the end of the year.

Adding to the pressures, RBA governor Michele Bullock this week all but ruled out the prospect of an interest-rate cut in the next six months, saying inflationary pressures are still too high in the economy.

Come Friday, Nick Scali will help fill in the gaps.

johnstone@theaustralian.
com.au

Originally published as Coal king Glencore rewrites the rules on ESG investing