Baar, 30.06.2020

Pressure from investors and the public grows

The controversial extraction of coal is a central pillar in the success of the Glencore raw materials group in Baar. But the pressure for change is growing.

The time for tough decisions has come at Glencore. On the one hand, it will be necessary to find a successor for the departing long-term CEO Ivan Glasenberg in the coming months. The fourth generation in the company has already put itself in position for this. On the other hand, the strategic question of how the Baar raw materials group intends to deal with its coal business in the future becomes more urgent. There has been speculation for some time that Glencore could eventually sell or spin off its "Dirty Business" division.

According to a recent report of the "Balance Sheet", the plans for a possible spin-off of the coal sector are already available. The basic idea is to split into two companies – comparable to the spin-off of the household appliance manufacturer V-Zug from its parent company Metall Zug this week. The separated coal division would thereby be put on the stock exchange separately, while the former Glencore would henceforth concentrate on the business with the promising "clean metals", copper, cobalt or nickel.

Photo 1: Glencore CEO Ivan Glasenberg at the annual meeting two years ago.
Photo 2: Glencore coal mine near Singleton, Australia.

While Glencore does not wish to comment, it is understood from business circles that this is not so much a concrete plan as a potential exit strategy for the future. The separation of the coal sector would be premature at this stage in any case. Glencore is currently one of the world's largest producers of the black fuel. And coal is still flushing lots of money into the corporate coffers. About a third of pre-tax profits come from this sector, although coal sales only make up 5% of total sales. Glencore is therefore likely to do its utmost to maintain its profitable business for as long as possible in the post-Glasenberg era, who himself became a major player in the coal sector – especially as it doesn’t simply want to leave the field to Chinese companies.

Investors set tighter limits

But it is also clear that Glencore will not be able to master the balancing act between "Dirty Business" and "Clean Metals" forever. In addition to the growing pressure from the public, which the Group has recognised, not least in the form of the Group's responsibility initiative, the pressure from shareholders is also increasing. Institutional investors such as Blackrock, the world's largest asset manager and the third-largest shareholder in Glencore, have, for example, recently begun to set tighter limits on coal investments, or to even deliberately remove them from their portfolios. The Norwegian sovereign wealth fund Norges also no longer wants to invest in companies that produce more than 20 million tons of coal annually, and withdrew as a Glencore shareholder last summer. The raw materials giant had set a production limit of 150 million tonnes two years ago, but this is well above the current requirements of Norges.

A spin-off of the coal sector could prevent the loss of sustainably-oriented investors in the future – and at the same time put the Group in a greener light. The recently announced deal with electric car manufacturer Tesla can also be seen against this background. In the future, Glencore is to supply 6,000 tons of cobalt, which is needed for the production of car batteries, to the Tesla plants in Berlin and Shanghai. It is very important for the Baar-based company that it holds a global leadership position not only in coal, but also in industrial cobalt.