The ESG investing movement took another big hit yesterday when mining giant Glencore said it would cancel plans for a spinoff of its coal business. The change in direction came after the company’s senior management posed the question to investors and were advised by 95 per cent of them to continue to exploit coal resources as part of its core business.
Glencore’s news was the latest in a series of announcements over the past year indicating a fading commitment by both corporate giants and big investment houses to the ESG “sustainable investment” dogma. Cracks had been forming in the movement for months before BlackRock CEO Larry Fink told an audience at the June, 2023 Aspen Ideals Festival he had committed to stop using the term “ESG” in his internal communications.
As reported by Axios, Fink first said he was “ashamed of being part of this conversation,” referring to ESG investing. But, when pressed by a moderator, he later backed off, saying, “I never said I was ashamed,” even though he had just used that very word. “I’m not ashamed. I do believe in conscientious capitalism. I’m not going to use the word ESG because it’s been misused by the far left and the far right.”
With global demand for electricity skyrocketing due to major new demands from electric vehicles and their chargers, crypto-mining, AI technology and data centers, it is becoming increasingly clear that demand for coal will continue growing apace given its status as the cheapest and most affordable baseload power source to bring to scale. Particularly in India and China, coal use is surging.
This reality has increasingly overcome the push by ESG activists to influence banks and investment houses to discriminate against funding projects related to coal, oil, and natural gas production. ESG is at odds with the needs of developing countries all over the world.
Glencore had previously committed to spinning off its coal mining operations in favor of an increased focus on mining for key energy minerals that are crucial for electric vehicle batteries and wind and solar energy. The company had simultaneously announced a plan to list its stock on the New York Stock Exchange, but backed off that, too, saying it would maintain its listing on the London Exchange.
“The ESG pendulum has swung back over the last nine or 12 months,” Glencore CEO Gary Nagle told the Wall Street Journal. “You’ve seen how some of the U.S. states have reacted to some of the ESG narrative.”
Indeed, Florida’s legislature and Governor Ron DeSantis enacted changes last year to remove preferences for renewables and language referencing ESG from the state’s laws and regulations. Texas and several other states have enacted policies to penalize investment houses, including BlackRock and others, over allegations of discriminating against funding oil and gas projects.
Nagle also said that the drive to subsidise alternatives to carbon-based energy sources is fading, making it obvious that oil, gas, and coal demand will continue rising for the foreseeable future. Indeed, demand for both oil and coal again reached all-time highs in 2023 and seem destined to set new records in 2024 and beyond. The rapidly growing international hunger for liquefied natural gas (LNG) seems likely to ensure rising demand for that commodity well into the future, too.
While rising coal demand remains heaviest among developing nations, new power demands from sources unforeseen just a couple of years ago, mainly AI and data centers, could also force a reconsideration of the past decade’s rush to decommission baseload coal plants in OECD countries. With timelines for building out new natural gas or nuclear generation ranging from 5 to 15 years (even longer for nuclear at times), jurisdictions that are home to mothballed coal facilities could move to restart them as an interim measure. During testimony to a Texas legislative committee in June, Pablo Vegas, CEO of the Electric Reliability Council of Texas, the state’s grid manager, alluded to that possibility during times of severe weather events.
In announcing its renewed focus on its core coal business, Glencore also joins major oil companies like Shell, BP, ExxonMobil and Chevron, whose management teams have all refocused bigger shares of their capital budgets away from low carbon ventures back to their core oil and gas businesses in the past two years.
It’s been too long in coming, but sanity may well be making a comeback in the global energy space.
David Blackmon had a 40 year career in the US energy industry, the last 23 years of which were spent in the public policy arena, managing regulatory and legislative issues for various companies. He continues to write and podcast on energy matters
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