The £25 trillion pushing fossil fuel CEOs to act on climate

Miners push a wagon of coal outside a mine in Cucunuba, Cundinamarca Department, Colombia, on Friday, July 28, 2017.
Miners push a wagon of coal outside a mine in Cucunuba, Cundinamarca Department, Colombia, on Friday, July 28, 2017.

Behind Glencore Plc’s decision to limit coal investment is a little-known, but powerful group of investors.

Glencore made its decision after facing pressure from a shareholder network known as Climate Action 100+, which has the backing of more than 300 investors managing $32 trillion. The group was founded a little over a year ago, but has already extracted reforms from oil heavyweights, like BP Plc and Royal Dutch Shell Plc.

While skeptics may regard Glencore’s changes as minimal (the company still stands to reap billions from its huge coal business), the announcement still shows the influence that investors hold at being able to push even the most reticent companies to respond to their demands.

“If Glencore says that it doesn’t see coal having a growing future than other people will stand up and take notice,” said Edward Mason, the head of responsible investment at the Church Commissioners for England. “This is not a easy position for Glencore.”

He was part of the discussions with the company, calling the talks “an intensive engagement process.”

Business forces are now aligning on climate change in ways that will reshape energy and mining for years to come, even with U.S. President Donald Trump steadfast in his commitment to expanding the coal industry. Other mining companies have exited the coal business or pledged not to invest, and oil producers have vowed to cut greenhouse gas emissions.

Climate Action 100+ says its goal is to drive change at the companies contributing the most greenhouse gas emissions. Its roster includes the biggest names in the industry, including California Public Employees’ Retirement System, Allianz SE and HSBC Global Asset Management.

The group pushes companies to take action to reduce greenhouses gases and disclose more information about how the business will be affected by a hotter climate.

Changes targeted by Climate Action 100+ include:   Royal Dutch Shell Plc will set carbon-output targets for the following three or five years as it works to halve its “net carbon footprint” by 2050. The goals will be tied to executive pay. BP Plc is supporting a shareholder resolution to prove its business plans align with Paris climate targets. It intends to provide clarity around emissions at its annual meeting in May.

Steelmakers are also coming under scrutiny. Climate Action 100+ recently published a report with their expectations for large steel companies, saying it wants the industry to lower emissions in line with the Paris climate accord.

While investors are cheering the move, it’s still a open question whether the companies are doing enough on climate change. Coal remains Glencore’s chief money maker among its industrial assets. In recent years, as other companies retreated from coal, Glencore ramped up the business by picking up mines in Australia.

Glencore’s executives “probably weren’t going to expand in coal anyway, but now they’ve got a message out there that sounds like supply reduction, which gives them ESG kudos, in an world where investors are increasingly taking these aspects into consideration as part of their process”,” said Richard Knights, an analyst at Liberum Capital Markets in London, referring to funds that have environmental, social and governance criteria.

In contrast, Anglo American Plc has cut its thermal coal output in half in the last three years, with CEO Mark Cutifani saying today that he expects the footprint will continue to fall over time. Rio Tinto Group has sold all its coal mines, including to Glencore.

Still, the fact that companies are yielding to investor demands shows that times are changing. In the past, big oil and mining companies were able to fight off pressure from environmental activists who demanded sweeping business changes.

“Investors who continue to finance new coal projects need to be asking themselves an important question; which is going to end up being burnt first – their coal, or their money?” said Nick Stansbury, head of commodities research at Legal & General Investment Management Ltd., which is part of Climate Action 100+.

Breaking