Glencore (GLEN) chief executive Gary Nagle has hit out at European investors for being overly focused on environmental, social and governance (ESG) while institutions in the US were more "pragmatic.
He said buyers in the US would buy a stock for yield whereas European institutions were run by the "ESG desk".
“In Europe, investors seem to be a bit more focused on ESG, it seems to be the ESG desk that makes more decisions and returns are somehow put second or third on the list,” Nagle said, speaking at a Melbourne Mining Club event in London.
Valuations of oil and gas giants are higher in the US and European giants Shell (SHEL) and BP (BP) have recently committed to investing in new production and reversed commitments to slow down their upstream production in a bid to improve share prices. Glencore itself announced a shift in strategy earlier this year when it launched a bid to merge with Canadian copper, coal and nickel miner Teck Resources (US:TECK), which was in the midst of splitting its coal and metals business.
Teck has rebuffed Glencore’s offer which would have seen the two metals businesses and two coal portfolios combined. The Swiss company then made a cash offer for Teck’s coal business, which Nagle said on Thursday was still open for discussion. Glencore has said it would list a new coal business in the US because of ESG-focused Europe.
“We chose New York specifically for the coal company because we don’t believe the ESG criteria needed from investors in the London Stock Exchange would be met by a coal company,” he added. “There’s a clear difference in sentiment [between the US and Europe] … on ESG and returns. The US is more focused – and I’m not saying that they’re anti-ESG – they’re more focused on returns on investment, there are so many big pools of capital in the US that are chasing yields.”
Nagle also addressed the other side of the ESG coin, talking about the various investigations and settlements into Glencore workers bribing officials around the world. There are now legal monitors inside the company as part of its settlements, and Nagle said he welcomed them. He added that the company was showing it could “make a money for shareholders ethically and above-board”. “Culturally, [the investigations were] a net positive,” he added.
Government support and Africa
On the energy transition, which could be held back by limited supplies of copper, nickel, and other critical metals, Nagle said it was up to governments to provide support for new mines.
This theme was also pursued by Ivanhoe Mines (US:IVN) founder Robert Friedland, also speaking in London this week. He said the world was “heading for a train wreck” with copper trading down close to $8,000 (£6,332) a tonne. This is high in historic terms but not enough to trigger new investments in mines.
Friedland’s company has built one the world’s major new mines in recent years in the Kamoa-Kakula operation in the Democratic Republic of Congo.
Miners such as Glencore have shied away from increasing supply given past lessons of investing heavily in new supply, only to drive the price down. BMO Capital Markets analyst Colin Hamilton said current industrial weakness in China was weighing on prices.
“For most commodities, and particularly those exposed to the fuel to materials transition, we see the longer-term fundamentals as extremely robust, aided by the lack of capex being put towards new projects,” Hamilton said. “However, commodities markets are naturally cyclical, and slowing global industrial growth will weigh in the near term.”
Friedland added that the DRC and Africa more broadly would likely provide much of the resources needed for the transition. "If we’re even going to dream about not burning oil or coal to make electrical energy, we can’t get there without African resources," he said.
Glencore is also active in the DRC, although has seen copper output fall recently and has not built any significant new mines for some time. It paid a $180mn fine to cover "all present and future claims arising from any alleged acts of corruption by the Glencore Group in the DRC between 2007 and 2018".
