Company: Church Commissioners for England
Category: Active Ownership Project of the Year (shortlisted)
In the spirit of showcasing leadership and raising standards of responsible investment among all our signatories, we are pleased to publish case studies of all the winning and shortlisted entries for the PRI Awards 2019.
Project overview and objectives
The purpose of the project was to accelerate progress at Glencore across all three of Climate Action 100+ focus areas: governance, emissions reduction and disclosure. Governance priorities included securing acknowledgement of the relevance of climate change considerations for executive pay and of the need for a review of trade association lobbying.
Securing meaningful commitment from Glencore to align its business with the goals of the Paris Agreement was the highest priority - whether through a statement of strategic intent, a lock on capital expenditure or new emissions reduction targets, or a combination. On disclosure, the primary objective was to reinforce Glencore’s commitment to reporting in line with the final recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
Glencore was a cause of concern in the diversified mining sector, a sector in which Climate Action 100+ was yet to achieve major success. The reason for this was:
- While other companies had been divesting thermal coal assets, Glencore had been buying them.
- Glencore’s support for the Paris Agreement was the weakest expressed of the leading global diversified miners.
- Glencore’s scenario analysis had the lowest expectations for the implementation of the Paris Agreement.
- Glencore’s central climate scenario did not expect the Nationally Determined Contributions submitted for the Paris Climate Summit, which are associated with warming in the order of 3 degrees Celsius, to be achieved in full.
- Glencore has a key role in mining industry lobbying including at trade associations, e.g. a Glencore executive is Vice-Chair of the World Coal Association.
The Church Commissioners decided that the best way to achieve a step-change from Glencore on the focus areas of Climate Action 100+ was to indicate to the company that the Church Commissioners were prepared to lead the filing of a shareholder resolution for the company’s AGM in 2019, unless sufficient progress could be made to render such a resolution unnecessary.
The project in practice and challenges overcome
In October 2018 the Commissioners told Glencore of their intention to be ready to lead the filing of a shareholder resolution on climate change for the company’s 2019 AGM.
Initial discussions were held with Glencore’s sustainability team, followed by a meeting with the company’s Chairman, Tony Hayward.
Initial discussion focused on the potential shareholder resolution. This proposed that the company should commit to align its capital expenditure and investments with the goals of the Paris Agreement and provide annual assurance to investors on this. It also sought to bring Glencore up to best practice on both oversight of climate lobbying by trade associations and linking executive pay to climate change targets, where progress had been made at other companies (in particular BHP and Shell).
Glencore indicated that it would prefer to develop a new climate change position statement, incorporating the Church Commissioners’ key requirements. Detailed negotiation on its contents continued through to February 2019. Initially the discussions were between Glencore and the Commissioners alone. In the final negotiations other investors with whom outreach had been conducted were invited to join the engagement, with Glencore’s agreement, to ensure the final statement met the requirements of a broader group of CA100+ investors. This included specific engagement from Investec Asset Management on the significant unaccounted impact of Scope 3 carbon emissions resulting from Glencore’s coal mining activities, from which we believe it is clear that the achievement of a cap on coal production would not have happened.
Success against objectives
The project achieved progress across all three Climate Action 100+ focus areas as desired, and well before Glencore’s 2019 AGM. Glencore’s new climate change position statement was released on 20 February 2019. The statement included:
- full endorsement of the goals of the Paris Agreement - a commitment to limit coal production capacity broadly to current levels
- a commitment to prioritise capital investment on growing production of commodities essential to the energy transition
- a commitment to disclose in the annual report each year how the company has ensured that material capital expenditure and investments are aligned with the Paris goals
- a commitment to develop new, longer-term targets for Scope one and two emissions reductions aligned with the Paris Goals and to make them public in the Annual Report in 2020
- a commitment to disclose long-term projections for the intensity reduction of Scope three emissions
- a commitment to consider how climate change objectives can be reflected in the design of future pay schemes for executive management
- continued commitment to disclosure in line with the final recommendations of the TCFD
- a commitment to review whether membership in relevant trade associations aligns with the company’s stated positions on climate change and to make the results of the review public in 2019.
Glencore’s commitment to limit its coal production capacity broadly to current levels had particular resonance at the time, and was reported in the media as sending a strong signal about the lack of long-term prospects for thermal coal in power generation.
One of the positive features of this project, that can be applied more broadly in future, was the Church Commissioners’ collaboration not only with other investors but also with civil-society organisations ShareAction and ClientEarth.
The former helped the Commissioners to reach out to other shareholders about the possible filing of a shareholder resolution, and the latter provided support as we worked on the possible shareholder resolution and climate change position statement.
The project was delivered within existing engagement resources and showed the value of the Commissioners’ model of analyst-led engagement programmes with the Head of Responsible Investment bringing additional experience and expertise to bear for the most difficult engagements.
N.B. The Church Commissioners and Kempen Capital Management were Climate Action 100+ leads for Glencore at the time of this engagement, with a coalition of other international investors providing a supporting role. However, because Kempen only held Glencore bonds and this project involved a potential shareholder resolution, the Commissioners led this project alone.
Kempen actively supported the project, and were involved in the initial discussions with the company and the follow up, providing an important signal on the role of bond holders in Climate Action 100+.
The engagement was conducted with the support of the IIGCC and IIGCC’s European CA100+ Engagement Group.