Investor Bulletin: The climate governance gaps of Glencore and its peers

A new ACCR-commissioned report shines a light on the board-level climate and energy transition governance gaps of Glencore and its peers, raising questions about the ability of boards in the natural resources and mining sectors to develop and oversee plans that manage transition risk.

Written by OpenEngagement, Digging Deeper: A Review of the Board Skills and Board Governance of Climate and Energy Transition at Glencore and Other Natural Resources Companies, evaluates the climate governance of Glencore’s board against a peer group of Rio Tinto, BHP Group, Anglo American, Vale, Teck Resources, Freeport-McMoRan, Fortescue and South32.

It finds that Glencore’s board has little demonstrable climate or energy transition expertise and appears ill-equipped to oversee climate strategy. Many in the peer group are also likely to lack the skills and expertise required to navigate climate and the energy transition. Most of the boards, including Glencore, also lean heavily on management for insights on climate and the transition, raising questions about those boards’ ability to challenge management on related strategy.

The findings suggest investors should consider engaging with companies in the mining sector on climate governance, including the question of how to define best practice. If boards exposed to transition risk are applying yesterday’s skills to today’s challenges, the case for robust investor stewardshipis strong.

Key points on Glencore’s climate governance

• The eight-person board has little demonstrable expertise in climate or the energy transition.

• Glencore’s board skills matrix inadequately conveys the board’s climate-relevant expertise:

  • Decarbonisation and energy transition skills are not explicitly defined, unlike those of select peers (BHP, Rio Tinto, Anglo American), and instead are lumped under an "environment" category.
  • It is unclear what “environment” means as a skill or area of expertise for a member of Glencore’s board, making verification impossible for investors.

• The board appears ill-equipped to meet its mandate for overseeing climate strategy:

  • Despite Glencore’s complex, global operations, its board is smaller than peers.
  • It meets infrequently – scheduling only four meetings last financial year. This became 12 meetings after eight limited-agenda/unscheduled meetings were added.
  • The chair’s external commitments are significant, with recorded attendance at ~40 other board and committee meetings across the last financial year.

• The Health, Safety, Environment and Communities (HSEC) Committee lacks a clear mandate for climate and energy transition discussion within Glencore.

• The vacuum left by HSEC may mean the board overly relies on the Climate Change Taskforce, a management initiative led by CEO Gary Nagle. While Nagle has demonstrated awareness of climate change as Glencore’s CEO, he has spent most of his career in coal, overseeing expansion and acquisition of multiple coal mines.

Key points on governance in the peer group

• The regulatory, investor and civil society ecosystem around climate-related risk and fiduciary duty continues to evolve. As corporate governance shifts accordingly, investors may seek greater disclosure around a board’s management of climate and sustainability.
• Many of the boards in the peer group likely lack the skills and expertise necessary to grasp the complexities of climate and the energy transition.
• Investors are often reliant on skills matrices to understand the skillset of company directors in the peer group. However, detailed explanation of those skills, or how directors fulfil them, are often absent from matrices – meaning they are largely ineffective.
• Most boards rely on management for climate change and energy transition insights, raising significant questions about the skill and capability of boards and sustainability committees to challenge management on climate and transition-related strategy.

Key stewardship considerations for investors

The following questions could be used in engagements to better understand how ready the boards of transition-exposed companies like Glencore are to manage the energy transition challenge:

• Will the Company update its skills matrix to explicitly incorporate climate change and energy transition topics? Will it apply this to the current board so investors can see which directors the Company considers to be skilled in these areas?
• Will the Company consider mandating a specific board committee to have dedicated oversight for climate change and energy transition issues?
• Will the Company consider commissioning an independent skills audit to identify any critical board skills gaps? If such gaps are found, will the Company develop a plan to address them?

Investors engaging with non-company stakeholders about frameworks and expectations for board-level climate governance at transition-exposed companies could also consider these questions:

• What are the key attributes of a climate competent director? Can agreed definitions or attributes for climate competency be developed that apply across companies or sectors?
• Are there agreed attributes that would help ensure boards are accountable for holding a minimum level of climate competency that supports effective transition risk management?
• What constitutes best practice when integrating climate and energy transition-related competencies into board skills matrices? How are relevant skills and experiences defined, and later, attributed to individual directors with supporting evidence?
• How can investors move beyond the “checklist” approach of many skills matrices to assess factors such as the motivations of directors and their approach to continuous learning?

The OpenEngagement report follows our March publication on Glencore, Appetite for risk: Glencore's growing coal portfolio.