Multinational commodity and mining, investment grade debt issuer
Background: The issuer is a Swiss multinational commodity trading and mining company. The company violated with the UN Global Compact because of a bribery violation controversy and has fallen afoul of regulators in several jurisdictions.
Insight’s engagement: Our engagement objectives focused on three areas: understanding the company’s time-bound commitment to stop global investment in new thermal coal capacity; providing additional detail on thermal coal asset run-down plans such as timelines, capacity reductions, and ‘just transition’ considerations; and due to its inclusion in a third party’s UN Global Compact violators list and bribery settlements with various regulators, we wanted the issuer to improve disclosures on corrective actions, proactive measures or quantitative data related to ethics, compliance, and internal controls.
The company’s previous disclosures indicated its run-down plans are inconsistent with Insight’s position on thermal coal. Management remains committed to maintaining thermal coal assets in the portfolio. The issuer stated it would not make an explicit commitment not to sustain or expand coal capacity. Likewise, it argued while investors in the UK are calling for a radically accelerated decarbonisation pathway, other investor groups want them to buy more coal assets because the company is viewed as the best stewards of the assets.
Regarding the UN Global Compact violation, as part of its settlement agreements, two major government agencies will monitor the company for the next three years. Given the level of scrutiny, it believes investor fears should ease, and does not plan to provide specific metrics/guidance on improvements outside its previously disclosed public statements. The issuer stated it is very different today and the additional monitoring will give public markets the confidence that the new systems will support the business.
Outcome: Our two direct engagements with the company in 2022 did not provide much evidence that the company is improving on material ESG issues, but the company acknowledged the strategic priority to improve and execute its coal run-down strategy. As a result, we escalated it to our monitoring list due to the UN Global Compact bribery violation controversy and non-compliance with our position on thermal coal. We have communicated our expectations verbally and in written form to management. The company will publish a climate progress report in March 2023, and we intend to follow up to assess progress toward our engagement objectives.
During the company’s recent investor day in Q4 2022, we were pleased that the company announced a commitment to close 12 coal mines by 2035. This was the first time the issuer has disclosed a quantified number of coal-asset closures with specific target dates, which was one of our engagement objectives for the company. While we are still monitoring the company's coal run down strategy closely, we view this as a positive incremental improvement on the transparency of its coal exit strategy.