Teck Resources’ coal spinoff shows power of sustainable finance movement: experts

CALGARY – Teck Resources’ plan to separate its coal business from its base metals operations shows the power of the sustainable finance movement to influence corporate strategy, experts say.

In what CEO Jonathan Price described as a “transformative transaction,” the Vancouver-based mining firm said Tuesday it will spin off its steelmaking coal assets to create a separate publicly traded company called Elk Valley Resources Ltd.

Teck Resources will then become Teck Metals Corp., which will be a “growth-oriented” base metals company focused on copper and zinc, two metals expected to play a critical role in electrification and the global energy transition.

It’s a move that will offer investors a “choice” between two unique businesses and commodity types, Teck said.

“In recent years, the investor basis for base metals and steelmaking coal businesses have become increasingly divergent,” Price told analysts on a conference call.

“This proposed separation responds to that changing landscape.”

Teck’s move makes sense given today’s investment environment, said Michelle de Cordova, principal with Vancouver-based ESG Global Advisors.

She added that where “ethical investing” was once a niche area, targeted to investors who wanted their portfolio to reflect their own individual morals, it has evolved in recent years to become much more than that.

In fact, the global sustainable finance movement – championed by heavyweights such as U.N. special envoy Mark Carney and based on the principle that the world’s financial systems must take climate change into account when deciding where to invest capital – is now mainstream.

More than 450 firms representing US$130 trillion of assets now belong to the Glasgow Financial Alliance for Net Zero, a coalition of financial institutions that have committed to accelerating the decarbonization of the economy.

In addition, the UN-convened Net Zero Asset Owner Alliance is a group of powerful institutional investors that has committed to transitioning their investment portfolios to net-zero GHG emissions by 2050.

With a growing number of investors setting targets to reduce the carbon intensity of their portfolios, Teck is making a strategic move by spinning off its coal assets, de Cordova said, adding other companies in the coal and fossil fuel industries are likely taking notes.

“I can see why companies might be thinking, `well, if the investors are keen on investing in certain assets and less keen on other assets because of the commitments that they are making,’ then we should make it easier for them,”’ she said.

“I’m sure smart companies are looking at some of these investor standards that are being set and thinking about, ‘how can I make my offering appropriate.”’

Teck has made no secret of the fact that it believes the future of the mining industry lies with the green economy. Earlier this month, the miner exited Canada’s oilsands industry, completing the sale of its 21.3 per cent stake in the Fort Hills oilsands mine near Fort McMurray, Alta. to Suncor Energy Inc. and TotalEnergies EP Canada Ltd.

Last year, it committed to achieving net-zero greenhouse gas emissions from its entire value chain, as well as across its operations.

Leonard Brooks, a professor of business ethics at the University of Toronto’s Rotman School of Management, said while energy prices are currently high, demand for coal will decline over time. In addition, he said banks and other financial institutions are under increased pressure from shareholders to make lending policies for “dirty” energy sources more stringent and explicit.

“(Teck’s) separation clears the decks somewhat for the base/critical metals operations, and that should lead to lower cost of capital and/or more positive investor support in the medium and longer-run,” Brooks said.

The splitting of Teck has been structured in such a way that its greener, base metal-focused entity will be dependent on coal revenues for quite some time. Teck Metals will be funded by Elk Valley Resources’ cash flows for what the company is calling a “transition period” of approximately 11 years.

Hari Balasubramanian – founding managing partner of EcoAdvisors, a Halifax-based firm which aims to guide more capital to environmental solutions – said Teck’s steelmaking coal is different than thermal coal, in that it would be difficult to replace with renewable energy.

He also pointed out that even investors who have made net-zero commitments have flexibility in how they choose to get there, whether that’s by avoiding emissions-intensive activities altogether, or rebalancing their portfolios to offset them.

“It (Teck’s move) does give investors choice, in that if they want to demonstrate that their financed emissions are being reduced, they now have the opportunity to invest in a company that has lower emissions,” he said.

Teck’s pivot to decarbonize its portfolio has been rapid, and speaks to the power of investment capital when it comes to influencing change, Balasubramanian said.

“The transition of a company like Teck is really interesting,” he said. “And if we see more of these, from companies trying to figure out an authentic pathway to reduce global emissions . . . that can only be positive and productive.”