A small but mighty change to force US corporate climate reform

Greetings from New York, where investors and policymakers are assessing the fallout from the COP26 meeting in Glasgow. It is clear that pressure on companies is rising: as we note below, one development that was overshadowed during the UN climate summit is an important shift in the Securities and Exchange Commission’s rules about shareholder activism. Another arena to watch is reporting and audit, as C-suites face growing demands to disclose “scope three” data — and parse the forthcoming International Sustainability Standards Board measures (I like to pronounce as “Izzb-y”, not ISSB, to make it sound less dreadful).

Meanwhile, the IMF hosted a virtual forum this week on how to factor climate issues into economic data and public sector accounts. The IMF is responding to this by launching innovations such as a “climate dashboard”. But Mia Mottley, prime minister of Barbados, called for a complete overhaul of the metrics used by international investors, in the face of the climate crisis.

“It is nonsense to be using gross domestic product per capita . . . the statistics need to be completely remade,” she told me in one panel that I moderated. Or as James Stock, Harvard professor, said: “GDP has been useful, but it’s limited. Since we tend to measure what we can manage . . . we need to rethink.” Do you agree? Let the Moral Money team know; perhaps after you have digested our story about how investors seem to be cooling on oat milk. (Gillian Tett)

US financial regulator accelerates corporate climate reforms

After scoring mixed reviews for its COP26 performance, the US is under pressure to advance strong climate policies. Climate legislation in Congress is fraught with political peril, and the SEC’s climate disclosure rules for companies are not expected to debut until early 2022.

But the agency has made one subtle change to force corporate changes.

Overshadowed by the news from Glasgow, the SEC during COP handed a win to environmentalists by saying certain climate change shareholder proposals should go to a vote at companies’ annual general meetings.

Companies were outraged by the SEC’s change. “We call on the SEC to immediately reverse this decision,” the US Chamber of Commerce said.

But some individual companies already appear to be grudgingly adjusting to the shifting zeitgeist.

This week, Costco, a wholesaler, dropped its fight against a shareholder petition calling on the company to adopt targets to cut carbon emissions. The petition will go to a vote at Costco’s annual meeting in January, and comes as large asset managers — BlackRock, Vanguard and State Street — are supporting more environmental shareholder proposals.

The Costco petition “will be the first of many opportunities for investors to vote on proposals directly requesting these ambitious [emissions] targets”, said Leslie Samuelrich, president of Green Century Capital Management, which filed the petition.

Lawyers who followed the SEC’s rule change quietly acknowledged that companies were more likely to negotiate and settle with environmentalists rather than face a shareholder vote, which could go badly for the firm. This leverage will allow environmentalists to ask companies for more climate specifics than they could have in the past.

While final SEC rules for climate disclosures are a long way off, the agency’s tweaks on the margins can have a much faster — and meaningful — impact for companies going into 2022. (Patrick Temple-West)

Investors turn jittery over spilt (oat) milk

Oat milk and plant-based burgers have not been sitting well with investors recently. Once high-flying stocks selling alternative foods — as well as sustainability — Oatly and Beyond Meat saw their shares tank on weaker-than-expected third-quarter earnings reports.

Oatly shares fell 20 per cent on Monday following an underwhelming earnings report. This month, Beyond Meat’s shares tumbled 13 per cent after it forecast net revenues in the range of $85m to $110m in the current quarter, significantly lower than analysts’ projections. The changes in fourth-quarter forecasts follow an already financially shaky third quarter.

Both companies pinned shortcomings on production and supply chain disruptions. However, other food companies have not suffered such a stark investor drubbing, and plant-based meat alternatives surged at the beginning of the pandemic. So, if nothing else, the developments are likely to fuel debate about whether green fashions are creating market froth — and whether such bubbles might burst.

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Bank of America said that while it “still believes in the viability of oat milk as a disrupter”, it expected Oatly to struggle with a broader expansion as US demand “has continued to slow for plant-based protein”. And consumers will soon have to swallow higher prices; the Swedish producer is expected to pass the increased cost of ingredients, packaging and shipping on to its customers in most markets. Investors are not likely to stomach this change well either.

The long-term outlook for alternative protein, however, seems more promising. BCG found that the alternative protein market could account for as much as 22 per cent of the overall market by 2035, but the success would hinge on the introduction of carbon taxes (alternative proteins emit less carbon than animal-based protein) and improvement in texture and taste.

Right now, however, the stock market swings at Oatly and Beyond Meat are a reminder that a strong environmental mission is not enough to appease investors. (Kristen Talman)

Smart reads

• When it comes to business and climate risk, it’s good to focus on transparency — but not too much, argue Nadia Ameli and two fellow academics at University College London. Writing in our sister publication Sustainable Views, they argue that transparency on climate risk is far from enough to drive investment on to a more sustainable path. “Mark Carney isn’t alone in expecting disclosures to move investors away from carbon-intensive assets,” they write. “But the idea that they can effectively shift capital has serious flaws.”

• A similarly iconoclastic message comes from the Columbia University history professor Adam Tooze, who took aim this week at “blended finance”. Increasingly in vogue as a means of mobilising climate-related investment into developing nations, this involves public or multilateral institutions providing funding alongside private-sector entities. The approach, popular among the likes of BlackRock chief Larry Fink, “is the logic of the 2008 bank bailouts expanded to the global level — socialise the risks, privatise the profits”, Tooze writes in The Guardian.