Welcome back. Before you get stuck in to our latest Davos update, take a look at our fun new video — digging into the controversy around the World Economic Forum’s “stakeholder capitalism” agenda.
Yesterday’s big speech here came from European Commission president Ursula von der Leyen, who sought to allay fears that the continent could be left behind by a surge of green investment across the Atlantic following Joe Biden’s Inflation Reduction Act.
Von der Leyen revealed plans for a “net zero industry act”, that will focus investment on strategically important green projects. She also floated the possibility of relaxing rules around state aid, which could enable EU member governments to ramp up their support for clean tech development. “The story of the clean tech economy will be written in Europe,” she promised. Until full details of her plan emerge, however, European business leaders’ unease will remain very real.
Another interesting set of remarks came from BlackRock’s Larry Fink, who hit out at the political backlash the asset manager has been facing over its sustainable investment policies. “It’s hard because it’s not business any more, they’re doing it in a personal way,” Fink complained. “They’re trying to demonise the issues.” But amid the noise, Fink said, the backlash had cost BlackRock just $4bn in managed funds — a blip against overall net inflows of nearly $400bn last year.
As you might expect, there’s little sign of the ESG backlash among the business leaders at Davos, where rooms are humming with talk about how to profit from the energy transition. Read on for a look at one of the more ambitious plans in the mix, in our interview with Aussie mining tycoon Andrew Forrest. And Kenza reports on an intriguing complaint against meat giant JBS, which could have implications for the sustainability-linked bond sector. (Simon Mundy)
Inside Andrew Forrest’s $6bn green push
When Australian mining billionaire Andrew Forrest decided to switch his mine fleets to zero-emission vehicles as quickly as possible, he might have expected vehicle makers to be jostling for his business. Not quite.
“I went to several [manufacturers] — trains, trucks, ships,” Forrest, the founder and executive chair of iron ore giant Fortescue Metals Group, told Moral Money. “They all said: 2035, earliest, we’ll help you. And so I said, well, I’ll do it myself. And they said, well, good luck with that.”
The manufacturers’ slowness to develop emissions-free vehicles for the resources industry is a dispiriting sign of the inertia dogging the energy transition. But Forrest says his initiative to develop them in-house through a new unit, Fortescue Future Industries, is progressing well. “The first trucks have already arrived,” he said. “We’re really taking this very seriously.”
The sense of urgency is understandable, given that Forrest has pinned his credibility on a pledge to eliminate fossil fuel usage from Fortescue’s operations by 2030, at a cost of $6.2bn. It’s a hefty outlay, equivalent to nearly a tenth of the miner’s market capitalisation — but Forrest says it will easily pay for itself over the long term, with annual savings of $1bn in diesel costs.
At the core of Fortescue’s strategy is a hugely ambitious plan for green hydrogen, produced from water through electrolysis powered by renewable energy. It wants to produce 15mn tonnes of green hydrogen by 2030 to meet its green goals. For context, the EU’s REPowerEU plan aims for 10mn tonnes by the same date.
Forrest was withering on the oil and gas industry’s public enthusiasm for “blue hydrogen” — produced from fossil gas, with the associated carbon emissions captured and stored. He urged energy companies to “stop trying to pretend that a fossil fuel can actually be a green fuel”.
For now, with much of the key technology still under development, Fortescue’s decarbonisation drive might look to many like a gamble. It certainly hasn’t been matched by major mining peers in what, as Forrest notes, is broadly a conservative industry.
But he and his team are hoping to raise the bar for green ambition across the corporate sector. “It challenges every company to say, why can’t they do it by 2030?” said Mark Hutchinson, who leads Fortescue Future Industries. “If a mining company can do it, anyone can do it.” (Simon Mundy)
Brazilian beef giant faces SEC greenwashing complaint
Brazil’s JBS — the world’s largest meat producer by sales — became one of the biggest players in the sustainability-linked bond market in 2021, when it announced four issuances worth $3.2bn.
That put activists on greenwashing alert. They pointed to the huge “scope 3” carbon emissions linked with Brazilian beef production — methane from cattle burps, carbon dioxide from deforestation and nitrous oxide released when synthetic fertiliser is used to grow feed.
Now the pushback is getting serious. JBS has been accused in an SEC complaint of misleading investors in its bond issuance.
JBS achieved what it said was the “lowest borrowing cost in the company’s history” through the issuance, after promising investors a 25 basis-point coupon “step-up” on the bonds if it missed its decarbonisation targets. The targets, however, only cover emissions from JBS’s direct operations and the power they consume — without taking scope 3 emissions into account.
The SEC is weighing whether to make disclosure of financially material scope 3 emissions data mandatory for some companies, after proposing changes to its climate disclosure rules last year.
In its whistleblower complaint to the SEC on Tuesday, seen by Moral Money, the Washington-based NGO Mighty Earth argued the “net zero [by] 2040 commitment” which JBS repeatedly referenced in investor materials for the bonds, and which covers all its emissions, was “misleading”.
The Institute for Agriculture and Trade Policy estimated in November that the meat company’s total emissions, including scope 3, rose at least 17 per cent between 2016 and 2021. JBS said these figures greatly overestimate its emissions, but declined to disclose its own figures. The advocacy group used industry estimates of slaughter rates, JBS’s published slaughter capacity numbers, and an emissions modelling framework developed by the UN Food and Agriculture Organization.
Mighty Earth’s complaint also accused JBS of omitting “material information” that investors would need to evaluate whether the target accurately reflects the company’s trajectory, such as annual greenhouse gas emissions for its whole supply chain, or slaughter numbers.
Jason Weller, JBS’s global chief sustainability officer, told Moral Money the company rejected the premise of the complaint, as its net zero plans did not mean the company was making any claims about its current yearly emissions. “We never make the claim on net zero. It’s a commitment. And this is a very important distinction.”
JBS said in investor materials that the bonds’ focus on direct emissions was not a reflection of “the importance of scope 3 in our broader fight against climate change”, but a reflection of poor data availability.
The meatpacker has committed to disclosing emissions covering its whole value chain to the Science Based Targets initiative in the second quarter of this year, Weller said, but has no plans to make these figures available to the investor community.
The complaint raises wider questions about the integrity of the nascent sustainability-linked bond market, through which companies seek to achieve lower borrowing costs by linking debt issuance to sustainability targets that they have picked themselves. Barclays analysts estimate $60bn of SLBs were issued last year.
ISS ESG, who provided a second-party opinion on JBS’s bonds, highlighted at the time that the targets the company had chosen were “not material to the whole corporate value chain” and did not present evidence of “alignment with Paris Climate Goals”. It did, however, say that the objectives selected by JBS were “consistent” with its wider sustainability strategy.
Investors have also raised concerns about agricultural companies’ reluctance to publicise their scope 3 emissions, according to Maria Lettini, executive director of the Farm Animal Investment Risk and Return investor (Fairr) network.
“Scope 3 is hugely important, it’s going to be the focus of much of investors’ time . . . and it is what’s really going to make a difference on whether or not we meet global [climate] targets”, Lettini told Moral Money. (Kenza Bryan)
Gates Foundation head answers critics
The Gates Foundation may be widely courted as the world’s largest philanthropic organisation, but its clout in health and development also provokes concern over its influence and accountability — issues its chief executive Mark Suzman decided to address head-on in an annual letter published yesterday.
“One critique we hear a lot: ‘Why are a couple of unelected billionaires setting the agenda for global health and development?’” he wrote, responding to criticism that it has “disproportionate sway in setting national and global agendas” and drawing resources away from other important issues.
His response? That the foundation’s strategy and investments are transparent, and it follows the agenda enshrined in the UN Sustainable Development Goals. Moreover, he writes, it is a relatively huge player only because others are not pulling their weight.
“On the size of our role, I agree, in a way: It’s not right for a private philanthropy to be one of the largest funders of multinational global health efforts. Countries should fully fund them.”
Meanwhile, the balance continues to sway in the other direction, as government aid budgets come under pressure. Suzman confirmed the Foundation is on track for its pledge to increase its donations to a record $9bn by 2026. It is set to increase them by 15 per cent this year alone to $8.3bn. (Andrew Jack)
Smart read
Here’s an interesting new report from researchers at ShareAction, analysing the voting records of institutional investors in 2022. It finds that the world’s four largest asset managers were all more conservative than their proxy advisers in their support for shareholder resolutions.
