00.51.01.52.0$2.5 TRILLIONGLOBAL ASSETS IN
ESG FUNDS
REGIONAL
BREAKDOWNQ2
2020Q1
2021Q3 Q4 Q2$2.24
TRILLIONEUROPE
80.8%U.S.
12.6%
JAPAN
2.9% OTHERASIA/
PACIFIC
CANADA 2.5%
1.2%
SOURCE: MORNINGSTAR52 FORTUNE OCTOBER/NOVEMBER 2021reminding consumers that oat milk is
more earth-friendly than cow’s milk.
Oatly quantifies its carbon footprint
on its cartons and plasters merchan-
dise with slogans declaring the rise of
a “post-milk generation.” “We don’t
even look at ourselves as an oat-milk
maker,” CEO Toni Petersson told
Fortune in June. “We are a people and
sustainability company.”
The Spruce Point report sought to
tarnish that green aura. The company
had produced abnormally high levels
of wastewater at a New Jersey plant, it
alleged. And what about the envi-
ronmental impact of transportation?
Oatly, after all, had been shipping oat
milk halfway around the world—from
Sweden to China, most notably—in a
feverish grab for new customers.
Since July, Oatly has refused to
discuss Spruce Point’s allegations with
the media. In an August earnings call
with analysts, Petersson said an in-
vestigation had found the report was
“false and misleading.” (The company
declined to make anyone available
for an interview.) But at least someon Wall Street have been
swayed. The stock has
fallen 21% since the report
was published; the short
position against it, as of late
September, had risen to
just over $300 million, or
3.3% of Oatly’s total float,
according to S3 Partners,
which tracks short-selling.
There are other reasons for
investors to be skeptical of
the company. Some claim
that oat milk is easy to
make, for example, so Oatly
doesn’t have a competitive
“moat.” Still, the claim that
Oatly is “greenwashing”—
marketing itself as greener
than it really is—has
struck a chord.
So how can investors
decide for themselves
whether Oatly—or any
company—is truly “green”?
That question, it turns out,
opens a messy can of free-
range organic worms. Even
as demand for sustainable
mutual funds and “ethi-
cal” stocks reaches record
heights, the available data
for judging companies is
wildly inconsistent—with
competing ratings firms of-
fering contradictory scores
based on opaque criteria.
“We don’t have a very good
way to measure ethical
behavior,” says Roberto
Rigobon, a professor at the
MIT Sloan School of Man-
agement and a member
of the Aggregate Confu-
sion Project, which tracksdissonance in ESG ratings.
Depending on which lens
observers use, and what
kind of “ethical” behavior
they prioritize, the same
company can look like a
hero or a villain.
The stakes are high, es-
pecially for green investors.
At the end of the second
quarter of 2021, assets in
“sustainability labeled”
funds reached $2.24 tril-
lion, 2.4 times the amount
three years earlier, accord-
ing to Morningstar; there
are now a record 4,929
funds in that category. As
money pours in, critics
warn that greenwashing is
becoming endemic, as com-
panies spin their behavior
to attract ESG investors’
dollars. Eyebrow-raising
corporate maneuvers have
helped fan the skepticism,
from a deep-sea mining
company rebranding itself
as “green” to French energy
giant TotalEnergies buying
carbon credits in Zimba-
bwe so it could call a tanker
of liquefied natural gas
“carbon neutral.”
But regulatory efforts
to define sustainability are
still in their infancy. The
European Union is entan-
gled in a yearslong effort
to set clearer standards;
in the U.S., the Securities
and Exchange Commission
has formed a task force
to investigate cases where
ESG definitions have beenTHE BRIEF ESG STOCKSSUSTAINABILITY SELLS
Investors in Europe in particular have flocked to
ESG funds over the past few years. But their popu-
larity has fueled fears that companies will fib about
their environmental records to lure investor dollars.
YOU TAKE IN EVIDENCE, AND
THEN YOU MAKE A CALL. YOU NEVER
KNOW THE ULTIMATE TRUTH.
JULIAN KÖLBEL, ECONOMIST, UNIVERSITY OF ZURICH