54 FORTUNE OCTOBER/NOVEMBER 2021abused, but it’s far from
imposing uniform rules.
In the absence of such
guidance, investors are left
to consult a motley array
of ESG ratings agencies.
There are roughly 30
major providers around the
globe, according to KPMG,
among whose products
fund managers pick and
choose to help shape their
investment decisions. And
even the most conscien-
tious of those agencies are
grappling with an inconsis-
tent patchwork of disclo-
sures from companies.
In 2019, Rigobon and
two other researchers at
MIT released a paper that
found that agencies’ ratings
varied enormously depend-
ing on what was measured,
the weight of those mea-
surements, and how they
were measured in the first
place. As an example, Rigo-
bon describes ratings of
companies’ treatment of fe-
male employees. Depend-
ing on who was scoring,
that might be measured
by employee turnover, by
gender diversity in upper
management, or by official
labor complaints—all
with potentially different
results. Competing ratings
thus could show bizarre
divergences, with the sameagencies. More so than for
better-established compa-
nies, its greenness is in the
eye of the beholder.
The company’s central
claim—that oat milk is less
emissions-intensive than
cow’s milk—isn’t in doubt.
Dairy is a tough industry
to decarbonize, in part
because cows emit—as in,
fart—methane, a green-
house gas many times
more potent than CO 2. An
analysis created for the
BBC found that oat milk
ounce-for-ounce accounts
for around one-third as
many greenhouse gas
emissions as dairy milk.
“The more people we can
help make the switch from
cow’s dairy ... the more we
can drive down greenhouse
gas emissions,” Oatly CEO
Petersson said in a written
statement to Fortune.
Even Ben Axler, the
founder and chief invest-
ment officer of Spruce
Point, admits that he
has no quibble with oat
milk. His critique focuses
on Oatly’s operations—
particularly on the
environmental strains of
shipping. Axler argues
that in rushing products
and ingredients around
the world to chase new
markets, Oatly has put the
pursuit of growth ahead
of its values: “Do I think
Oatly’s veered a little bit
from its mission while it’s
grown rapidly? I do.”
Another high-profile
critic of Oatly’s climate
impact: Oatly itself.
The company has been
transparent about the
downsides of growth—it
called its 2020 sustain-
ability report Confessionsof an Oat Company. From
2019 to 2020, it says, its
carbon emissions jumped
111%, outstripping its 81%
increase in production over
the same period. Oatly at-
tributed the jump partly to
better carbon accounting,
but also to having to ship
oats from Europe to Asia;
it also struggled to source
renewable energy in some
new markets. Both those
problems will dissipate,
Oatly expects, as it builds
more regional factories,
including one opening in
China this year.
Oatly’s self-assessment
highlights an irony that
other ESG-minded compa-
nies may soon grapple with.
Some watchdogs and regu-
lators want to improve ESG
standards in part by urging
companies to be more
forthcoming with details
about their emissions and
supply chains. Oatly seems
to have done just that—in-
deed, doing so is part of its
ethical brand. But its can-
dor has given ammunition
to Spruce Point and other
critics (including plaintiffs’
attorneys: As often hap-
pens after a short-seller
report, multiple law firms
have filed class-action suits
against Oatly).
For now, the oat-milk
maker expects its rapid
growth to continue. By
2023, it plans to have nine
plants worldwide, more
than tripling its production
capacity. Its carbon foot-
print will presumably also
grow, at least in absolute
terms. Whether that makes
Oatly a success story or an
ESG cautionary tale may
depend on who’s keeping
score.company getting a score
in the top 10% from one
agency, and the bottom
20% from another.
Adding to the confusion,
many agencies score com-
panies within industries,
rather than across sectors.
That’s one reason some
ratings bodies give BP,
one of the world’s biggest
producers of petroleum,
higher ESG scores than
Tesla, whose mission is to
make petroleum obsolete.
Julian Kölbel, one of
Rigobon’s coauthors and
now a postdoc at the Uni-
versity of Zurich, frames
the ratings conundrum a
different way. If an analyst
says that Tesla’s stock will
rise or fall, it will eventu-
ally become clear whether
that prediction was correct.
By contrast, “ESG ratings
are more in the nature of
a court proceeding, where
there’s a deliberation,
where you can take in vari-
ous forms of evidence, and
then you make a call,” he
says. “You never know the
ultimate truth.”FOR OATLY, THERE AREN’T even
any scores to appeal to:
Because it only recently
went public, the company
doesn’t yet have published
ESG ratings from majorTHE BRIEF — ESG STOCKSSOURCE: BLOOMBERG
- 7
%
OATLY STOCK
PERFORMANCE
SINCE ITS IPO
ON 5/21/21
- 3
%
PERFORMANCE
SINCE
PUBLICATION OF
SHORT-SELLER
REPORT ON 7/14/21