Shareholders may be the real losers at Danone

climate narratives: annotated #11

Photo by Daria Salikova on Unsplash

A bombshell from Danone this morning with news that former CEO and stakeholder capitalist Emmanuel Faber has been ousted from the Board, reversing a painstakingly crafted compromise to keep him as chair after activist investors pushed him out as Chief Executive two weeks ago.

Today’s newsletter will feature recent research that suggests Danone shareholders might be the real losers in this saga, as well as a new study that looks at how the media covers green finance. Are they warriors of truth or conveyor belts of greenwash?

Highlights from Green and Sustainable Finance

Faber is out

Emmanuel Faber, former CEO of Danone, was evicted as chairman of the board of Danone last night, to be replaced by 62 year-old Gilles Schnepp, former CEO of industrial group Legrand. Faber is widely known on the global stage as being a visionary leader of sustainable capitalism - a very small cohort of corporate leaders that includes Paul Polman, former CEO of Unilever.

This is a harsh blow to stakeholder capitalism, which puts people and planet at the heart of business strategy. French media reporting on Faber’s demise focuses on the victory of “economic realism” and spins a narrative that pits purpose against performance. It also pins much blame for Faber’s demise on governance issues - a “Local First” strategy that sought to re-organize around countries instead of brands.

The attack on Faber was led by two hedge funds that held him responsible for lagging rivals like Nestle on financial performance. Last night the hedge funds got their pound of flesh, and the share price bounced up in response.

Hedge funds “won” last night, but what about shareholders?

A recent study conducted by researchers at Pennsylvania State University’s Smeal College of Business and HEC Paris found that activist campaigns actually lead to poorer financial performance over a five-year period.

The study looked at 1,300 companies in the US targeted by activist funds from 2000-2016, and found an initial 7.7 per cent increase in the value of companies within the first 12 months of being targeted. Four years later, the value of these companies drops by 4.9%.

Compared with a group of similar companies that had not been targeted by activists, corporate social responsibility efforts went down following hedge fund activism, leading to a 25 per cent reduction in ESG performance within five years.

The authors also found that companies such as Unilever and Danone which have sought to hard-wire sustainability into their strategy and operations are more likely to attract hedge fund attacks.

👉 The longer-term impact of a hedge fund attack is a lose-lose for both shareholders and stakeholders.

Can we trust media coverage of sustainable finance

When I created the New Climate Capitalism podcast and this newsletter last year, I noticed how difficult it is to build a robust and objective information environment. Inevitably, one relies to a great extent on reporting by financial journalists working with big brand name media organizations.

A new paper published last week tackles this subject head on, and it’s a critical topic that deserves a lot more attention.

Nadine Strauss from Oxford University’s Smith School of Enterprise and the Environment conducted a study that looks at the role and responsibilities of financial journalists in how they cover green finance and was based on interviews with journalists working in 6 countries. Among the outlets surveyed were the Financial Times, Bloomberg and Handelsblatt.

The findings are a little disturbing, even if they don’t come as a total surprise.

👉 Journalists mainly enact the role of chronicler, informant and educator when writing about sustainable finance, but fail to fulfil an active watchdog role.

👉 Given the urgency of the climate crisis, journalists reported that they found themselves in a moral dilemma between enacting their professional role as a journalist on the one hand and providing a platform for unsubstantiated claims about sustainable finance (greenwashing) made by the industry, on the other hand.

There’s a notable quote from a journalist at Handelsblatt:

To me, the whole sustainability topic is not a topic where you can win. I perceive this as an absolute horror topic as a journalist, because everyone wants to sell you something.

New EU rules to stem the “Blob” of exploding greenwash

Greenwash is growing exponentially, and almost impossible to control. Last week the European Union brought in new rules that will regulate the sustainable finance industry for the first time, raising hopes that this is the first step towards curbing greenwash.

Sustainable Finance Disclosure Regulation, or SFDR, will require managers of funds that invest in line with ESG will have to put forward a clear plan for how they do so, and this will apply to all asset managers that raise money in the EU, regardless of where they are located. Check out Sasja Beslik’s newsletter “ESG on a Sunday” for an excellent breakdown of the new rules, and possible pitfalls.

From the podcast and beyond

🎧 In the latest episode, I talk to Jessica Robinson about Financial Feminism, the title of her new book and a personal wake-up call for me on how far we still have to go to close the gender inequality gap on pay, on savings, on pensions. Jessica’s mission is to inspire and empower women to invest to build the future they want, and that this is a task for everyone, not just the ultra-rich. Don’t miss this conversation, her energy is contagious and inspired me to take up the challenge. And you can find out more by signing up for her newsletter here.

🎧 In episode #14, I talked to David Barnden, the founder of Equity Generation Lawyers and a pioneer in the field of climate litigation in Australia, which is the world’s hot spot for climate lawsuits. We talk about a world-first involving a 23-year old student from Victoria who is suing the Australian government for failing to disclose climate change risk to sovereign bond investors. Why didn’t anyone do this before, you may be wondering. Cases like O'Donnell v Commonwealth are not just about a new type of climate action, they could - potentially - transform the way capitalism is encoded into the law.

Another unusual case of David’s went to trial this month and it involves 8 teenagers, a nun and all the world’s children in a lawsuit to stop climate impacts from an Australian coal mine.

📚 If you enjoy this newsletter, please share with a friend or colleague. It’s completely free for now, and I finance the work through freelance projects. So if you’re looking for a freelance writer or editor on ESG, sustainable finance and business, drop me a line at info@climatenarratives.co.

Denise