Wed. Dec 8th, 2021

Activist Claims Oatly’s ESG program is more amazing than steak

Among the cavalcade of high-budget commercials aired during the Super Bowl this year, an Oatly oat milk ad stood out for its abject rarity. While other companies released ads featuring actors and recording artists, Oatly’s spot featured CEO Toni Petersson sitting in a field singing an ode to the company’s milk not coming from cows. For 30 seconds, Petersson makes a keyless belt with a heart that has a way into the brain: “Wow no cow.”

An activist investor now claims that there is also nothing behind the Swedish company’s claims of being a good corporate citizen, while preparing the ground for collective action against shareholders. In a comprehensive report released last month, short-term sales specialist Spruce Point Capital Management exploited the company’s accounting practices and internal controls. In addition, Spruce Point accused Oatly of using its environmental, social and governance program to launder its reputation.

“Spruce Point believes Oatly is not practicing what it preaches about being a‘ good company ’and doing the right thing for society before seeking reckless benefits,” the report concludes. Oatly rejected Spruce Point’s claims, but the company’s share price was still successful after the report was released.

Last week, investor Kai Jochims filed a proposed class action lawsuit against Oatly in New York federal court, based on the Spruce Point report. The lawsuit alleges fraud related to claims the company has made about its finances and its environmental impact. Meanwhile, the class action companies Robbins Geller Rudman & Dowd LLP and Bragar Eagel & Squire PC are recruiting shareholders to act as plaintiffs in similar lawsuits against Oatly.

But what if the collective action suits were the point of the Spruce Point report in the first place? According to Glenn K. Vanzura, co-chair of Mayer Brown’s litigation and securities enforcement practice, it is not uncommon for short-term investors to try to reduce the share price of a company with claims such as those made on Spruce Point over Oatly. (After all, these investors are shortening shares and Oatly has alluded to this fact in his response to the Spruce Point allegations).

We will probably have a better idea of ​​the truth behind Oatly’s actual ESG practices if these lawsuits reach the courts. On the big picture, however, companies may want to take note of the rigor with which Spruce Point questioned Oatly’s sustainability reports.

For example, Spruce Point highlighted the fact that Oatly’s first sustainability report, released in June, is based on a dated analysis of the company’s operation. Spruce Point used an application from the Freedom of Information Act to determine that Oatly’s production process “generates hazardous volumes of wastewater that require it to build its own treatment facilities.” Spruce Point also delved into Oatly’s supply chain and found that the oatmeal maker’s cocoa supplier has faced criticism for the environmental impact of its business on the African ecosystem.

As ESG issues become even more important to companies and their regulators and investors, it makes sense that evaluations of ESG programs should also become more sophisticated. Companies should prepare their ESG reports accordingly.

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