This is what the future of carbon offsets could look like

Greetings from New York where the temperatures are (finally) rising and some of us are starting to fire up our barbecues again. Two years ago this was good news for brands such as Beyond Meat, since their sausages and burgers were all the rage (I often toss them on my own grill).

But last week Beyond Meat’s share price tumbled 25 per cent in a single day after less than dazzling results. And while it bounced sharply higher on Friday, the volatility — and the fact it has dipped below its IPO price — shows that some investors are getting indigestion about environmental, social and governance stocks; or, at least, realising that these may have soared to unsustainable levels in recent years. That’s largely because a tsunami of cash has moved into ESG portfolios, and has been forced to chase a limited number of “sustainability” stocks.

So is this just a healthy correction, which can create a more sustainable market (in every sense)? Or the harbinger of a wider crunch? And what does it mean for other potentially overbought ESG darlings, such as the wind turbine sector, or electric vehicle makers such as Tesla? Tell us what you think at moralmoneyreply@ft.com. We would love to hear your thoughts.

Meanwhile, in this week’s newsletter we look at a burning issue developing in the carbon offsets market, and at a new front in the corporate “pig wars”. And if you have not already done so, remember to register for your free premium subscriber’s digital pass to the Moral Money Summit Europe on Wednesday and Thursday — or better yet, join us in person at London’s Biltmore Mayfair hotel. We will be hosting debates on these issues and much more. (Gillian Tett)

Climeworks plans to shake up controversial carbon offset market

The latest UN climate report featured a stark call to action. There is no chance of limiting long-term warming to 1.5°C, leading scientists warned, without massive investment to remove carbon dioxide from the atmosphere.

Last month’s document left open the question of who will provide the technology — and the funding — needed for this vast endeavour. But one possible part of the answer came the next day. Climeworks, a Zurich-based start-up, said it had raised $650mn for its technology to suck carbon dioxide from the air.

“For us as a company, it’s a huge step,” Climeworks co-founder Jan Wurzbacher told Moral Money a few days ago. “On the other hand, if we think of the challenge we want to solve, it’s a tiny amount.”

Climeworks’ technology is already up and running. At the Hellisheidi geothermal power plant in Iceland, 80 of its “collectors” — aluminium boxes roughly 2 cubic metres in volume — are in operation, removing 4,000 tonnes of carbon dioxide a year. Through a collaboration with Icelandic start-up Carbfix, the CO₂ is dissolved in water and pumped underground, where it forms limestone in the volcanic bedrock.

But many thousands of such installations would be needed to make a significant dent in atmospheric carbon levels. And to fund such a dramatic scale-up, companies such as Climeworks will need to rely on a market that has been dogged by growing controversy: carbon offsets.

A new report from the consultancy and investment group Carbon Direct gives a damning assessment of today’s offset sector. The vast majority of offsets are currently linked, not to carbon removal, but to forest protection or renewable energy plants. And in many cases, it is far from clear that the selling of carbon credits made any difference to the outcome of those projects. “The voluntary carbon market largely consists of projects of questionable quality with few removal options available,” Carbon Direct warned.

Wurzbacher’s company offers a removal option with a compelling feature. Even if a forest-linked offset project has the claimed benefits, its carbon impact lasts only as long as the trees survive. By turning carbon into stone, Climeworks promises customers that their emissions will be offset for millions of years.

But that comes at a cost. Climeworks has been selling its carbon credits for about $600 a tonne. Forest-linked offsets often sell for less than a hundredth of that figure. So what could possibly drive demand for these expensive tech-based credits at the scale required?

“More and more customers heavily distinguish between the quality of the different products on the market,” Wurzbacher said. As allegations of greenwashing grow against companies using low-quality offsets, companies including Microsoft, Stripe and Audi have been buying credits from Climeworks, drawn by the greater credibility despite the far higher cost.

Scrutiny of offsets is set to rise still further. As we wrote earlier this year, the Integrity Council for the Voluntary Carbon Market is drawing up standards aimed at helping offset buyers screen out useless projects. While Wurzbacher says there is a place for high-quality forest-based schemes, he hopes standard-setters will lay out separate categories to draw a clear distinction between those offsets and the kind offered by Climeworks. And if enough big companies such as Microsoft throw their weight behind the latter, Wurzbacher reckons, it will become “harder and harder for others not to subject themselves to comparable standards”.

For the moment, Climeworks is focusing on deploying its latest injection of capital, from investors including Baillie Gifford and Swiss Re. It is planning to announce a new plant, 10 times the size of the Hellisheidi operation, in June. It is rushing to hire engineers to develop new iterations of its technology, aimed at bringing the cost of its carbon credits below $200 a tonne.

And while Climeworks will never bring that cost down to anything approaching the current price of forest-based offsets, Wurzbacher insists he has no concerns about the outlook for demand from corporate customers who face growing pressure over the credibility of their net zero pledges.

“The current customers are those with relatively little emissions, but very high demands on integrity from their stakeholders,” he said. “Others are maybe not so much in the spotlight, and are well off for the moment with cheaper solutions. But then once the spotlight turns on them, they might need to amend this.” (Simon Mundy)

Food fight: Wendy’s, Nelson Peltz face fire on pigs and tomatoes 

A fight over food companies’ welfare practices — for those with two legs and four — has engulfed billionaire activist investors Nelson Peltz and Carl Icahn. The outcome will be determined by shareholders in the days ahead.

Following a shareholder vote at Wendy’s last year pressuring the company to disclose more information about the tomato farmers it contracts and the potential for human slavery, New York City pension funds have said they will vote against Peltz as the company’s chair at its annual meeting on Wednesday.

The board has “failed to adequately respond to a majority-supported shareholder proposal filed in 2021 concerning worker protections in the food supply chain,” New York City comptroller Brad Lander said in a statement to Moral Money.

The Wendy’s 2021 petition won 95 per cent of shareholder support, and the company did report more information later in the year. But farmworker advocates wanted Wendy’s to go further, prompting a campaign to vote against Peltz, the head of asset manager Trian Partners.

Wendy’s has argued that it “went above and beyond” the requests from last year’s shareholder proposal. The company only sources indoor, greenhouse-grown tomatoes, exempting it from the concerns surrounding tomato farming outdoors, Wendy’s said.

“We believe we substantially implemented the proposal and will continue to communicate to shareholders on this,” Wendy’s said.

Proxy adviser Glass Lewis has recommended shareholders vote against Peltz. Wendy’s also faces a shareholder proposal from the Humane Society about gestation stalls for pregnant pigs. Wendy’s in 2012 committed to eliminating North American gestation stalls, and “we anticipate meeting” that goal, the company said.

As we wrote recently, pig welfare has become a burning issue for the corporate raider Carl Icahn, who is trying to appoint new directors at McDonald’s and retailer Kroger to improve the treatment of animals in their supply chains.

The outcome of this week’s vote at Wendy’s will give a sign of how seriously other investors are taking these issues — and of Icahn’s prospects for his showdown with McDonald’s at its annual meeting on May 26. (Patrick Temple-West)

Inclusive capitalism comes down to the fine print

The Coalition for Inclusive Capitalism is one of the few sustainable business-focused non-profit groups whose members have been granted a papal audience. But beyond its lofty connections, it has also shown a focus on tangible action.

One of its offshoots is turning that focus to the problem of how pension fund owners — particularly smaller ones — can ensure that the people managing their assets are investing in line with their ESG priorities.

Its solution: a set of recommendations for what language to include in investment contracts — sounds less glamorous than visits to the Vatican. But the Pension Fund Coalition for Inclusive Capitalism — led by Theresa Whitmarsh, co-chair of Columbia Law School’s Millstein Center, and Hiro Mizuno, UN special envoy on sustainable investments — describes the open resource as key to protecting against superficial implementation of impact-oriented standards.

Many asset managers already assure funds that they follow standards such as the UN Principles of Responsible Investment, notes Lady Lynn Forester de Rothschild, the coalition’s founder. “What we’re finding is that is not enough and the pension funds need to dig more deeply.”

Those wanting to know more can follow a virtual event on Wednesday. (Andrew Edgecliffe-Johnson)

Smart read

• The controversy around surging executive pay packages continues to grow, with a scathing attack on “corporate greed” by Nicolai Tangen, head of Norway’s $1.2tn oil fund, in an FT interview. Our colleagues at Lex delivered a sharp take on the issue, warning that investors should be wary of attempts by underperforming companies to link management pay to opaque ESG metrics — a potential “pay scandal in waiting”.

Moral Money Summit Europe

18th — 19th May 2022
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Find out at the FT’s Moral Money Summit Europe, taking place in-person in London and live online. Come along and connect with leading policymakers, investors, senior business executives and industry thought-leaders who will share their plans for the next stage of their ESG journey. As a premium subscriber, you can join the event with a complimentary virtual pass when you register with the promo code: Premium2022. Register now