Investors with a long-term view understand a company’s ability to deliver financial results, and therefore investment returns, depends on its ability to manage physical climate and biodiversity risks, while navigating future regulation and shifting consumer tastes.
It’s a key reason for engagement on climate, nature and human rights. Without effective stewardship of portfolios, risks can be misunderstood or left unmitigated, negatively impacting value and undermining returns.
This ability of all investors – from individuals and wealth managers to institutions and pension funds – to have a say on corporate decisions is an important part of robust financial markets.
Senators and MPs are calling on NYSE to scrutinise JBS IPO
In January, a bipartisan group of US senators asked the SEC to scrutinise the track record of JBS – the Brazilian meat processor – before approving its listing, echoing a cross-party group of UK MPs. With a market cap of around $10bn, JBS may be this year’s largest food sector listing globally. The senators’ letter raised the risks posed by the legal status of a foreign issuer with dual-class shares, plus concerns on environment, human rights, corruption and antitrust, highlighting these could also impact farmers and ranchers.
JBS’s listing plans are aimed at improving the company’s valuation and supporting expansion across geographies and protein classes. Yet the potential financial benefits to investors could be undermined by the company’s proposal to issue shares with unequal voting rights, which could increase the Batista family’s control of votes from 48.8% to 85%. This could effectively eliminate the influence of minority shareholders – after years of investor pressure on climate, deforestation and human rights. Recent progress might be slowed down or reversed, as in the case of Seaboard Corporation, an 80% family-owned pork producer, which does not disclose Scope 1 and 2 emissions.
See also: – How do we feed 10 billion people by 2050?
This loss of influence, paired with the shift to the US, may also eventually lead to reduced transparency on JBS’s Brazilian beef assets. These represent an outsized ESG risk relative to revenue, with competitor Marfrig’s divestments from cattle slaughtering plants and increased exposure to poultry hinting at their materiality on the category’s long-term prospects.
The implications of dual listing
This is cause for concern for all investors. Dual class share structures are often seen as a governance risk and restricted in most European markets, including the UK’s main listing. At a company with an outsized impact on the future habitability of our planet and productivity of our economies, it should be viewed with caution.
Shareholder influence has played a pivotal role in JBS’s recent responses to significant risks, which include a 2025 goal to achieve zero illegal deforestation for direct and indirect suppliers in Brazil, and a 2040 net-zero target. Although these fall short of best practice, it is crucial the company remains accountable towards them. In the latest Coller FAIRR Protein Producer Index, which assesses the world’s largest protein producers against ESG themes, JBS was ranked as medium risk, reflecting that whilst progress has been made there is room for improvement with regards to best practices.
If they agree to the dual-shares part of the listing plan, and see their influence on the company diminish, JBS investors would be more dependent on the goodwill of the founders to expedite efforts to combat biodiversity loss and climate change.
As we approach 1.5 degree of warming, it is important investors retain their influence over climate and nature commitments, particularly for companies operating in sectors like beef, that contribute significantly to emissions and face increased exposure to climate-related physical risks.
Calls for a unified voice
JBS has recently delayed its US listing submission because it is still addressing questions from US regulators.
There is a pressing need for a strong and cohesive voice from current and prospective minority shareholders and lenders. The company is already on the Norwegian sovereign wealth fund’s influential exclusion list and some European retailers have committed to stop sourcing beef from Brazil. Others must continue to work with the company on setting credible milestones towards it its climate and deforestation targets and protect long-term value creation. Not giving up voting rights is critical to that.