Transcript: Asset managers cool on climate group

This is an audio transcript of the FT News Briefing podcast episode: ‘Asset managers cool on climate group’

Marc Filippino
Good morning from the Financial Times. Today is Friday, February 16th, and this is your FT News Briefing.

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The head of the European Union is ready to boost the bloc’s military, and US asset managers are backing out of a major climate change group. Plus, big food companies are investing in farming practices that store carbon underground. But there are some significant hurdles here.

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I’m Marc Filippino, and here’s the news you need to start your day.

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The world has gotten rougher, and Europe’s military needs to adjust. That’s what European Commission President Ursula von der Leyen told the FT yesterday. She said the bloc’s defence industry should ramp up production and promote consolidation, and that the EU is working on incentives to make that happen. For example, the bloc could dedicate some funding to help support joint contracts for weapons between member states. Military spending has, of course, been top of mind since Russia’s full-scale invasion of Ukraine two years ago. European Nato members will spend a record $380bn this year on defence.

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Three of the world’s biggest asset managers are distancing themselves from a major climate change group. Climate Action 100+ uses shareholder influence to pressure companies to decarbonise. But both JPMorgan and State Street announced yesterday that they’re leaving the group. BlackRock followed up by saying it was scaling back its participation. Here to talk more about this is the FT’s US financial editor Brooke Masters. Hi, Brooke.

Brooke Masters
Hey, Marc.

Marc Filippino
All right, so before we get into why these big asset managers pulled away from Climate Action 100+, what does this group actually do? How does it work?

Brooke Masters
Basically what it does is it signs up investors to use their pressure to make the companies they invest in address climate change either through votes in shareholder meetings or also through, you know, sort of behind-the-scenes pressure. And their first step has been to get companies to disclose their emissions and really take a hard look at what they were doing. And they are now moving on to a second stage where they’re going to actively pressure companies to reduce their emissions by forcing them to change their business models.

Marc Filippino
OK. So then why did JPMorgan, State Street and BlackRock all pull back?

Brooke Masters
They gave slightly different reasons. But State Street and BlackRock were very clear that this second stage, where they’re supposed to be pressuring companies to actually change their business models, was not something that works for US investors because in the US money managers are legally required to put their client’s interest in making money first. So something else, like saving the planet, is actually not something they’re supposed to be doing. JPMorgan has said more that they have built up their own stewardship capacity, and they want to do their own lobbying on climate. They don’t want to be stuck in somebody’s group action.

Marc Filippino
Is it convenient timing, then, that their pullback is happening during a broader backlash against ESG — environmental, social and governance — that we’ve been seeing over the past few years?

Brooke Masters
I don’t think it’s convenient. I think it’s caused by it. This is absolutely being seen by the Republicans as a big victory. The chairman of the House judiciary committee, who had subpoenaed these companies to explain what they were doing, you know, called this a big win. The Republican pushback, which basically says these, these companies are using your money to do things that are not in your financial interest, and also not in your political interest sometimes, is making the asset managers think harder about what exactly they are doing and what their job is.

Marc Filippino
This is, this seems like it’s pretty gutting for Climate Action 100+’s ability to pressure companies to decarbonise. Where does this leave them?

Brooke Masters
It’s complicated in that actually, the consensus outside the US is still pretty strong for, you know, for concerted climate action. So, you know, there are 700 members of Climate Action. So it’s not completely powerless. It does hurt in that State Street and Vanguard, which never was a member, and BlackRock together own, you know, close to 20 per cent of all American companies. And so those votes are no longer something they can take for granted. I mean, they may be able to convince BlackRock to join them in their crusades, but it won’t be automatic.

Marc Filippino
Brooke Masters is the FT’s US financial editor. Thank you, Brooke.

Brooke Masters
Thanks, Marc.

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Marc Filippino
Big food companies like Nestlé and PepsiCo are pouring money into something called regenerative agriculture. It’s a type of farming that’s great for things like biodiversity and the environment. But the hope is that it could also help these companies offset their carbon footprint. Farmers, they’re a little sceptical, though. Here to talk to me about it is the FT’s Susannah Savage. Hi, Susannah.

Susannah Savage
Hi.

Marc Filippino
All right, so first thing’s first, Susannah, tell me a little bit about what regenerative agriculture is and how it works.

Susannah Savage
So regenerative agriculture is kind of tricky to pin down, but in general, it’s about improving the quality of the soil, and that’s done by not tilling the soil, so not churning it up, and using fewer pesticides and fertilisers, for example. And regenerative agriculture, as it improves the soil quality, it also increases the amount of carbon stored in the soil, which draws it out of the atmosphere. So big food companies are really interested in this because a lot of their emissions come from agriculture. Globally, agriculture accounts for around a quarter of emissions. So if they can reduce the amount of emissions in the sort of farm end of their supply chain, then that helps them cut emissions overall.

Marc Filippino
OK. So if I’m understanding this right, this type of farming could potentially keep carbon in the soil and out of the air. Where did you go to learn about this practice?

Susannah Savage
So I went to Somerset. I took a train, and it’s about three hours from London to meet Sophie and Tom Gregory, who are dairy farmers.

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And Sophie answered the door, and she was hugely friendly and excited, so it was great to be there

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They set out to farm organically, and after a few years they realised that it just wasn’t working.

Tom Gregory
We were finding that we were investing in the grassland but wasn’t necessarily seeing increase in production.

Susannah Savage
They noticed the soil quality had actually got worse, and that’s when they started to really study up on soil and why it’s so important.

Sophie Gregory
I suppose we weren’t really looking at that farm very what you’d call holistically, were we? And you said, well, we can’t be sustainable because we’re sustaining something that’s going downhill so needs to be something more than that.

Susannah Savage
And that’s when they increasingly started, you know, doing what’s called regenerative practices.

Marc Filippino
OK. So they tried organic farming. They still had problems. So Sophie and Tom turned to regenerative agriculture. What does that actually look like?

Susannah Savage
Yeah. So we had a wander around the farm, and I saw where they are planting feed crops.

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One of the things I found really interesting was that Sophie and Tom graze the dairy cows mostly on pasture, so on grass, and they’re changing how they do this little bit to leave longer recovery periods where the grass is left to recover. We also spent some time, I watched the cows being milked. And they all seemed very content and happy with their lives on the farm and eating the grass and whatnot. So Sophie and Tom are really enthusiastic about regenerative agriculture. But when it comes to the carbon aspect, I’d say they’re a little bit more sceptical.

Sophie Gregory
So at the moment, we, there’s not a good way of measuring carbon in soil to prove how much you’re actually sequestering. You stand up against what you actually . . .

Susannah Savage
And that’s because of lots of difficulties in terms of how accurate it is to measure it and lots of things that aren’t within the farmer’s control.

Tom Gregory
You can calculate very easily if tractor’s driving across the yard and across the field. The calculation is to work out the carbon emission from that is pretty straightforward. But how much carbon does a cow walking across the field, eating grass, pooing and weeing actually omit or sequester? And that can depend on several hundred parameters. So it’s really hard.

Marc Filippino
OK. Sophie, Tom, they’re not completely sold on the idea that regenerative agriculture can offset farming’s carbon footprint, even though it seems like companies are really counting on it. Where do experts stand?

Susannah Savage
Scientists I spoke to generally agreed that companies should not oversell the carbon aspect of regenerative agriculture. And there’s other doubts about it as well. You know, scientists have looked at what the capacity is. And for some soils, it’s not unlimited. So they described it to me as like a bucket. Once it’s full, it’s full. So yes, you can change practices, and that will increase the amount of carbon stored in the soil over time, but eventually it will reach a new equilibrium. It will be full, so to speak. So it goes without saying that regenerative agriculture is a really good thing, but a lot more needs to be done in order to reduce emissions within supply chains than just this.

Marc Filippino
Susannah Savage is a commodities correspondent for the FT. Thanks, Susannah.

Susannah Savage
Thanks very much.

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Marc Filippino
Before we go, hedge funds are sweet on the cocoa market. Supply is being choked because bad weather and disease are hitting cocoa trees in west Africa. Traders are jumping into the futures market, which is pushing prices to record highs, and big cocoa processors are now scrambling to meet the enormous needs of chocolate makers. You know, just something to chew on as you’re popping those Valentine’s Day chocolates.

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You can read more on all of these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news. The FT News Briefing is produced by Kasia Broussalian and Sonja Hutson, Fiona Symon and me, Marc Filippino. Our engineer is Monica Lopez. We had help this week from Mischa Frankl-Duval, Zach St. Louis, Saffeya Ahmed, Sam Giovinco, David da Silva, Michael Lello, Peter Barber and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. And our theme song is by Metaphor Music.

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