Article 4: Oatly - Saintly or Slimy?

Oatly, the favourite oat milk of many vegans and environmentalists – me included -, has taken investment from a private equity fund, part of the Blackstone Group. If you don’t know Blackstone, it’s the leading private equity company whose co-founder and CEO Stephen Schwartzman has made reported political donations to Donald Trump, including to America First Action, which supports Trump’s re-election. Indirectly but knowingly Oatly is supporting Trump.  How is this compatible with a more sustainable world?  Trump believes the climate crisis is a “hoax.” Activists also claim that one or more businesses part-owned by Blackstone have been involved in deforestation in the Amazon – denied by Blackstone. 

In a note to their customers published on their website, Oatly claims that they are so committed to their sustainability goals that they want the largest amount of capital to 

“trigger a shift to a more sustainable world.” 

What did Oatly say?

Let’s examine Oatly’s message explaining their decision. 

Firstly, they say this is a similar decision to selling their products through supermarkets:

“Since we are a sustainability company looking to create the most change possible, we went with the supermarkets.”

In a highly consolidated market with few players owning the distribution channel the only route to mass consumers are the supermarkets. Supermarkets are practically an oligopoly. 

At the time when they made that decision, the supermarkets owned the roads to get to consumers and most companies in the health food sector faced that choice.  Oatly were not unique and that decision does not guarantee “the most change possible” in the industry.  What makes the change possible is new distribution systems, direct delivery from farmers and less concentration of purchasing power.

In my experience at Whole Foods, most companies distributed in the natural specialised channels would like mass distribution, but their economic model (high COGS/high quality) cannot sustain the downward pressure on pricing by supermarkets.

By contrast, there are many sources of funding and gigantic PE firms are not the only source of capital.

How to create “the most change possible”

The amount of cheap capital from Blackstone will allow Oatly to

1-    grow at the fast pace required by a PE firm, 

2-    operate at a loss if needed to sustain low prices

3-    undercut competitors and kill local competition in Europe and Asia before it becomes a threat

At the moment there are probably some Asian entrepreneurs with an oat milk product –, but they will not have the chance to grow as Oatly is turning up in their market with their new spending power. 

Actually, if Oatly wants to create “the most change possible” I believe they should grow organically to meet demand, stay relatively local and allow for healthy competition in Europe and Asia.  A variety of local oat milk brands is a healthier option than a dominant global player. 

Private Equity is turning green??

But here’s the statement that I find the most baffling: 

“We thought that if we could convince them that it’s as profitable to invest in a sustainability company like Oatly, then all the other private equity firms of the world would look, listen and start to steer their collective worth of 4 trillion US dollars into green investments.”

Are they having a laugh or genuinely deluded? The thing is, there have been plenty of investments in ethical companies – Tom’s shoes is one example – which have never resulted in PE firms steering their capital into ethical investments.

What’s the evidence that PE investment in one successful sustainable company leads to money pouring into green investment? Zero, Nada

There is not one case study - that I could find – that supports Oatly’s theory of re-allocation of capital towards green investment from PE firms.  In fact some people argue that corporate venture capital is a better match for sustainable startups.

Oatly’s statement continues:

…when Blackstone’s investment...brings them -PE firms- larger returns than they would have been able to get elsewhere (like, say, from the meat and dairy industry…a powerful message will be sent to the global private equity markets.

Sweeties, the dairy and meat industry in the US and EU are already in decline due to macroeconomic and societal changes.  Dairy plants are already shutting left right and center, so you don’t need to prove there are better profit opportunities to the markets. That ‘powerful message’ has already been sent.

Oatly says they:

“can potentially trigger a massive flow of capital out of gas, oil and soybean production in the Amazon and into greener projects and companies.

Whaaaaat!  Seriously!?  I agree that we need a flow of capital out of gas, oil and soybean production.  But that would require government action to take away subsidies and change trading terms in those industries. That means extensive lobbying, political party involvement, citizens pressure, etc. It’s a bit more complex than PE firms making a few more green investments.

Delusion or Hypocrisy?

Oatly continues:

“With global private equity working toward a green future, we actually have a chance of saving the planet for future generations.”

This sentence was actually funny to read.  Private Equity is by definition Private – duh! There is no remit to serve the public good, no priority for citizens welfare or consideration for the environment.  When the climate crisis triggers warfare, private equity will be there funding guns.  

In a recent Financial Times article about PE credentials in ESG - environmental, social and corporate governance -  a reader says “ The world doesn't need to take lessons on sustainability from a bunch of corporate raiders who have just blown up most of the western world's pension system”.  The Institutional Investor magazine seems to agree that their impact is superficial.

I’m not sure by which mechanism Oatly expects PE firms to focus on the welfare of the planet. But their justification is totally slimy in my view.  Oatly’s decision does not live up to their loud sustainability claims.   I would respect them more if they dropped the saintly spiel.  They could have taken other sources of finance including green investors, even crowdfunding.   

Alternatives

Fortunately, there are lots of oat milks out there, including Plenish, Rude Health, Planet Organic, Provamel and Minor Figures, which make a great choice for people like me who want to swap brands. 

More about plant-based investment in my next post! In the mean time I would love to know what you think!