Can a small activist group really bring down a global meat giant? Climate organisation Mighty Earth is certainly hoping so, as it looks to take on Brazilian food behemoth JBS.

The dispute comes down to JBS’s sustainability bonds, of which it sold $3.3bn to investors in 2021. These were tied to the success of its ‘net zero by 2040’ commitment.

But last week, Mighty Earth filed a complaint to the US Securities & Exchange Commission (SEC) alleging these green bonds weren’t that green after all. 

Mighty Earth says the business misled investors and omitted crucial details that would inform investment decisions. Most notably, it says credit buyers were unaware the net zero sustainability goal excluded Scope 3 emissions targets, which represent over 90% of the company’s carbon footprint.

“If you’re an investor and you want to invest in a green company, you think ‘this sounds good, I’m going to help this company and give it credit so it can reduce its footprint’,” says Mighty Earth senior director Alex Wijeratna. “But if the bonds don’t cover the majority of the footprint, as an investor you’re being misled.”

JBS, on the other hand, has denied claims of omission. At the time the bonds were issued, it was not possible to fully disclose Scope 3 emissions, it says.

This David versus Goliath battle will be certainly interesting to watch. Because regardless of the verdict, the ramifications could be massive.

After all, Mighty Earth is not just going after JBS. It is campaigning for increased transparency and tighter regulation around the green credit market, which has been booming as companies race to meet net zero targets. The sustainability bonds market hit record highs last year, with companies around the globe raising nearly $250bn in the first half of 2022, according to analysis by global law firm Linklaters.

Many of the food giants are going down this route. Kellogg’s issued €300m worth of sustainability bonds last year, while foodservice giant Compass Group has raised €500m and £250m respectively in two separate green bond issuances. While there is no suggestion these companies have misled investors, Wijeratna wants to put an end to certain firms gaining “cheap credit” off the back of the trend.

It’s already having success. Mighty Earth has campaigned against French tyre maker Michelin’s green bonds due to its links with “industrial deforestation”. Those bonds have now been delisted.

A win against JBS, which could be forced to pay hefty fines or to redeem the bonds as a result, would serve as an even starker warning to other companies borrowing green money without clear targets.

“If the complaint is found against JBS, then not only will this damage investor confidence if similar bonds are issued in the future, but it will simultaneously shine a spotlight on comparable statements published by other organisations and open further the floodgates for this relatively recent cause of action,” says Bill Dunkerley, regulatory lawyer at law firm Pannone Corporate.

That could have a downside. Dunkerley warns that such claims and litigations may also lead to “green-hushing, where organisations seek to downplay or provide minimal details in relation to their environmental impacts and avoid scrutiny”.

Regardless of that risk, there certainly seems an appetite for greater scrutiny of green financing from those in power. Last October, the UK’s Financial Conduct Authority proposed rule changes to tackle greenwashing and pushed for tighter regulation around terms like “green” and “ESG” in investment fund marketing. It also called on asset managers to make sure they are validating sustainability claims.

In the US, the SEC is expected to unveil new rules on any environmental-related disclosures this April. Eco-activist groups are hoping this will result in more transparency for investors and consumers.

So the message to those operating in the green financing space is clear: transparency is a must. Otherwise, they could find themselves in hot water.

“There are activist legal networks out there who want to take on the big guys,” Wijeratna sums up. “We know some companies will be following this case very closely.”

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