The Securities and Exchange Commission’s (SEC) authority on climate issues has been heavily challenged in recent months, but a controversial IPO application by Brazilian meatpacker JBS could be a fresh chance to influence climate action.
It has been a tough few months for the SEC’s climate agenda: its proposed climate rule, already delayed several times, is facing increasing opposition by conservatives in the US. These consider sustainability to be beyond the financial regulator’s authority, and are attempting to block the final disclosure rules through threats of legal action, House committee hearings and smear campaigns.
Yesterday, it was also forced to withdraw a proposal to introduce a new environmentally friendly asset class called ‘natural asset companies’ on the New York Stock Exchange (NYSE) due to backlash.
The new asset class aimed to make nature conservation profitable by placing a monetary value on clean air, water and other processes known as ‘ecosystem services’. But critics said the change “seriously curtail or stop grazing rights, water rights, mineral rights, modern agriculture, logging and forest management, hunting and recreational rights and [would] also impact personal and public property rights”.
At the heart of these cases is a question over whether the SEC should be able to influence corporate behaviour around climate change and sustainability – conservatives believe it shouldn’t, and they won the argument on natural asset companies.
JBS’ contested NYSE application
But the SEC has recently been offered another avenue for sustainability influence. JBS, the world’s largest meat producer with a whopping US$76 billion of revenue in 2022, has applied to be listed on the NYSE. But several groups, including NGOs, but also UK and US lawmakers, are asking the SEC to block the initial public offering (IPO) on the basis of the company’s environmental track record.
JBS has been linked by several reports to large-scale deforestation in the Amazon rainforest, where cattle raising is responsible for two-thirds of forest clearing. The company has pledged to achieve net zero emissions by 2040, but is yet to map and report on Scope 3 emissions. It has also been found to buy cows from illegally deforested areas.
Environmental organisation Mighty Earth called this “the single most important IPO for the climate in history”, warning that access to US capital markets would give JBS more resources to “tear down rainforest, pollute on a vast scale, and drive land-grabbing”.
15 US Senators called for the SEC to scrutinise the listing in a letter last week, pointing out that “the company has made repeated claims that it will eliminate deforestation but has not taken meaningful steps to do so, despite its direct knowledge of extensive deforestation in its supply chain”.
A similar letter by UK Members of Parliament also accused JBS of greenwashing and urged the SEC to reject the company’s application “given the potential for increased financial, social and environmental risks posed by the meat conglomerate's operations and legacy of misconduct”.
JBS case could set a powerful precedent
Many of the companies listed on stock exchanges have questionable environmental records, but their IPOs happened at a time when climate issues were not as central as they are today. The SEC has the potential to set a powerful precedent with this case, limiting access to capital markets for companies that knowingly harm the environment.
The Commission has halted IPOs before, but on the basis of fraud suspicions. JBS critics are also pointing to the company’s history of corruption, which was exposed in 2017 during Brazil’s ‘Operation Car Wash’, and this could be reason enough for the SEC to scrutinise the IPO application.
But with most of the pushback centred around the meatpacker’s deforestation record, blocking the listing would clearly mean taking a stand on the sustainability behaviour expected of public companies – putting reaffirming the SEC’s influence on this topic after recent setbacks.