AMDP Final



TO: Clark Hansen, CEO, Anima Mundi Development Partners

FROM: Lauren Tsuchiyama, Research & Development

SUBJECT: Investment Proposal for Oatly Group AB

DATE: March 8, 2024

Based on my research and analysis, I recommend that AMDP does not invest in Oatly Group AB. Oatly’s company mission states that they prioritize environmental preservation over profitability. While Oatly claims to reach specific sustainability goals and metrics, other sources deny and question their claims. In this memo, I will:

  • Define AMDP’s standards for investment opportunities and companies

  • Outline Oatly’s company background, financials, and petitions to sustainability

  • Highlight three expert opinions on Oatly’s efforts 

  • My recommendation for why we should not invest in Oatly 


   

AMDP’s Standards 

AMDP supports companies that are socially responsible, ethical, and sustainable. Our commitment focuses on three principles: 


Corporate Social Responsibility 

Corporate social responsibility is a way in which companies can pursue their operational activities while dedicating themselves to making beneficial environmental and social change (Gavin, 2023). 


Social Enterprise 

A social enterprise is a business that is cause-driven whose primary focus is to provide social change while serving the common good. These businesses usually have a social mission and feel responsible for social and environmental value (Johnston, 2022).


Carbon Footprint 

Carbon footprint is measured as the total greenhouse gas emissions that are produced when an activity or production takes place. Common greenhouse gasses include carbon dioxide, methane, and nitrous oxide. Increases of greenhouse gas emissions contribute to pollution, heightened surface temperatures, and rising sea levels. In order to protect the future people and planet, one can minimize these risks by reducing their carbon footprint (Mulvaney, 2022). 


Triple Bottom Line 

The triple bottom line is an economic framework that involves three different measurements of performance: environmental, social, and financial. These three dimensions are explained using three P’s: 

  • People: the organization is committed to positively impact people and society

  • Planet: the firm’s dedication to positively impact the environment 

  • Profit: the financial return the business generates for shareholders (Slaper, 2011). 


Background of Oatly 

Oatly is a Swedish international food and beverage company that produces dairy-free alternatives using oats. The company started in the 1990s backed by researcher and food scientist Rickard Öste from Lund University in Sweden. While researching lactose intolerance and sustainable food production, Öste invented oatmilk. In 1994, Rickard Öste and his brother Björn Öste founded Oatly. 


Oatly sells a myriad of oat products, ranging from milk, ice cream, yogurt, cream, and coffee. On their website, they promise consumers to deliver products that have the maximum nutritional value with the least negative environmental impact. They claim that they prioritize the long-term future of the planet before profitability (Oatly, 2024).



Oatly’s Financial Data

Oatly’s financials indicate slightly decreasing, but steady growth over the past four years:

  • Revenue growth from 2021 to 2022 was +4.9%, while revenue growth for 2022 to 2023 is +8.46%. 

  • Current profit margin for 2024 is -53.22% (every dollar in sales Oatly generates -$0.53.)

  • Return on equity is -72.02% (every dollar in equity Oatly generates -$0.72)

  • -$-38,389 operating cash flow at the end of September 2023 (investment in labor and materials with negative return) (Yahoo Finance).

From these financial highlights, Oatly has steady, flatlined growth that indicates long-term profitability. However, for shareholders, shareholder value and equity is not at its maximum capacity. 



Oatly’s Claims to Sustainability

To the public and on its website, Oatly presents itself as a green company that produces products in a socially responsible and ethical way. Oatly has made the following sustainability achievements and promises in the following years. 


Achievements

  • Achieved a total of  301, 547 (kg) greenhouse gas emissions in 2022, which is an 1.99% increase from 2021. Total emissions intensity (kg/liter) however, has decreased 0.629 to 0.582 in 2022. 

  • 89% of their packaging materials are made from recycled or renewable materials

  • 100% renewable electricity for Oatly factories sourced for 2022

  • Decreased ocean shipping from factory expansion leading to reduced carbon footprint 

  • Sustainable ground transportation for 21% of all products and materials 

  • 20% reduced water usage from all Oatly production facilities

  • The Midwest pilot project grew to 17 farmers to source oats from the Midwest, leading to increased biodiversity, farm variability, and ecosystem health. (Oatly)

Ambitions

  • Establish a restoration farming system that aims to boost farmers’ income and help farmers transition to plant-based farming practices. 

  • Advocating for a shift from a dairy diet to mainstream plant-based diets, saving energy and reducing carbon dioxide emissions. 

  • Reduce climate footprint/liter by 70% by 2029 (Oatly)



Expert Opinions  

Despite these achievements, the company has fallen under multiple controversies that dispute its sustainability claims.


Opinion 1

In 2018, Oatly was criticized for selling oat byproducts from its production line to a pig farm. Since the controversy, Oatly has stopped selling its byproducts to the pig farm and released to the public that they have found alternative solutions. Oatly proposes that they will turn the byproducts into renewable energy. However, many consumers remain skeptical to Oatly’s supposed “greenwashing” and are generally displeased with their contributions to the animal industry. Since then, many vegan consumers and journalists have initiated boycotts against Oatly (Ethical Butcher). 


Opinion 2 

In 2021, short-seller Spruce Point Capital released a report that questioned the validity of Oatly’s sustainability records. They accused Oatly of tampering with their financial statements by overstating revenue and “cherry picking” their sustainability data. Spruce Point claims that Oatly’s water production is actually much higher than what was recorded, as well as higher than regular dairy facilities. Additionally, they suspect that Oatly omitted data from their expansions in Asia and the United States in a June 2021 presentation to investors. In July 2021, Oatly settled $9.5 million for a lawsuit against Spruce Point Capital but strongly denied the allegations brought forth (Spruce Point Capital). 


Opinion 3 

In a 2022 advertisement, Oatly states that "Oatly generates 73% less CO2e vs. milk, calculated from grower to grocer.” The ASA, Advertising Standards Authorities, received 109 complaints from the ad, accusing the ad was misleading. Oatly based this claim by comparing only one of its products, Oatly Barista Edition, with full cream milk. Consumers would most likely attribute this claim to all Oatly products. The advertisement was banned with the reasoning considered to be deceptive and an attempt at greenwashing (BBC).



My Recommendation 

Oatly claims to have achieved strict sustainability goals over the last four years. However, through expert opinions and media coverage, Oatly’s reputation has been tainted from controversies surrounding their lack of transparency and accusations of “greenwashing.” A lack of growth in equity and shareholder value suggest low investment opportunity.  I suggest that AMDP does not invest in Oatly. 


Thank you,

Lauren Tsuchiyama

 




Works Cited 

“5 Examples of Corporate Social Responsibility: HBS Online.” Business Insights Blog, 6 June 2019, 

online.hbs.edu/blog/post/corporate-social-responsibility-examples. 

“Is Plant Milk Hypocritical?” The Ethical Butcher, 

ethicalbutcher.co.uk/blogs/journal/all-food-systems-need-animals-oatly. Accessed 8 Mar. 2024. 

Johnston, Jane, and Robyn Gulliver. “Social Enterprises.” Public Interest Communication, The University 

of Queensland, 22 Feb. 2022, uq.pressbooks.pub/publicinterestcomm/chapter/social-enterprise/. 

Mulvaney, Kieran. “What Is a Carbon Footprint-and How to Measure Yours.” Environment, 24 June 2022, 

www.nationalgeographic.com/environment/article/what-is-a-carbon-footprint-how-to-measure-yours. 

“Oatly Ads Banned over ‘misleading’ Environmental Claims.” BBC News, BBC, 26 Jan. 2022, 

www.bbc.com/news/business-60128075. 

“Oatly Group AB (OTLY) Income Statement.” Yahoo! Finance, Yahoo!, 9 Mar. 2024, 

finance.yahoo.com/quote/OTLY/financials. 

“Oatly Group AB - Spruce Point Capital Management LLC.” Spruce Point Capital Management, 

www.sprucepointcap.com/research/oatly-group-ab. Accessed 8 Mar. 2024. 

“Oatly i the Original OAT Drink Company.” Oatly I the Original Oat Drink Company, www.oatly.com/. 

Accessed 8 Mar. 2024. 

Oatly Sustainability Report 2022, 

a.storyblok.com/f/107921/x/11daa2b42e/oatly-sustainability-report-2022.pdf. Accessed 9 Mar. 2024. 

Timothy F. Slaper, Ph.D., and Tanya J. Hall. The Triple Bottom Line: What Is It and How Does It Work?, 

www.ibrc.indiana.edu/ibr/2011/spring/article2.html. Accessed 8 Mar. 2024.




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