Abstract

Barry Callebaut, a Zurich-based chocolate and cocoa manufacturer founded by Klaus Johann Jacobs in 1996, was the world’s leading manufacturer of high-quality chocolate and cocoa products. It was one of the first companies to realize that it had to do something about the poor conditions on cocoa farms. In its ‘Forever Chocolate’ plan for 2025, Callebaut committed to scale up its own as well as the industry initiatives to raise industry standards through its four bold targets in the chocolate supply chain. In 2017, the Swiss chocolate giant entered into an innovative revolving credit facility agreement with a syndicate of 13 banks with ING as the sustainability coordinator. As part of this, interest rate was linked to the company’s year-on-year sustainability performance improvement. Callebaut was confident that it could reach its sustainability goals, working with all the stakeholders in the cocoa supply chain, by translating its sustainability targets into a clear set of key performance indicators, and by monitoring and reporting on the progress on an annual basis. However, it was not easy for the company to drive growth on the sustainability front as it faced difficulties in managing consistency in its sustainable growth over the years. Industry observers were skeptical about Callebaut’s long-term sustainability goals and questioned whether these could help generate fund flow to the company.

This case gives students an opportunity to analyze the potential impact of sustainability investment on the company’s strategy and performance and helps them to discuss the possibilities of further investment with the company to achieve its cocoa sustainability goals. This case is meant for MBA level students as part of their Sustainable Finance and Financial Management curriculum. This case is designed to enable students to: 1) Understand Callebaut’s strategic position as a global leader in cocoa sustainability and how this helped it to attract green loans; 2) Evaluate how the Triple Bottom Line ethos of the company creates value for its stakeholders and examine how the sustainability initiatives of the company help in strengthening its liquidity profile; 3) Study and examine how the sustainability performance by the company attracted innovative revolving credit facility linked to its sustainability performance; 4) Analyze how Callebaut can manage its business growth effectively with the underlying objective of achieving sustainability; and 5) Understand the key concern for Callebaut – how can it impress investors to go in for cocoa financing and achieve the sustainability targets.

Abstract

In early 2016, the largest state-owned Oil Company in the world, Saudi Arabia-based Saudi Aramco (Aramco), declared a proposal to float an IPO. The crown prince of Saudi Arabia, Prince Salman, had stunned the world when he declared in early 2016 that Aramco’s worth would be around $2 trillion. Aramco was not only an oil company but a budget to run the nation as 85% of Saudi Arabia’s budget came from the tax which Aramco had to pay.

The intent to monetize the state jewel came at a time when the economy of the Kingdom was under pressure. A widening fiscal deficit and depleting foreign reserves indicated that it was no longer viable to depend on oil exports to run the nation. There was a need to diversify and the impetus to do so would come from the proceeds of the IPO. But the IPO which would decide the fate of 33 million Saudis would come with its own set of challenges.

In 2017, the world had strong reasons to believe that oil prices would remain unstable. During prosperous times, Organization of the Petroleum Exporting Countries (OPEC), of which Saudi Arabia was a member had been able to give stable oil prices to the world but the oil glut had put the harmony of OPEC under stress, especially after the shale revolution, that brought in the US as a formidable player into the global oil game.

The success of Aramco’s IPO would be a function of numerous factors – some in the Kingdom’s control and some beyond. In 2017, concerns about climate change were on the rise. Climate policies threatened to put a 40% discount on Prince Salman’s $2 trillion aspirations. The commitment of global leaders to keep a check on global warming would escalate proliferation of renewables across the world and further build a pessimistic outlook for the future of oil prices. Moreover, entrepreneurs like Elon Musk envisaged the death of the internal combustion engine in the near future.

But above all, the elephant in the room was Aramco’s lack of transparency. Several questions were raised in the academia and investor community: Would Aramco pay heed to the voices of minority investors? Or would the monarchy call the shots at the end of the day? How did one valuate an organization with no comparable peers? How would climate control policies play a role in the success or failure of the Aramco IPO? And most importantly, how would an IPO of an oil giant with access to 15% of the world’s oil reserves, impact the future of world climate?

It remained to be seen how an IPO would shape the nation and how an oil giant would shape the future of world climate.

Abstract

This case describes the deliberations of a financial regulation policymaker at the Dutch Central Bank, Johanna Baks. She is asked by the central bank’s Board to recommend regulations that are conducive to the Netherlands curbing climate change, since the Board officially recognizes this as a threat to long-term financial stability. The financial sector claims that a lower capital requirement for catastrophe bonds and climate bonds is the solution.

Johanna researches this option, as well as several other ones. These other potential financial regulations are: mandatory inclusion of environmental, social, and governance (ESG) factors in supervised financial institutions’ internal models, mandatory public disclosure of ESG factors of the organizations’ investments, a financial transaction tax, prohibiting universal banking and/or limiting banks’ sizes, and supervising financials on social aspects like their culture and gender diversity.

Johanna assesses the potential effectiveness of these regulations, both in terms of impact as well as stakeholder acceptance. Her stakeholders are the general public, politicians & government, other countries’ regulators, and the financial sector. In her impact assessment, Johanna pays particular attention on how to balance the public good of avoiding systemic risks in the financial system against the risk that climate change poses to financial stability.

In this case, students will get acquainted with how financial regulation is made and how some of these could contribute to (or threaten) various sustainability aspects within a society. They will learn about some financial regulations that are currently being discussed at supervisory authorities in the world. Students will be challenged to think about the different kind of environmental, social and economic effects that each of these regulations can have separately, as well as in combination with each other. In doing so, students will also get a sense of the fine art of balancing the interests of the different stakeholders.