Be cynical about those who claim to be green

We look to invest in a way that minimises the harm those companies we invest in are doing to the environment.

Paul Brownsey Paul Brownsey 3 minute read

OPINION: Greenwashing: “Behaviour or activities that make people believe a company is doing more to protect the environment than it really is.”

As an investor, we look for opportunities with the right blend of risk and reward, but also we look to invest in a way that minimises the harm those companies we invest in are doing to the environment.

This can be a delicate balance to achieve, though. Many companies are expert at presenting a “green” face to the investing public, while behind the scenes they behave in a way inconsistent with that marketing message. In our investment travels, we have looked at many companies that claim to be green but are clearly not.

One of the highest-profile greenwashing scandals in recent times concerned Volkswagen. The car-maker admitted to equipping millions of its cars with software that cheated on emissions tests, allowing Volkswagen to falsely inflate the “green-ness” of their cars. This had a real cost – nearly $20 billion in fines and settlements, lasting reputational damage and the end of lucrative careers for many executives.

Oil companies are experts at greenwashing. Despite internal documents showing that companies like Royal Dutch Shell, ExxonMobil and BP knew about climate change dangers decades ago, the business model for these companies seems not to have changed. Just keep on extracting more oil and gas.

In its most recent report to shareholders, Shell talked long and hard about a strategy to thrive in the transition away from fossil fuel dependance. Yet for every dollar Shell spends on clean energy initiatives, the company spends nearly $30 on new investment in fossil fuel extraction. Currently, this is more than $50 billion a year.

Shell says on the one hand that it “fully supports the Paris Agreement goal to limit warming below 2C and supports the transition towards a net-zero emissions energy system”, yet in the fine print Shell also says it has “no immediate plans to move to a net-zero emissions portfolio over our investment horizon of 10-20 years.”

This is a clear example of greenwashing, a bold environmentally friendly statement of intent, but behind the scenes it is carbon-emitting business as usual.

The worst examples of greenwashing like Volkswagen and Shell are quite easy for a careful investor to identify, but there are plenty of grey areas, too. One question we struggle with is how much credit should we give to a company that is genuinely trying to transition to a low-carbon future but still emits massive amounts of climate-altering greenhouse gases?

One example of this is NextEra Energy, one of the largest electricity generators and distributors in the USA. Their website proudly proclaims that NextEra Energy is the world’s largest producer of wind and solar energy. That is true. Unfortunately, it is also the 12th-largest emitter of greenhouse gases in the USA. Most recently, NextEra emitted 45 million tons of CO2 from its coal and gas-fired electricity generation.

By comparison, New Zealand’s entire CO2 emissions are around 35 million tons, around 20 per cent less than this one company.

We don’t invest in NextEra Energy even though they are making an effort to produce more renewable energy. Their stated aim is to reduce the carbon intensity of their business, and this will happen as they produce more energy from renewables. But they are also continuing to produce the same amount of electricity from fossil fuels and will continue to be one of the largest greenhouse gas emitters in the USA. So be wary when you see a claim like “world’s largest producer of wind and solar energy”.

So, what can we learn here? Be cynical when companies claim to be green. Look for the facts behind the claim, and don’t reward bad corporate behaviour with your hard-earned KiwiSaver savings.

Paul Brownsey is chief investment officer at Pathfinder Asset Management and ethical KiwiSaver provider CareSaver. His views in this article are general only and are not recommendations for any particular person in relation to any share or financial product.

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