In recent years, investors have raised awareness of environmental, social and governance (ESG) issues and the need for greater disclosure from public companies. This has been especially true in the energy sector where the environmental impact, specifically carbon emissions driving climate change, has been significant. As a result of increased attention and industry regulations, more energy companies now track and report their carbon footprint. Within the energy sector is a growing sub-sector of renewable energy technologies, such as wind and solar energy. These companies market their climate change benefits relative to fossil fuel energy companies as they compete for market share and capital.
However, there is reason for concern regarding the validity of ESG statements made by renewable energy companies as competition grows. In one case, a US-based public company primarily serving EU and UK bioenergy plants made statements in an SEC filing that are potentially exaggerated and misleading regarding the benefits of their product. The company provides wood pellets for wood-burning power plants and makes multiple statements that either imply or state directly that burning biomass reduces power plant emissions. As it turns out, these statements rely on the fact the EU and UK carbon accounting protocols treat wood pellet burning as zero emissions.
So Friends Fiduciary and a long list of like-minded investors sent a letter to Mary Jo White, Securities and Exchange Commission (SEC) Chairwoman, asking for enforcement of existing climate disclosure guidelines and an update requiring greater transparency related to climate change benefits. Clearly companies will continue to seek competitive advantages and market claims with positive spin when possible. But statements made in SEC filings and public communications are expected to comply with regulations. We hope to persuade the SEC to take action now before distorted disclosures become the norm in this fast growing, competitive industry.