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Lack of greenwashing consensus hinders energy transition

Lack of greenwashing consensus hinders energy transition

Date: May 15th 2024

Author: Belén Belmonte

Category: En.vision

Topic: Electricity , Renewables , Energy policy , Ecology

A lack of agreement on what constitutes greenwashing and how to crack down on such practices is hindering the decarbonisation of energy firms, experts told Montel.

“Greenwashing is a real problem, and part of the problem stems from the lack of consensus on its definition and taxonomy,” said Paolo Coghe, president of energy consultancy Acousmatics.

The issue is exacerbated by the fact that private sector activity is moving faster than regulatory activity, he added.

Some major energy companies “are talking more than they are doing”, said Albert Banal-Estanol, a professor at Pompeu Fabra University in Barcelona, specialising in economics, energy and regulation, referring to firms announcing large renewable energy projects while also continuing to invest in oil and gas extraction.

The debate over the promotion by some energy companies of their renewable business versus their total activities has intensified recently after some oil companies cut their green targets, while defending the need to continue investing in oil and gas extraction to meet demand.

Europe is working on legislation to prevent misleading advertising as ecological transition requires trust, Spanish energy minister Teresa Ribera said following Iberdrola's complaint against Repsol for alleged greenwashing.

Speeding up transition

The 27-nation EU bloc adopted legislation to be climate neutral by 2050, meaning net-zero emissions of greenhouse gases from all sectors across the economy.

There is growing pressure on big oil and gas firms to curb their emissions, not just by policymakers but also from investors and large pension funds seeking companies that meet environmental, social and governance criteria, known as ESG.

A regulation that mandates and defines what can be considered renewable energy and sustainable would boost the decarbonisation of energy companies, both experts agreed.

“Doing nothing is the worst-case scenario,” Coghe said, adding that there are global climate commitments to which these companies must be bound and a failure to meet their targets or potential regulation could have "material" consequences.

These firms could face higher financing costs amid increased risk if they are labelled as greenwashing companies, and they could also face reputational crises or litigation risk, and that “would be very costly”, he said.

These are "very strong disincentives”, he added.

Esma guidance

EU financial watchdog Esma plans to publish its final report on greenwashing in the first week of June, a spokesman told Montel. It will include recommendations and tackle supervision for the national competent authorities, he added.

In its previous reports, Esma noted that it could be considered “misleading information” for an energy company to predominantly feature photos of wind energy on its website when 90% of its production actually comes from gas.

Websites of major European oil and gas companies prominently displayed images of wind turbines and electric mobility, giving them equal visibility alongside oil and gas extraction platforms. Some are investing in renewable assets, even if the core business still dominates.

Shell, for instance, reported profits of USD 163m from its renewable energy business in the last quarter, compared to total adjusted profits of USD 7.73bn for the same period.


More transparency

Investors want more transparency so they can see what the long-term path is, Coghe said, adding that greater transparency would minimise greenwashing in the short term.

Banal-Estanol agreed. “In the medium term the goal is that [these companies] have to be more transparent and become greener,” he said.

As for timelines, the professor noted that regulation in this area could be “imminent” given the need to provide the market with information to react.

He was also confident that the regulation will achieve its objective of accelerating the ecological transition of these companies “faster than expected”.

Meanwhile, though it is not known at this stage what aspects a potential European regulation on greenwashing would focus on, there seems to be a consensus that it would include a greater requirement for companies to report on their performance on social and environmental issues, he added.


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