There have been several interesting news items recently that might give support to those who see the ESG movement as something of a con or a waste of time. I’d prefer to look at them differently. ESG, sustainable / purposeful procurement and related issues are all pretty new to us ideas really. We are all learning about the complexities involved, and therefore it is inevitable that some initiatives will prove to be less useful than others. There will also be fraud in places, until we get better at spotting that, and some people who see opportunities to make a quick buck.
So it is positive that organisations are getting smarter in terms of how they pursue their ESG goals and strategies. These three cases all show a maturing understanding of the risks, what works and what doesn’t.
Amazon Tree Planting Fraud
In the early summer, two men were convicted of swindling £37 million from investors through a bogus forestry scheme. Following a seven-year investigation by the UK’s Serious Fraud Office, they were jailed for 11 years.
Andrew Skeene and Omari Bowers claimed they were ethical entrepreneurs whose scheme would protect the amazon rainforest and support local indigenous communities there. They would regenerate deforested land and make money through teak plantations. They promised their company, Global Forestry Investments, would build accommodation for their workers and a school and performing arts centre for their children. The scheme would also provide investors with a return of 10% annually.
But the money passed through a web of complex companies and nominees were used to conceal the true beneficiaries of the scheme – the accused. Most of the investors’ money was lost. “During the schemes’ operation, Skeene and Bowers collectively withdrew around £750k in cash and spent a further £2 million on retail, luxury and entertainment. Mr Skeene also used investors’ money to fund his own lavish wedding and Mr Bowers bought a Bentley Continental GT.”
This isn’t the only fraud we’ve seen based on appealing to investors’ desire to both make a good return and do something useful. Be careful and remember, if something looks too good to be true, it usually is.
EasyJet Offsets
We mentioned here use of offsets by airlines, and questions have been raised for some time about their real worth. Now EasyJet has announced that it will no offset its 2.7 million tonnes of annual emissions via carbon-removing initiatives such as planting trees.
EasyJet CEO Johan Lundgren said, “Today, we’re the first airline to outline an ambitious roadmap in which zero carbon emission technology plays a key role to take us to net-zero emissions by 2050 and ultimately to zero carbon emission flying across our entire fleet,”.
Offsets do not in themselves do anything to reduce emissions by the organisation using that option. The Science Based Targets Initiatives, which vets net zero plans, has tended to mark down companies that rely heavily on offsets rather than actually taking actions to reduce emissions directly. Offset schemes can also be vulnerable to fraud or corruption – not all are, of course, but it is a real risk.
Reuters reported that “EasyJet will instead invest in new technology to cut emissions, including zero carbon-emitting aircraft and carbon capture technology”. Some of those initiatives will have an immediate impact, as in the case of more efficient new designs replacing older engines. Others, such as development of hydrogen fuels, or direct carbon capture, are more speculative and may not actually lead to successful outcomes. But all in all, it is probably better that firms push innovation that can directly help de-carbonisation, rather than covering up their own inaction through purchase of offsets. Of course if everyone flew less, that would help reduce emissions even more …
NHS energy buying
The HSJ reported recently that Mid Yorkshire Hospitals Trust in the north of England has decided to stop buying renewable energy “guarantee of origin certificates” (REGOs) to cover its energy use on its estate. NHS England has made using those certificates mandatory, but it looks like that oversight body won’t punish trusts that take this step. So we can expect others to follow. The cost of REGOs for the Trust has gone up to some £180,000 and there is “no value from a carbon reduction perspective,” according to the September board papers.
The UK’s energy regulator Ofgem says that the REGO is designed to “provide transparency to consumers about the proportion of electricity that suppliers source from renewable generation.” It states that “the purpose of the certificate is to prove to the final customer that a given share of energy was produced from renewable sources.”
But REGOs, issued when a unit if renewable energy is generated, are traded. So providers can claim to be supplying “renewable energy “ when all they have actually done is buy surplus REGOs from others who do not “need” them.
The Trust board papers say this. “The problem with REGOs is that they offer no additionality whatsoever and they have been squarely criticised as perpetuating and normalising greenwash by many industry observers and environmentalists. This issue is also exacerbated by the rising cost of energy bills in general, all of which places undue cost pressures on trusts, where REGOs provide no value from a carbon reduction perspective.”
The NHS wants to be able to say it uses renewable energy, so REGOs enable it to make this claim, although it doesn’t actually mean that hospitals “run on renewable energy”! It is all a bit of a con – virtue signalling by the NHS, the cynics might say - with good intentions but limited real benefits. The Trust is complaining to the “Greener NHS” organisation about the NHS policy and we suspect other Trusts will follow suit.
And if this leads to a review of REGOs, whether they have value and how they are used, then that is good. It would be another sign of greater understanding and maturity in terms of what works and what doesn’t as we strive towards net zero.