Keeping Greenwashing in Check

In the business world these days, it is a race to be "green." And with emissions targets and climate mandates on the table across the globe, energy developers are right in the thick of a clean transition. When it comes to working with companies and lenders, however, things may not always be what they seem. "Greenwashing" - the concept that something is marketed as environmentally-friendly and sustainable, but is still "dirty" under the surface - shows up in all kinds of industries, and even the companies that are involved in the energy transition may fall prey to it.

Companies like Leyline understand the importance of sustainable operations, but there is a lack of standardization and accountability even now, despite the fact that most people today agree that climate change is real and its impacts potentially devastating. So how can you be sure that something is truly "green", especially given the numerous examples of greenwashing over the years and is there any movement toward accountability?

Greenwashing Examples

Greenwashing has been seen throughout history, for example, with fossil fuel companies. Think of 80s-era oil company ads about their environmental preservation efforts, despite violations of clean air and water laws, spilled toxins into waterways, and continued use of climate-harming fossil fuels. Today, these companies are still making promises to clean up their act, while their business and investment plans continue to show otherwise. But do not be mistaken - fossil fuel interests are not the only ones who may market half-truths. The most recent example is when Volkswagen cheated on their air emissions tests by installing a "defective device" that detected when the vehicle was undergoing an emissions test. No one can forget the company's admission that 11 million vehicles worldwide were part of this scandal to improve performance.

Energy developers of all kinds are operating in a fast-paced world and trying to be on the cutting edge of the exploding clean economy. For the most part, this kind of competition is essential in driving innovation and encourages exciting technological developments. Nevertheless, even in the clean energy space, some bad actors may outwardly try to distract from questionable ethics and make misleading claims of carbon neutrality effort without tangible action. Banks and other lenders are also eager to hop on board, and may claim clean, green requirements and targets for their portfolios while not truly upholding the standard.

Leyline's Pledge

Renewable energy is the way of the future-there is no question that a clean energy transition is the only way to meet climate targets. And with constant developments in technology, solar, wind, and other clean energy resources are rapidly becoming the most reliable and lowest-cost energy. At Leyline, we prioritize ensuring that our investments will truly add great value to a sustainable future.Thus far, we have made more than 40 investments eliminating more than 6,007,065 tons of carbon dioxide annually. There also needs to be a way to standardize ESG measurement and reporting. Leyline releases a quarterly ESG and anti-racism report.

We know it is important to our partners to receive funds that truly meet environmental targets, and thus we ensure that our projects make tangible positive impacts on the environment. A few months ago, our CEO Erik Lensch spoke at the North Carolina State Energy Conference on Environmental, Social, and Governance (ESG) principles in clean energy. A key theme was that there is high market demand for transparency and accountability from lenders, companies, and others.

Securities and Exchange Commission Role

Since Erik's panel, the United States Securities and Exchange Commission (SEC) has begun to consider proposals to standardize ESG reporting.

The first proposal is meant to protect investors from greenwashing and meet the need for "consistent, comparable, and reliable information." The three main areas would include:

  • Categorizing ESG investing into two main buckets: Integration Funds and ESG-Focused Funds. These would clearly classify funding as either something that considers ESG factors along with other non-ESG factors (Integration), or something that focuses on ESG factors as a significant part of the investment selection/portfolio engagement process.
  • Ensuring that the above categories are tailored to properly disclose their risks: for example, what ESG factors are included and how they are incorporated, or how exactly a fund is enacting their ESG strategies and measuring progress.
  • Requiring ESG-Focused Funds that consider environmental factors to provide quantitative and aggregated greenhouse gas emissions data, if that data is included as part of investment strategy. That data would be required for disclosure to investors.

Another proposal would ensure that funds with names suggesting ESG-focused investment strategy definitely have ESG characteristics. Funds would be required to define the terms in their name and prove that 80 percent of their investments have an ESG focus.

If we do not keep greenwashing in check and hold lenders accountable for the sustainability of their investments, it will be difficult to meet state, national, and global climate targets. At Leyline, we work to ensure accurate, transparent reporting and hope to bake long-term, sustainable practices into our lending strategy. With continued increase in public awareness around greenwashing, the upcoming SEC rules, and more, we hope this will become standard practice across the board.

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