Bio-Beware: PFPI, Investors Petition SEC to Crack Down on Biomass Climate Claims

(Pelham, MA) In the face of unprecedented amounts of investments flowing into sustainable equity funds, the Partnership for Policy Integrity (PFPI) and more than two dozen investment organizations today petitioned the Securities and Exchange Commission (SEC) to require companies making and using biomass, wood pellets, biochar, ethanol, and other bio-based products to substantiate their claims of climate benefits so that investors will not be misled.

It is common for companies producing biomass fuels and energy to claim their products are “low carbon” or “carbon neutral,” although in reality, they can have greater carbon emissions than fossil fuels.  PFPI and the 27 investment groups, which manage billions of dollars in assets, are asking the SEC to issue guidance providing that companies must make accurate and consistent disclosures of biogenic greenhouse gas emissions so that investors will be protected from misleading claims and can make informed decisions about whether products have actual climate benefits.

“Concern about climate change means there is a huge amount of money flowing into sustainable investments, and there’s a substantial benefit to companies that can claim their product reduces greenhouse gas emissions,” said Dr. Julie Gorte, who holds degrees in Forestry and Resource Economics and serves as Senior Vice President of Sustainable Investing at Pax World Funds, one of the groups that signed the petition.  “Investors need the SEC to establish standards for disclosures for so-called low carbon products and services, as companies can currently claim they have zero emissions when in fact their emissions can be significant.”

The petition was prepared by PFPI, a Massachusetts-based nonprofit that focuses on climate and forest impacts of bioenergy.  PFPI examined claims about emissions and climate benefits by 10 US companies representing a spectrum of products and fuels made from biomass.  Based on a review of company websites and SEC filings, PFPI found that while all the companies claimed their products reduce greenhouse gas emissions, none fully substantiated these claims, and the majority appeared to arrive at this conclusion by not counting emissions from use or combustion of biomass.  Additionally, the companies did not consistently disclose risks to investors from potential reductions in subsidies that support biomass fuels and energy, and most failed to warn investors of reputational risks if use of these products becomes more controversial.

The petition highlights the need for consistent standards concerning claims that bio-based fuels and products reduce greenhouse gas emissions.  One of the companies included was Enviva, which grinds sawdust and trees into wood pellets that are sold in the EU and Asia as a coal replacement.  Enviva claims that burning wood pellets reduces CO2 emissions “on a lifecycle basis.”  But the company does not disclose that it is only counting fossil fuel emissions: it does not count the CO2 emissions from actually burning the wood pellets, nor does it disclose that when combusted, wood pellets emit as much or more CO2 as coal.

“Calling companies that use trees for energy generation ‘zero carbon’ or ‘clean’ is only possible because of technical loopholes or discredited science,” said Andy Behar, CEO of As You Sow, a nonprofit that signed the petition and focuses on shareholder advocacy.  “If we continue down this path, 20 years from now we will claim to have met our Paris goals while wondering, why is climate change even more intense than predicted, and why did we burn down all of our forests?”

The report also examines a variety of claims about liquid biofuels, including claims by DuPont that its cellulosic ethanol production offers “a potential reduction in greenhouse gas emissions greater than 100 percent when compared to gasoline.”  However, the company is not transparent about whether it accounts for emissions from burning the biofuel or land use change that can significantly increase biofuel greenhouse gas emissions.

Also examined in the report is Cool Planet, which makes a charcoal-like soil additive called biochar and has attracted investments by the oil company BP and Google parent company Alphabet.  Cool Planet claims biochar can “reduce greenhouse gas emissions” but does not provide evidence to back up the claim.

“Again and again, companies are making claims that bio-based fuels and products reduce greenhouse gas emissions,” said PFPI’s Senior Counsel, Dusty Horwitt, author of the report.  “Our investigation found that companies are essentially making up their own rules about disclosure.  The SEC must act to ensure that investors can evaluate whether these claims are realistic.”

The petition concludes with recommendations to the SEC for guidance on disclosure of biogenic emissions, including that companies should be required to report the actual greenhouse gas emissions from manufacturing and using their products, and to transparently document the veracity of any assumptions behind claims that products are “low carbon” or “carbon neutral.”

See the report here.

 

Companies Profiled in the Petition

Company Ticker Symbol, Exchange Product
Cool Planet Privately held Biochar
Covanta Holding Corp. CVA, NYSE Waste-to-energy and biomass power
Dominion Resources, Inc. D, NYSE Biomass power
DuPont DD, NYSE Biofuels
Enviva Partners, LP EVA, NYSE Wood pellet biomass fuel
Future Fuel Corp. FF, NYSE Liquid biofuels
Gevo, Inc. GEVO, NASDAQ Liquid biofuels
Green Earth Technologies GETG Bio-based oil
Pacific Ethanol, Inc. PEIX, NASDAQ Liquid biofuels
Southern Company SO, NYSE Biomass power

 

Partnership for Policy Integrity