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Greenwashing: the claims keep coming

Posted: 14/06/2023

It seems that barely a week goes by at the moment without a story breaking which contains fresh allegations of greenwashing being committed by organisations. Already this month we have learned of action being taken against household names Shell and Delta Air Lines, as a result of their allegedly misleading eco-friendly claims. For those not in the know, you can access our brief explanation of what greenwashing is here.

In addition to the frequency of greenwashing allegations, the variety of sources from which they can emanate is also noticeable. For example, Delta Air Lines faces a claim from customers in the US that it has made false claims over its carbon neutrality, whilst Shell has recently successfully defeated a claim in the English courts brought by a shareholder against its directors. Since that victory, Shell has found itself on the receiving end of a finding by the Advertising Standards Authority that it cannot place advertisements which ‘misleadingly’ refer to the amount of clean energy it produces. We have also previously reported on the investigation currently being undertaken by the Competitions and Markets Authority into green claims made by ASOS, Boohoo, and Asda in the fashion sector.

Another company which has recently found itself under the regulatory spotlight is the energy producer Drax.

Drax’s operations: a force for good?

Drax runs the UK’s largest power station from a site in North Yorkshire. The plant used to run on coal but has since 2016 operated entirely on biomass (specifically, wood pellets). Drax’s position is that the wood used in its pellets comes from sawdust emanating from sustainably managed forests and that the burning of the pellets themselves produces 80% less CO2 than coal. This shift in operations has seen Drax benefit significantly from green subsidies issued by the government. It has been reported that these subsidies have been worth over £800 million annually in recent years and that Drax has received in total over £6 billion.

So far, so green, one might think.

However, criticism has been levelled at Drax by activist groups which argue that burning wood is in fact no more climate-friendly than burning coal and that the company therefore remains responsible for significant carbon emissions. Further, it has been claimed that the wood pellets burned by Drax are actually produced unsustainably following deforestation of virgin forests in Canada.

This had led the government itself to raise its eyebrows. In 2022 it was reported that then Business and Energy Secretary Kwasi Kwarteng recognised Drax’s procedures as being unsustainable (although this appears to have been a reference solely to the process of importing wood from Drax’s plant in the US to the UK). Moreover, several MPs have queried the appropriateness of green subsidies for Drax given the question marks lingering over the environmental friendliness of its operations and that taxpayers are footing the bill.  

It should be stressed that Drax has consistently and firmly denied the allegations made against it in the past. In 2021, for example, it stated that its biomass ‘meets the highest sustainability standards’ and that it did not cause ‘deforestation, forest decline or carbon debt’.

The involvement of Ofgem

Despite its denials, it has been revealed in recent weeks that Drax is now being formally investigated by Ofgem, the government regulator for the electricity and gas markets. Ofgem’s investigation is linked to obligations imposed on Drax under the regulator’s renewable energy subsidy scheme. It has been widely reported that it is the accuracy of Drax’s statements regarding the sustainability of its wood pellets that will come under scrutiny.

Drax has already felt the bite of the investigation with its share price falling by around 6% immediately after the announcement of the investigation (although the price has since made a partial recovery). The long-term effect of Ofgem’s inquiry could be even more significant; were the harshest penalty to be applied by Ofgem, it could see Drax stripped of all green subsidies moving forward. It has been suggested that, were this to happen, the company’s entire business structure would be put at risk.

Drax maintains that there is nothing to see here, correctly pointing out that Ofgem’s investigation does not imply any malpractice and stating that it ‘receives regular requests from Ofgem and continues to cooperate fully throughout this process’.

The future

It is very much a case of ‘watch this space’ when it comes to the result of Ofgem’s inspection, which is something that we intend to do.

In the meantime, organisations would be well advised to keep a weather eye on the credibility and accuracy of their green claims. Those who tout the sustainability of their operations or products are becoming more likely to find themselves under the microscopes of regulators and/or consumers. Getting things wrong leaves the door open to both reputational and financial damage.

You can view some of our previous guidance on what businesses can do to avoid falling foul of greenwashing here.

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Penningtons Manches Cooper LLP is a limited liability partnership registered in England and Wales with registered number OC311575 and is authorised and regulated by the Solicitors Regulation Authority under number 419867.

Penningtons Manches Cooper LLP