Greenwashing: are ‘eco-friendly’ companies now in the regulator’s crosshairs?

Posted: 11/09/2024

A surge in greenwashing allegations over recent years has been accompanied by a number of subsequent high-profile investigations. The investigation by Ofgem into energy giant Drax Power Limited, however, has thrown up a new angle to greenwashing.

Previous investigations, such as those against Shell and Delta Airlines, have largely been centred around big polluters making incorrect or misleading statements about their green credentials. Companies seen as more 'eco-friendly' have been left out of the spotlight. But in the case of the latest investigation into Drax, Ofgem appears to have shifted its focus to 'greener' companies and their record keeping.

An explanation of the background to the investigation can be found here. In summary, Drax runs the UK's largest power station and, since 2016, has switched from using coal to biomass wood pellets to power the plant, which, according to Drax, produces up to 80% less CO2. As a result of this switch, Drax has benefitted significantly from green subsidies issued by the government under the renewables obligation scheme.

In 2023, Ofgem opened an investigation into Drax to determine whether it was in breach of its annual profiling reporting requirements relating to the renewables obligation scheme and other related matters. Ofgem's investigation and subsequent report found that 'there was an absence of adequate data governance and controls in place', which had resulted in Drax misreporting data and being unable to provide Ofgem with sufficient evidence to support its CP20 annual profiling submission. Drax has also been fined £25 million as a result of these findings.

This investigation and decision are significant for two reasons. Firstly, Ofgem made it clear in its report that it 'found no evidence to suggest deliberate misreporting' by Drax. The basis of the fine has come about as a result of poor record keeping, as opposed to any deliberate wrong-doing or sharp practice. This is something that has been acknowledged by Drax: the company admitted that it has ‘weak procedures, controls and governance which resulted in inaccurate reporting of data’.

Secondly, Ofgem has historically not targeted companies seen as more sustainable, instead focusing on the so-called ‘big polluters’. It may be that Ofgem's attention shifted to Drax as a result of claims by activist groups that Drax's sustainability claims could not be supported, prompting several MPs to question Drax's receipt of such large government subsidies.

Whatever the reason for the investigation, this decision sends a warning signal to the UK’s energy industry that the regulator will not accept poor record keeping as an excuse. Attention must therefore be paid by anyone with reporting obligations to ensure that adequate records are generated and maintained.

As to the future, the Drax decision may well mark a shift in Ofgem's approach to investigating businesses. Record keeping is of great importance, and those that were historically seen as under less scrutiny may start feeling the eyes of the regulator shift onto them.