Greenwashing—when a company adopts slogans or policies to make itself look more environmentally responsible than it is—has been around as long as the environmental movement itself. The 2015 Paris agreement on climate change provided a handy greenwashing catchphrase by setting a global goal of zero net greenhouse gas emissions by 2050. Since then, more than one fossil fuel company has made headlines by pledging to achieve “net zero” emissions in the near future.
However, a recent report shows how international emissions guidelines may themselves enable what are often specious claims. The December 2020 report by the Institute for Energy Economics and Financial Analysis (IEEFA) documents how European companies that operate natural gas pipelines exploit loopholes in greenhouse gas reporting protocols to reduce a type of emissions resulting from “downstream” use of the gas they transport. This trick has allowed at least one company to claim that it will reduce its total emissions to zero by 2040, even though it has no intention to stop transporting natural gas, a greenhouse gas-emitting fossil fuel.
The Greenhouse Gas Reporting Protocol is a system for measuring emissions used in regulations and national standards, including that of CDP (formerly Carbon Disclosure Project), a nonprofit organization that helps investors, companies and countries manage their disclosure systems. These systems place emissions into three categories: Scope 1 emissions result directly from a company’s activities; Scope 2 result from energy purchased to fuel a company’s activities; and Scope 3 are indirect emissions that occur further down the supply chain from a company’s activities. Emissions from burning the gas carried in TSO pipelines would fall under Scope 3.
However, CDP and other reporting systems don’t require companies responsible for transport and storage of fossil fuels to report the emissions resulting from them as Scope 3 emissions. IEEFA estimated the amount of unreported Scope 3 emissions from five TSOs in 2019 and found they were not only at least 100 times greater than the companies’ total reported emissions but also equaled more than half of all gas-related emissions in Europe that year.
By using loopholes to reduce Reported Scope 3 emissions, these fossil fuel companies—known as transmission system operators (TSOs)—generate positive ratings on the Environmental, Social and Governance (ESG) metrics scale used by investors. That means the companies can attract funding that should be going to greener endeavors. Though many TSOs are at least partially owned by governments, they are eligible for funding from the European Union and other grant programs that encourage sustainability.
Aside from ESG ratings, failing to fully disclose a company’s contributions to climate change can potentially amount to fraud. In our July 2020 report on fraud in the fossil fuel industry, NWC found that fossil fuel companies’ disclosures on climate change risks frequently omit information that is highly material to shareholders and financial regulators, which are likely securities fraud violations.
In its report, IEEFA concludes that CDP and the GGRP should revise guidance to make companies that enable the use of fossil fuels accountable for its impacts. A full accounting of greenhouse gas emissions – including Scope 3 – is the only way the world is going to get to net zero anytime soon.