The EU voted last month to keep woody biomass included as a renewable energy, yet this industry has come at the cost of North American communities and ecosystems for over a decade. Are renewable energy goals really for the best when they come at such a cost? Our analysis this week serves as a great example of how lax government policy gives rise to greenwashing.

Sam Leavitt
October 5, 2022

ESG Spotlight: EVA and DRX.L Take Greenwashing to Alarming Heights

ESG Spotlight: EVA and DRX.L Take Greenwashing to Alarming Heights

At COP26 last year deforestation was a top priority, yet the EU voted to continue to recognize “woody biomass” last month as a renewable energy category. The EU is in a pinch, understandably when it comes to energy with winter approaching, but European energy independence has been subsidized by rural America for years. We look to our ESG Safeguard platform to analyze some of the major companies contributing to the harmful wood pellet craze. The EU aims to increase renewable energy use 45% by 2030, but is this a genuine goal when it is backed by deforestation?

Enviva (EVA) is one such company cashing in on the wood pellet boom. The company cuts down 60,000 acres of forest a year in North Carolina, where it has been operating for the past 18 years. This is just one of the many states where Enviva has operations. Furthermore, the negative sentiment consists of questions regarding the environmental value of cutting down trees for renewable energy and points out the pollution it causes in the communities where it operates. An MIT study concluded that wood burns dirtier than fossil fuels, and on average it takes 44 years for forests that are replanted after cutting to absorb carbon dioxide at the same levels. The company is currently not profitable although its revenues have been climbing.

Self-Reported Content

British energy company Drax (DRX.L) has also been accused of similar tactics in cutting down forests in Canada for wood pellet use. A BBC investigation uncovered the company stance that they don’t cut down forests to be misleading. They were dropped from the S&P clean energy index last year for this reason. Both companies have higher self-reported content (press releases and earnings calls), when compared to industry averages, and lower volumes of third-party news that report the negative side of the industry.

Enviva is a red flag on our ESG Platform in that 65% of the ESG content that is available for Enviva is produced by the company, including a white paper touting the benefits of expanding the wood pellet industry. This rate is significantly higher than the market wide average of 41% for self-reported content. Drax, similarly has 59% of ESG content generated as self-reported.

High proportions of self-reported content surrounding ESG is a signal of a concerted Greenwashing effort by companies like Enviva and Drax.

ESG Safeguard Platform: Self-Reported ESG Content Breakdown, Past 365 Days

Greenwashing and the Facts

Trees are our biggest ally against climate change, acting like the lungs of the planet to take in carbon and produce oxygen. They are biological marvels that do vital work for the human species everyday and we don’t even need to pay them. In addition to being a major carbon sink, native forests, especially in the American South where Enviva operates, help prevent flooding and soil erosion in the wake of major storms and hurricanes.

It is hard enough to crack down on deforestation in agricultural supply chains, but the brazen nature of the wood pellet industry to cut down forests in the name of helping the planet seems incomprehensible. The audacity to continue to subsidize this under the guise of climate action, with politicians as willing participants is the most dangerous form of Greenwashing. The pseudoscience behind such a use case should be clear, and if it is not, we would point to the fact that Enviva is not a profitable business and without subsidies they would likely not be where they are today.

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About Amenity

Amenity Analytics is the industry leader in providing insights from unstructured text by using Natural Language Processing (NLP) assisted by Artificial Intelligence (AI) and Machine Learning (ML). Amenity’s NLP system is a sector-agnostic, language-dependent tool for quantitative text analysis that is deployed across the financial services industry and beyond.

This communication does not represent investment advice. Transcript text provided by FACTSET and S&P Global Market Intelligence.

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