November 2019
This month’s contributors are: Andy Agathangelou
John J. De Goey
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Page 12
Transparency Task Force
Wellington Altus Private Wealth
Sebastian Elwell
Almuth Ernsting
Switchfoot Teams
Biofuelwatch
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Page 22
Get in touch if you wish to place an article! Edition #43 November 2019
The official publication of The Transparency Task Force. FREE to members of the Transparency Task Force, membership of which is also FREE
3 Andy Agathangelou: The Transparency Task Force Fellowship Initiative; another important step forward 6 Locations for Symposia 8 Upcoming Events 12 John J. De Goey: Misinformed Consent 16 Transparency Trophy Winners 18 Sebastian Elwell: Why LPAS leave vulnerable people open to scams 21 Find out more about our Ambassadors, Special Interest Groups and Advisory Board 22 Almuth Ernstring: Why investing in wood-based bioenergy is neither green nor safe 23 Get Involved!
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TTF COMMENT:
The Transparency Task Force Fellowship Initiative; another important step forward Our Fellowship initiative is for people that authentically align with what the Transparency Task Force is all about, are engaged with what we do and want to help financially, in line with whatever is financially comfortable for them personally. Whether all of that includes you or not we’d really appreciate your feedback on this initiative because this is a very important step forward for us and there’s still time to fine-tune our thinking. Before explaining further I’d like to take this opportunity to thank everybody that provided us with ideas on funding earlier in the Summer; our thinking for the Fellowship has evolved with those ideas in mind. TTF Fellowship isn’t for everybody; all of the following criteria need to be met: 1. The individual must belong to at least one of our Special Interest Groups. 2. The individual has provided a Transparency Statement that we have placed on our website. This is where we have been given a statement that begins with the words “I believe there ought
to be greater levels of transparency in financial services, because……...” and is completed however the individual chooses. We already have many Transparency Statements provided and I think some of them are particularly good. You can see for yourself here. 3. The individual has provided a note of introduction and explanation; which we will place on the TTF Fellowship web page of the new TTF website. The new website is under construction, see here: www.ttf.prodigy-it-solutions.com username: afrL%64ed password: ShfRRy&8r4_34 ) Huge thanks to Iwein Borm https://www.linkedin.com/ in/iwein-borm/ for making the new website possible. The note of introduction and explanation is to be limited to 200 words and is to include: ◊ An introduction to who the individual is and what they/their organisation does* ◊ An brief explanation of why they decided to become a Fellow of the Transparency Task Force ◊ A link to their online bio
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matic process. For our Fellows, we will: 1. Authorise use of the title Founding Fellow of the Transparency Task Force if the application process is completed by January 10th 2020. Thereafter, we will authorise use of the title Fellow of the Transparency Task Force; if they wish 2. Authorise use of the letters FFTTF for Founding Fellows and FTTF to be put after their name, to show they are part of the Fellowship; if they wish 3. Authorise use of the new TTF shield logo on websites, Email Signatures, marketing collateral and so on; if they wish. We are using the shape of a shield because the TTF is all about protecting con-
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is to be a 25% discount against the Standard Ticket Price. 7. Organise Fellows-only events, initiatives and opportunities from time to time As explained earlier, all payments, however large or small will be very gratefully received. There is no contractual period i.e. the individual can choose to discontinue payment and thereby discontinue being a Fellow at any time. We do hope that many of our members will choose to support us in this way, especially as whilst we have a Standard Payment of £40 per month, we have taken the bold step of setting no minimum amount whatsoever, in the hope that we can create as inclusive
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OTH E R U P CO M 2019 THE PERILS OF PENSION SCAMS Tuesday 3rd December Hosted by Mayer-Brown
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ARTICLE:
MISINFORMED CONS
by John J. De Goey cfm, cim, fellow fpsc | Portfolio Manag
There are some phrases that are used in all mann ly understood with a wry smile, but seldom conte leading to some sort of metaphysical mega-truth. One of my favourites is: “It ain’t what you don’t know that gets you into trouble, it’s what you know for sure that just ain’t so.” That little observation about the human condition has been mis-attributed to several humourists, including Mark Twain. The truth is that no one knows for sure who said it first. That’s especially ironic because there are lots of people out there who purport to know very well who said it, thereby demonstrating just how universal and applicable the phrase is. There’s a second quip that I like almost as much. Given that it is more serious, I suspect fewer people have heard it. It is this: “no reasonable person would consent to being given bad advice.” In the world of personal finance, so much of what is covered by industry regulation revolves around the notion of informed consent. The problem here
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is that investor acquiescence is seen as a proxy for proper disclosure and conduct. Now, let’s combine the two concepts to see where that takes us. How should we react to a situation where there are people who give advice
MISINFORMED
based on concepts that they believe to be true, but are, in fact, not true? What happens when good intentions give way to bad advice? If I give you advice based on misinformation and you accept and act on that advice, does that constitute “informed consent”? I am a lifelong proponent of informed consent, but I also
believe that there should be a recognition of a necessary premise. That premise is that the options under consideration should be presented fairly and accurately. I consulted Wikipedia for a readily-accessible definition and here’s what I found: permission granted in the knowledge of the possible consequences, typically that which is given by a patient to a doctor for treatment with full knowledge of the possible risks and benefits. The writeup after the definition goes on to say that: an informed consent can be said to have been given based upon a clear appreciation and understanding of the facts, implications, and consequences of an action. People who know me would also know that I have long yearned for financial advisors to be thought of (and held to the same standards) as doctors, dentists, lawyers and accountants. Given the definition, there are a few questions that might follow:
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SENT
ger | Wellington Altus Private Wealth
ner of contexts that are wideemplated with the serious effort . • If people don’t really understand their options, can informed consent ever truly be provided? • If the people providing options don’t properly understand the salient details of what they are recommending (i.e., if they are unwittingly giving bad advice), does the acceptance of that advice constitute “informed consent”? Wouldn’t the term “misinformed consent” be more appropriate? Stated differently, is informed consent even possible if the options being forwarded for consideration are incomplete, inappropriate or downright incorrect? Sure, you might consent. You might have been ‘informed’ about your options from someone who has good intentions (i.e., who is not trying to mislead you). However, if the person making the recommendations is misinformed and is making the recommendations based on misguided beliefs, we have a moral dilemma. If the intentions are good, but the advice is nonetheless bad, how do we characterize the acceptance and implemen-
tation of that advice? Would your opinion change if the person giving the unwittingly bad advice refused to change the advice once the error in her ways was pointed out to her? *** In May, I released my book STANDUP to the Financial Services Industry. What you’ve read so far constitutes a summary of the problem it explores. In late 2016, an academic paper entitled The Misguided Beliefs of Financial Advisors was released that showed beyond any reasonable doubt that advisors believe certain things that are untrue. The question most people will ask themselves is: “how could this be?”. The question most people should be asking themselves, however, is: “what should I do about it?”. Irrespective of why advisors believe things that they shouldn’t, the most pressing challenge is to find specific, actionable ways to overcome the associated risks. You should be terrified. Imagine if you went into a doc-
John J. De Goey, CFP, CIM, FELLOW OF FPSC™ is a Portfolio Manager with Wellington Altus Private Wealth in Toronto. He enjoys a national reputation as an authority on professional, transparent and evidence-based financial advice. A frequent commentator on financial matters, he has written for a number of media sources including Advisor’s Edge Report, Canadian MoneySaver, MoneySense, The Globe and Mail and The National Post. He has also made numerous appearances on a variety of television programs, including CBC’s Marketplace, News World and The National, BNN’s Market Call, and CTV’s Canada AM. In 2003, John released his groundbreaking book, The Professional Financial Advisor, which was subsequently updated in 2006, 2012 and 2016. His book “STANDUP to the Financial Services Industry” was released in 2019. John is a recipient of the National Multi-Media Award conferred by the Canadian Association of Financial Planners; is the Past President of the CAFP’s Toronto Chapter; and is one of only 70 Canadians to be recognized as a FELLOW OF FPSC™ for his contribution to the advancement of financial planning in Canada. In both 2014 and 2015, Wealth Professional Magazine named him one of the Top 50 Advisors in Canada. In 2017, John received the coveted Donald J. Johnston Award for Lifetime Contribution to financial planning in Canada from the Financial Planning Standards Council. John has spoken at numerous conferences throughout Canada as well as in Ireland, the United States, and the Caribbean and has lectured on behalf of the Canadian Securities Institute. You can follow him on Twitter at: @ STANDUP_Today
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tor’s office and told him you were a pack-a-day cigarette smoker and he just kept on talking as though you had told him you were an Ottawa Senators fan. If the information was interpreted as being essentially irrelevant (despite being highly unfortunate), you’d be well within your rights to be concerned. We’re now at the point where it is pretty much impossible to imagine a doctor (or anyone else, for that matter) being oblivious to the harmful impact of cigarette smoke. The same cannot be said regarding the investing public, or even financial advisors, regarding mutual funds these days. It seems many advisors do not have a clear appreciation and understanding of the facts, implications and consequences of their recommendations. Specifically, the paper showed that advisors, while well-intended, frequently chase past performance, pay insufficient attention to product cost and are prone to recommend concentrated positions. Regulators have been told about this problem repeatedly and have done absolutely nothing about it. Far too many advisors believe things that simply are not true, yet no one seems inclined to do anything to disabuse them of their unsubstantiated viewpoints. By way of illustration, I’d like to draw on passages from the transcript for the roundtable discussion associated with comments on paper 81-401 regarding mutual fund fees held on Friday, June 7,
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2013 at the Ontario Securities Commission office. I was delighted to be asked to serve as one of the presenters that day. One of the other presenters for the panel I was on was Peter Intraligi, the CEO of
Invesco. Mr. Intraligi spoke in favour of maintaining embedded compensation structures. In fact, his comments included the passage: “while we acknowledge that compensation can play a minor role in the advice channel, the fact is the main driver of flows is a fund's performance and its ability to preserve capital.” This still strikes me as an acknowledgement that recommendations are made based
on past performance, even though there have been about a dozen studies that have shown conclusively that past performance does not persist and should not be relied upon when choosing investment products. Indeed, every prospectus under the sun has carried a disclaimer to that effect for the past quarter century. Mr. Intraligi went on to say that: “since the market downturn in 2008, new money flows shifted sharply towards funds with 4- and 5-star Morningstar ratings, which represent less than 20 percent of all funds in Canada. Yet, this limited number of funds accounts for 100 percent of the industry's net flows each of the past five years. Clearly, assets migrate to products with a demonstrated long-term track record of exceptional performance, as they should.” I was gobsmacked. Beside the fact that he did nothing to explain what he meant by “long-term” (I’ve seen mutual fund rating books referencing the term and applying it to timeframes as short as three years), the presumptuousness was astonishing. If someone said choosing investment products based on the reading of their tea leaves was acting “as they should”, surely regulators would have questioned the speaker. Nonetheless, there is no evidence that past
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performance is any more reliable than tea leaves regarding product selection. No one questioned him. When my turn came, I referenced one of the giants in modern finance, Nobel laureate and professor Bill Sharpe of Stanford University. I used a quote from Mr. Sharpe, who said that: "extensive, undeniable data show that identifying in advance any one particular investment manager who will, after costs, taxes and fees, achieve the Holy Grail of beating the market is highly improbable." The problem is simple: many (most?) advisors believe things that are simply not true. Meanwhile, we have corporate leaders making submissions to regulators by telling bald-faced lies and positioning them as matters of fact without being challenged by the regulators. The problem is that no one (including the regulators themselves, it seems) recognizes that they’re lying in the first place. As a result, the misinformation persists indefinitely and no amount of traditional regulatory reform will get us any closer to a sensible world where advisors make recommendations based on evidence instead of wives’ tales. The abstract to the misguided beliefs paper concluded with the ominous warning that: “policies aimed at resolving conflicts of interest between advisors and clients do not address this problem.” The solution, I believe, does not come from improved disclosure or the elimination of embedded compensation or better investor education.
None of those things will cause advisors to think differently. Because of that, none of those things will cause advisors to make more appropriate product recommendations to their clients. For nearly a generation, I’ve been trying to get advisors to recognize their own biases and to make recommendations based on evidence. The crickets are chirping louder than ever. If regulators cannot compel advisors to think and act differently and no amount of logic can persuade advisors to think and act differently, it may very well be up to investors to lead the revolution. My experience is that advisors have been defiant in the face of evidence that refutes so many of their presumptive value propositions and product recommendations. These same advisors unapologetically make recommendations that have little or no basis in fact while simultaneously insisting that they are looking out for their clients’ best interests. STANDUP to the Financial Services Industry arms investors with facts. It explains what advisors believe and how they think, but more importantly, it also offers dozens of specific questions to help readers determine just how blinkered their advisor might be – along with the sourced material “answers” from some of the world’s leading financial economists and research houses that emphatically refute the answers that many advisors are likely to give. Those resources (research papers, real time performance
data, etc.) are also available on my website: www.standup. today. This is NOT a conflict of interest problem. This is a situation where advisors believe things that are not reliable and make recommendations to unsuspecting investors based on those unreliable (read: misguided) beliefs. In other words, this is a behaviour problem. To date, advisors have stubbornly resisted evidence because they seem to prefer happy lies over inconvenient truths. The sincerest apology is changed behaviour. If your advisor is unwittingly giving you bad advice yet will not acknowledge as much even after you demonstrate that to be the case, then it’s time to switch advisors. John J. De Goey, CIM, CFP, FELLOW OF FPSC™ is a registrant with Wellington-Altus Private Wealth Inc. (WAPW). WAPW is a member of the Canadian Investor Protection Fund (CIPF) and the Investment Industry Regulatory Organization of Canada (IIROC). The opinions expressed herein are those of the author alone and do not necessarily reflect those of WAPW, CIPF or IIROC. Investors should seek professional financial advice regarding the appropriateness of investing in any investment strategy or security and no financial decisions should be made solely on the basis of the information and opinions contained herein. The information and opinions contained herein are subject to change without notice.
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RECENT W London 5th November
Richard Emery, Bank Fraud Consultant, 4Keys International
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WINNERS: London 14th November
David Knox, Senior Partner Mercer Edition #43 | November 2019 | www.transparencytaskforce.org | The Transparency Times
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ARTICLE:
WHY LPAS LEAVE VULNERABLE PEOP
by Sebastian Elwell FPFS | Director | Switchfoot Tea
Everyone has heard about financial scams involving vu scams, letters, emails or direct person-to-person fraud willing to take advantage of others for financial gain. As an independent financial adviser, my job is to advise people on the best way to organise, invest and protect their finances – and this includes not just from random scams, but from the nearest and dearest. It’s not a fun subject. Nobody wants to think that close family members would steal from them, particularly at a time when they might be at their most vulnerable, but case law shows that it happens all the time, and so part of the role of any professional advising a client on their personal finances or protection needs to be aware of the potential problems and be able to offer some type of control or mitigation. The danger of an unsupervised Property and Affairs Lasting Power of Attorney There’s no doubt that it’s important to have a Lasting Power of Attorney (LPA) that covers what happens to finances in the case of the individual losing capacity to make their own decisions. In an idea world, the best way to ensure that those named as attorneys are conducting themselves appropriately is to
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set up a robust safeguarding strategy with a mechanism that offers full financial transparency with the best interests of the individual at heart. Lasting powers of Attorney have some safeguards built into their design. Before they can be used, they must be registered with the Office of the Public Guardian. A certificate provider must sign to say they believe the donor has capacity to create an LPA and the attorneys have legal responsibilites to the donor and sign to say they have read the the Mental Capacity Act code of conduct. In theory, the use of the LPA is supervised by Office of the Public Guardian which will investigate any concerns raised and has powers to refer the arrangement to the Court of Protection. In practice, once an LPA is up and running there is very little oversight or control unless concerns are raised. The legal profession has an important role in protecting vulnerable clients from scams and fraud, whether they are acting as professional attorneys, professional Court of Protection deputies, or sup-
porting and advising lay-attorneys and lay-deputies and in the advice drafting LPAs. In an ideal scenario, LPAs are made with the benefit of clear forethought and professional advice. This means choosing attorneys that are trusted to run affairs transparently and accountably and, increasingly, ensuring that a supervision clause is in place so that there is oversight of attorneys once they are in charge. At present, many LPAs – even if professionally drafted – do not include protective clauses in LPA documents. Organisations such as Solicitors for the Elderly, the Society of Trust and Estate Practitioners and Action on Elder abuse are encouraging and training professionals on this matter. Case study: Why is a supervision clause important? John Smith has a fairly complex estate and has recently had a meeting with his financial adviser, who has asked whether he has a Lasting Power of Attorney (LPA). This isn’t the first time his financial adviser has asked the question and so he chooses a
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PLE OPEN TO SCAMS
ams
ulnerable people. Whether phone d, there is sadly no shortage of people local law firm, and asks them to draft his LPA. John is nervous because he’s heard that attorneys can take advantage of their powers – particularly over finances – and he wants to make sure that couldn’t happen in his case. He is concerned about losing control of his finances, and about how to make sure his attorneys follow his wishes when they make decisions. John’s solicitor talks him through the supervision and safeguarding clauses that could be included in his LPA. They discuss the skills and approach that someone in a
safeguarding or supervision role would need, and the responsibilities they would have. They also talk about who John might want to appoint as an attorney, and whether they are willing and able to make that commitment. What should we be worried about? There’s always concern around handing control of finances to a third party. That’s why most LPAs have more than one attorney, and why many people choose to appoint a professional such as a solicitor or accountant as one
Sebastian specialises in providing joined-up advice across the professions. As an Independent Chartered Financial Planner, a Fellow of the Personal Finance Society, Associate member of STEP and a member of SIFA he has worked with accountancy and legal professions to advise vulnerable clients for 15 years. More recently Sebastian is the co-founder of Switchfoot Teams, providing real-time financial and accounting information to attorneys and Court of Protection appointed deputies.
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of their attorneys. There’s no guarantee, however, that the professional is trustworthy, or that they will carry out their duties to the expected standards. Attorneys have access to all finances – from current accounts and investments to pensions and property. For advisers working closely with vulnerable clients, there are several issues to consider: • Vulnerable clients may have declining mental capacity, making them potentially difficult to advise, and unable to make fully-informed decisions. • Vulnerable clients are more likely to suffer social isolation and loneliness, making them more likely to fall for scams. • Vulnerable clients may be physically or emotionally reliant on their financial abusers. • Scammers can repeat-target victims or sell their details onto so-called ‘sucker lists’. Lasting Powers of Attorney are easy to abuse unless a supervision clause is added and used appropriately. As pensions are usually the most valuable asset and can provide much-needed funds for care and support, it’s particularly important that they are protected. Current pension freedoms, where you no longer need to buy an annuity, means that individuals tend to stay in drawdown for longer, with the consequent potential for financial abuse. In particular, the whole of the pension may be at risk, leaving the
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individual with no income at all for future care – a fact of which sophisticated scammers are all too aware. One of my greatest concerns at present, is that professional advisers are unaware of the potential consequences of pension freedoms which, whilst flexible for those who are in control of their own finances, will turbo-charge financial abuse, with a knockon impact for the reputation of the financial services industry. Therefore, it’s vital that the industry – alongside other professional advisers like solicitors and accountants looks for robust and secure technology solutions that help protect vulnerable individuals and hold attorneys to account. Is there a solution that protects vulnerable people? Advances in open banking technology are helping to improve the transparency of attorney activity, making it easier to spot any anomalies and to prove financial abuse if necessary. Real-time financial transparency, using financial aggregation and accounting software, can help to protect vulnerable clients, and gather compelling evidence quickly and easily for passing to investigators if a scam does happen. The latest development is the introduction of Switchfoot Teams, easy-to-use open banking software that allows complete financial transparency, giving access to attorneys, executors and professional advisers so all can see that accounts are in order.
The advantages of open banking software for LPAs • Open banking is powering software that allows ‘financial aggregation’ – in recent years only available to individuals, it is now coming to the legal market for use with vulnerable clients. • The Switchfoot Teams Financial Transparency Service uses automation and AI to make sense of the data provided by open banking to produce a set of accounts. Budgets can be set for what is normal financial behaviour for any given individual, setting an expectation against which any unusual activity can be measured. • Financial aggregation can take live data feeds from banks, building societies, investment and pension providers and lenders. • Financial information can be easily reviewed and Actual vs. Budget data compared to highlight unusual activity so that protective measures can be put in place. • Financial aggregation happens in (or close to) real time, so the potential to take early action is improved. Unusual activity could include account transfers, unexpected investment transactions, unusual spending, changes to income or expenditure. For more information about the Switchfoot Teams Financial Transparency Service please visit www.switchfootteams.co.uk where you can request a demo.
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ARTICLE:
WHY INVESTING IN WOOD-BASED BIOEN NOR SAFE
by Almuth Ernsting | Researcher and Campaigner | B
In 2018, global investment in ‘clean energy’ toppe secutive year, with renewables accounting for the As the global campaign for fossil fuel divestment grows, so does the pressure on investors to shift from oil, gas and coal to low-carbon renewable energy – a shift urgently needed if we are to have any hope of avoiding the worst impacts on climate change. The majority of renewable energy investment worldwide goes to wind and solar power projects. According to Bloomberg New Finance, $6.3 billion were invested in electricity and heat from biomass and waste last year. It is likely that most of that went to burning wood for energy. Wind and solar power, with few exceptions2, offer some of the lowest life-cycle greenhouse gas emissions of all types of energy. Unfortunately, the same is far from true for biomass energy from wood, which is neither clean nor climate friendly. For investors, choosing wood-based bioenergy over wind and solar energy incurs reputational risks and – as a recent briefing published by environmental NGOs illustrates – regulatory and
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financial risks, too. Most of the financial risks stem from intrinsically the high cost of biomass energy – higher than that of onshore wind and solar PV, and soon expected to be higher than that of offshore wind and concentrated solar power, too. Those high costs translate into reliance of subsidies, which in turn depend on policymakers’ decisions that are subject to change. Other financial risks stem from specific health and safety risks and from a high rate of technical failure associated with some forms of bioenergy. Large-scale wood-based bioenergy is neither clean nor low-carbon: Yet, as a growing number of studies show, the climate impacts of burning wood for energy are frequently no better than those that result from burning fossil fuels. The upfront CO2 emissions from biomass energy are at best the same but usually higher than those from coal, per unit of energy3. When trees are cut down and burned for energy, it usually takes decades for new trees to grow and absorb the carbon emitted again – and even longer for forests
to recover all the carbon lost during logging, including soil carbon. Large-scale energy from wood requires more extensive and/or intensive logging of forests and, often, more land conversion to monoculture tree plantations. When forests are converted to tree plantations, carbon is lost to the atmosphere forever. Awareness of the impacts of bioenergy from wood has grown steeply in recent years. In early 2018, 800 scientists signed an Open Letter to the EU Parliament, highlighting that “Even if forests are allowed to regrow, using wood deliberately harvested for burning will increase carbon in the atmosphere and warming for decades to centuries – as many studies have shown – even when wood replaces coal, oil or natural gas. The reasons are fundamental and occur regardless of whether forest management is ‘sustainable.’” A few months later, a peer-reviewed study was published which showed that even burning genuine forest residues as opposed to roundwood for energy is incompatible with the aim of
The Transparency Times | www.transparencytaskforce.org | November 2019 | Edition #43
NERGY IS NEITHER GREEN
Biofuelwatch
ed $300 billion for the fifth cone bulk of those investments . 1
keeping global warming to 1.5 degrees4. Far more logging and conversion of forests to tree plantations are inevitable if we are to supply the vast quantities of wood needed to replace even a small fraction of fossil fuels. That will only further accelerate the decline in biodiversity and species extinctions worldwide, which have most recently been exposed in a 1,800 page UN report5. Furthermore, burning wood emits a cocktail of air pollut-
ants comparable to those released from burning coal6, thus contributing to diseases and premature deaths. The scale of the impacts of wood-based bioenergy are exemplified by Drax power station in Yorkshire, UK, which burns more wood than any other plant in the world, as well as continuing to burn coal. Last year, Drax burned pellets made from more than 14 million tonnes of wood – 3 million tonnes more than the total amount of wood the UK
“Almuth Ernsting helped to found Biofuelwatch in 2006. Since then, she has been researching and raising awareness of the impacts of different forms of large-scale bioenergy, including wood-based bioenergy and liquid biofuels. She has written numerous articles and contributions to reports, including about new bioenergy technologies, such as cellulosic biofuels and Bioeenrgy with Carbon Capture and Storage. Almuth lives in Edinburgh.”
Edition #43 | November 2019 | www.transparencytaskforce.org | The Transparency Times
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produced that year7. Yet the sum total of Drax’s bioenergy supplies less than 0.8% of the UK’s annual energy demand. 62% of the pellets Drax burned in 2018 came from the southern US, including from the clearcutting of carbon-rich coastal wetland forests which lie at the heart of a Global Biodiversity Hotspot. For investors, putting money into wood-based bioenergy thus involves serious reputational risks. Multiple risks of investing in wood-based bioenergy: The different risks of investing in wood-burning plants for electricity and/or heat are described in a briefing recently published by the Environmental Paper Network (an alliance of over 140 non-profit organisations), the Global Forest Coalition (a coalition of 99 NGOs and Indigenous Peoples Organisations) and Biofuelwatch8. Many of the risks stem from the basic fact that woodbased bioenergy – especially for electricity generation – is very expensive. Worldwide, a unit of biomass electricity costs more to produce than a unit generated from onshore wind or solar PV. Offshore wind and concentrated solar power are forecast to soon be significantly cheaper, too. Whereas the cost of wind and solar power keeps falling, bioenergy prices depend heavily on the price of wood, which is likely to go up in tandem with demand. This makes large-scale woodbased bioenergy dependent on subsidies. Yet even with subsidies in place, developers in many cases struggle
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to make any profit. In Rotterdam, Netherlands, for example, Uniper obtained 930 million Euros in subsidies for co-firing wood pellets in a coal power station in 2016. Yet in the same year, the book value of the plant was written down from 1.5 billion to 700 million Euros. Dependence on subsidies means that reputational risks can easily translate into financial risks. After all, policymakers can decide to reduce or remove subsidies and are more likely to do so in response to growing public criticism. Removal of subsidies could happen more quickly if a lawsuit lodged at the Court of Justice of the EU against the treatment of wood biomass as ‘carbon neutral’ under the new Renewable Energy Directive succeeds. The lawsuit has been brought by a group of NGOs and individuals from across Europe and from the southern USA9. In the EU, the Commission seeks to improve corporate disclosure of all climate-related information and has launched a sustainable finance action plan. This will make disclosure of all ESG risks of bioenergy more vital still. In the USA, civil society groups have filed a petition with the financial regulators, the Securities and Exchange Commission, demanding more transparent rules for reporting on biomass carbon emissions. Finally, there are significant health and safety risks that are unique to woodchips and pellets as opposed to other fuel sources. The risk of explosions and fires is even greater than for coal power
plants (which of course is not an argument for burning coal instead). Newer, more ‘advanced’ biomass technologies, such as gasification, have been plagued by more frequent technical failures. Conclusion: The climate crisis requires investors to move finance out of fossil fuels and into genuinely low carbon renewables. Wood-based bioenergy, however, is not part of the solution. Large-scale wood burning worsens ghg emissions, is polluting, expensive and risky. Wind and solar power, on the other hand, have some of the lowest life-cycle greenhouse gas emissions, generate energy without causing air pollution, and are cheaper and safer investments. 1 https://about.bnef.com/blog/clean-energy-investment-exceeded-300-billion-2018/ 2Exceptions would include wind developments causing damage to 3The difference is due to lower efficiency of biomass compared to coal plants, partly because wood contains more moisture which requires more of the plant’s energy to boil off. 4 https://iopscience.iop.org/article/10.1088/1748-9326/aaac88 5 https://www.ipbes.net/news/ipbes-global-assessment-summary-policymakers-pdf 6 See for example http://pfpi.net/air-pollution-2 7 For references about Drax, see https:// www.biofuelwatch.org.uk/wp-content/uploads/AxeDrax-briefing-2019.pdf 8 https://environmentalpaper.org/wp-content/ uploads/2019/04/Risky-Biomass-Business. pdf . This includes references for further information contained in this article. 9 leighday.co.uk/News/2019/March-2019/ Legal-challenge-to-biomass-regulations-issued-at-E
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The Transparency Times | www.transparencytaskforce.org | November 2019 | Edition #43