A Powerful Weapon Against Greenwashing

When we speak with Clients at Deception And Truth Analysis (D.A.T.A.), one of the frequent topics of conversation is whether or not our technology can provide assistance in the fight against greenwashing. In short, the answer is: of course!

To demonstrate this let’s consider the following real life case study of one of our Clients – Responsible Alpha – looking to better understand New Fortress Energy (ticker: NFE). NFE are considered darlings in the ESG space. Yet, a deeper dive indicated that there were things NFE were being deceptive about. Thus, Deception And Truth Analysis is a powerful weapon against greenwashing.

NFE was founded in 2014 by Wes Edens, one of the founders of Fortress Investments in 1998. On NFE’s website under the About section they tell you immediately that they are ‘Powered by positive energy’ and that their vision and mission is:

“We want to light the world. Billions of people around the planet lack access to affordable power. Electricity should not be a luxury good.

“As a liquefied natural gas (LNG) company, our mission is to provide capital, expertise and vision to address this problem while also making positive and meaningful impacts on communities and the environment.”

It further goes on to say:

“…access to affordable, reliable, cleaner energy is not a privilege, but a human right…Creating that access – in an environmentally responsible way – is our fundamental mission.”

For a company that transports liquid natural gas from one location to another around the world – a non-sustainable activity – to have such high aspirations is noteworthy. But is the above flowery language supported by their record?

As one possible input, Sustainalytics ranks NFE in the top thirty percent of NFE’s ‘Construction & Engineering’ peer group, or 99 out of 339. In the entirety of the coverage universe NFE rank as 11,960 out of 15,101, or in the bottom 79% of companies. In other words, NFE is likely considered by Sustainalytics as a relatively clean shirt in a dirty industry.

A review of Sustainalytics analysis though shows that the primary driver of their ranking is their opinion of the industry in which NFE operates, rather than the specifics of the company itself. In other words, their analysis is more general than specific, more systematic than un-systematic.

DATA’s Client, Responsible Alpha, are globally scaled consultants in the Environment, Social and Governance (ESG) space. Among their multiple business lines, they are frequently hired by their clients to investigate greenwashing at companies. Their approach is very similar to a private investigations team and, in fact, they were hired to investigate NFE because of suspicions that NFE might be greenwashing.

Assisting Responsible Alpha in its investigation of NFE was quite easy using two of our off-the-shelf products, DATAbase, and DATAREDline. DATAbase is a dataset pre-scored for deceptiveness and truthfulness of almost every publicly traded US equity dating back to 2008. Simply opening DATAbase shows the following time series history of our DATA Score for NFE:

DATA Scores range between -100% and +100% with any negative score meaning a document is deceptive, in the aggregate, and any positive score indicating that a document is truthful, in the aggregate. So, how does NFE score?

As you can see above, since going public in 2019 NFE’s documents have always scored as truthful, in the aggregate. At the time of our engagement with Responsible Alpha, NFE had just issued its second quarter 10(q) on 4 August 2022. That document scored as +17.39% and is in the 91.91% percentile of all truthful documents in DATAbase historically.

At a high level it would be easy to conclude that NFE is not engaged in greenwashing given its consistently high DATA Score. But it’s not all rainbows and unicorns because 42.62% of the document’s fragments scored as deceptive. In other words, in the aggregate NFE is truthful in its regulatory documents, but it does deceive about some things. What are those?

Our premium product, DATAREDline allowed Responsible Alpha to immediately drill down to the key issues worth investigating further at NFE. Specifically, they asked us how to use DATAREDline and we reported back to look first at the most deceptive fragments and any consistent run of deceptive fragments. Here is what NFE’s second quarter 2022 10(q) looks like in DATAREDline:

As you can see, the highlighted fragment in the REDline view (see right side pane, above) is NFE’s most deceptive. Additionally, the left side shows the underlying language associated with this fragment. Specifically, the first half of the 10(q) fragment says:

“In addition to administrative services, an affiliate of Fortress owns and leases an aircraft chartered by the Company for business purposes in the course of operations. The Company incurred, at aircraft operator market rates, charter costs of $ 1,125 and $ 1,340 for the three months ended June 30, 2022 and 2021, respectively, and $ 2,147 and $ 2,949 for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022 and December 31, 2021, $ 1,248 and $ 944 was due to this affiliate, respectively.
 

“The Company has leased land from Florida East Coast Industries, LLC ( FECI ), which is controlled by funds managed by an affiliate of Fortress. The Company recognized expense related to the land lease of $ 103 and $ 103 during the three months ended June 30, 2022 and 2021, respectively, and $ 206 and $ 229 during the six months ended June 30, 2022 and 2021, respectively, which was included within Operations and maintenance in the condensed consolidated statements of operations and comprehensive income (loss).As of June 30, 2022 and December 31, 2021, the Company has recorded a lease liability of $ 3,329 and $ 3,314 , respectively, within Non-current lease liabilities on the condensed consolidated balance sheet.”

Upon seeing the language associated with this most deceptive fragment Responsible Alpha stated that their work had uncovered something strange about NFE’s relationship with Florida East Coast Industries. However, it had taken them weeks to uncover this key issue; something that was revealed by DATAREDline in just three clicks.

What was it that Responsible Alpha had uncovered? It was an article published by an organization called FloridaBulldog.org on 17 September 2020 entitled, “Fortress forgave huge Trump loan, got federal permits to transport LNG by rail.” Here was their scoop:

1. In 2005 Fortress Investment Group loaned $130 million to Donald Trump’s Trump Organization, via its subsidiary, Fortress Credit to help finance the construction of the Trump International Hotel and Tower Chicago.
2. The Trump Organization was in danger of defaulting on the loan in 2012 and Fortress Investment forgave all but $48 million of the approximately $150 million owed (principal + interest). This should have been a taxable event.
3. Once in office, the Trump administration awarded two special permits to transport LNG along Florida’s east coast to Doral’s Energy Transport Solutions, owned by NFE. 
4. The permit allows Florida East Coast Railway, a subsidiary previously owned by Fortress Investments, to ship LNG.
5. These permits allowed the company to transport LNG much further than was typical under such permits. Previously, it was considered too dangerous to transport LNG by rail over such long distances.

First, the transactions described above involving subsidiaries are not arms-length transactions and raise issues surrounding governance at NFE. Second, it is hard not to infer an implied quid pro quo in the above sequence. Both of these raise questions about NFE and its overall ESG record, especially as it relates to the ‘G’ in ESG: governance.

Deception And Truth Analysis is a powerful weapon against greenwashing because of its ability to accurately and rapidly surface issues that companies are being deceptive about. In the case of NFE and its ESG record, DATAREDline was able to demonstrate in three short clicks to anyone armed with its insights, the key issues that needed additional due-diligence attention.