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October 07, 2003
Social Investors Recommend Best Practice for Coalbed Methane Extraction
    by William Baue

A shareowner action campaign proactively asks companies to practice environmental and social responsibility in extracting coalbed methane.

Shareowner action often addresses corporate social and environmental practices that have proven problematic and are in need of redress. As socially responsible investment (SRI) matures, however, shareowner action increasingly addresses issues proactively.

For example, a current campaign by a consortium of institutional investors representing over $14 billion in assets addresses the environmental and social impacts of coalbed methane (CBM) extraction in the Rocky Mountain states. CBM, a form of natural gas, is extracted from coal layers by forcing it to the surface, a process that scars the earth with drilling, drains groundwater, and displaces wildlife. Landowners and affected communities often are deprived any right to consent on CBM operations.

The investors wrote a letter to the Independent Petroleum Association of America (IPAA), the industry organization, making five recommendations for best practice in CBM extraction.

“As investors, we believe that potential environmental liabilities and cleanup costs should be addressed early on in the process to reduce long-term financial risks, and we’ve proposed best practices to do that,” said Lily Donge of the Calvert Group, one of the investors conducting the shareowner action.

The October 2 letter, addressed to IPAA chair Diemer True, acknowledged the environmental benefits of natural gas, which generates fewer emissions compared to other fossil fuels. For this reason, many SRI funds hold companies with natural gas operations.

However, the letter also cautioned against potential environmental and social problems with this new form of natural gas extraction, and made suggestions of ways to mitigate these problems. Specifically, the shareowner letter recommends the following: obtain surface owner consent; use best available technologies; inventory and protect wildlife; represent affected communities in decisions; and bond projects sufficiently to reclaim all disturbed areas.

“We feel that the best practices we’ve outlined represent a win-win situation for both the gas industry and the people who live in areas impacted by coalbed methane development,” said Steve Lippman, senior research analyst with Trillium Asset Management, another investor involved in the shareowner action.

IPAA spokesperson Michelle McCaughey did not respond to requests for commentary.

Other investors involved in the action, including Boston Common Asset Management, Catholic Healthcare West, and U.S. Bancorp Piper Jaffray, will encourage individual companies in their portfolios to adopt the recommended best practices. Companies involved in CBM extraction include Anadarko (ticker: APC), Devon (DVN), El Paso (EP), and Marathon (MRO), among others.

To give a sense of the environmental impact of CBM extraction, the shareowner activists cite the following statistic.

“[A]ccording the U.S. Bureau of Land Management, current plans for coalbed methane extraction in Wyoming alone would result in the pumping and discharge of 700 million gallons of potentially contaminated groundwater per day, posing threats to both underground aquifers and local streams and rivers,” the letter states.

The water, besides being displaced, can wreak havoc on vegetation that livestock graze on due to its elevated salination.

“We believe that responsible development of coalbed methane resources in ways that are sensitive to the environment and community concerns are in the best long-term interests of our country, natural gas companies, and their shareholders,” the letter states.


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