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March 29, 2011
Harrington Investments Divests Chesapeake Energy
    by Robert Kropp

The investment advisory firm says the natural gas drilling company's poor environmental and executive compensation performance are reasons for divestment.


Citing a lack of accountability to shareowners, Harrington Investments has announced that it will divest 56,025 shares of stock, valued at approximately $1.9 million, in Chesapeake Energy, a natural gas drilling company with extensive hydraulic fracturing operations in Pennsylvania.

In Pennsylvania, where the Marcellus Shale is estimated to contain as much as 490 trillion cubic feet of gas, "The Pennsylvania Environmental Protection Dept. has cited 47 well operators more than 900 times for environmental health and safety violations" in the past three years alone, according to a recent article in Bloomberg Businessweek.

"Chesapeake Appalachia, a unit of Chesapeake Energy, took the top spot with 109 violations," the article continued.

Hydraulic fracturing, or fracking, requires the injection under extreme pressure of as much as 7.5 million gallons of water per well, as well as toxic chemicals, to crack open rock and allow natural gas to flow to the surface. The practice, which despite environmental and health risks remains mostly unregulated at the federal level, has come under increased scrutiny by sustainable investors.

By January of this year, shareowner resolutions addressing hydraulic fracturing had already been filed with nine oil and gas companies, according to the Investor Network on Climate Risk (INCR).

Regarding the decision in favor of divestment, John Harrington, President of Harrington Investments, stated, "We have a fiduciary duty to our clients to invest in companies that show a strong commitment to the environment. Chesapeake obviously violates our investment criteria when it consistently and flagrantly violates environmental standards."

In addition, Harrington continued, "The board at Chesapeake Energy also has one of the worst records when it comes to executive compensation." In 2008, a year in which the stock price of Chesapeake Energy fell 60%, Aubrey McClendon, the CEO, was awarded a $77 million bonus.

"Such a lack of judgment by the board on executive compensation shows a complete disregard for owners and the board’s fiduciary duties," Harrington stated.

Harrington Investments also cited a lack of consultation with shareowners over political contributions as a reason for divestment.

Founded in 1982, Harrington Investments describes itself as "dedicated to an investment philosophy that emphasizes socially responsible investing, sector allocation and portfolio diversification." The firm is also active in introducing shareowner resolutions. The minimum account size is $500,000 in liquid assets, according to its web site.

 

 
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