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August 31, 2011
SEC Considering Oversight of Hydraulic Fracturing
    by Robert Kropp

As investor concerns over the risks of hydraulic fracturing increase, news reports indicate that the Commission is asking companies for information relating to chemicals used in the practice.


A primary goal of sustainable investors has been to bring environmental externalities into the investment process. Institutional investors in particular argue that their long-term investment horizon requires of them that they assess the eventual costs to companies in their portfolios of impacts such as climate change.

As Mindy Lubber, President of Ceres and Director of the Investor Network on Climate Risk (INCR), stated last year, "Investors have a compelling interest in the business trends that will affect their portfolio companies. Climate change is such a trend."

Under the leadership of Mary Schapiro, the Securities and Exchange Commission (SEC) has acknowledged the relevance of such externalities to investors. Last year, the Commission issued guidance on disclosure of climate change risks and opportunities at publicly traded companies. The guidance states, "This interpretive release is intended to remind companies of their obligations under existing federal securities laws and regulations to consider climate change and its consequences as they prepare disclosure documents to be filed with us and provided to investors."

Recent news reports indicate that the SEC is now turning its attention to improved disclosure by companies engaged in hydraulic fracturing, or fracking. The fracking process requires the injection of as much as 7.5 million gallons of water per well, as well as often toxic chemicals, to crack open rock and allow natural gas to flow to the surface.

A study by Cornell University concluded, "Compared to coal, the footprint of shale gas is at least 20% greater and perhaps more than twice as great on the 20-year horizon and is comparable when compared over 100 years," because methane emissions "are at least 30% more than and perhaps more than twice as great as those from conventional gas."

Shareowner resolutions addressing hydraulic fracturing received record support during the 2011 proxy season, when the average vote in favor reached 40%, compared to 30% in 2010.

According to a recent article in the Wall Street Journal, the SEC "is asking oil and gas companies to provide it with detailed information—including chemicals used and efforts to minimize environmental impact—about their use of" the hydraulic fracturing process.

At present, the article continued, the Commission is not requiring public disclosure of the information provided to it by companies engaged in fracking. "Government officials said the SEC's interest in fracking is in ensuring investors are being told about risks a company may face related to its operations, such as lawsuits, compliance costs or other uncertainties," the article stated.

While the SEC has yet to comment on its requests for fracking information from companies, one industry representative told NPR that the Commission's requests represented an "overreach" of its process of asking companies about their filings.

As the Commission considers improved disclosure by companies engaged in fracking, the Environmental Protection Agency (EPA) is continuing its study of the potential impacts of the practice on drinking water and groundwater. EPA expects to complete its initial research results by the end of 2012.

 

 
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