December 15, 2011
Investors Provide Guidance for Companies Engaged in Hydraulic Fracturing
by Robert Kropp
SocialFunds.com talks with Richard Liroff of the Investor Environmental Health Network about a
collaborative effort with the Interfaith Center on Corporate Responsibility to minimize risks
associated with fracking through key performance indicators and best practices.
Since 2009, when shareowners filed the first of 21 resolutions that by 2010 had gained an
unprecedented 40% support, concerns over the impacts of hydraulic fracturing, or fracking, have
gone mainstream. Risks associated with contamination by toxic chemicals of community drinking water
supplies, the disposal of massive volumes of wastewater, and increased air emissions have been
widely covered in the media, threatening the social license to operate of companies engaged in the
"We struck a nerve," Richard Liroff, executive director of the Investor Environmental Health Network (IEHN), told
SocialFunds.com. Now, Liroff continued, "There's a moratorium in the Delaware River Basin, there's
been a moratorium in New York State, there's a moratorium in the Province of Quebec. There is a ban
in France, there is a moratorium in South Africa, and there is a moratorium in the New South Wales
state in Australia."
But the fact remains that the large reserves of natural gas in
the United States are widely seen as contributing to a pathway toward national energy independence.
Furthermore, natural gas is considered by many as a cleaner bridge fuel to a genuine low-carbon
economy. However, as Laura Berry, Executive Director of the Interfaith Center on Corporate Responsibility (ICCR), said, "Recent
experience underscores the need for hyper vigilance around extractives operations."
improve corporate disclosure and encourage best practices, ICCR and IEHN collaborated on a Investor
Guide, published this week, to help increase corporate disclosure and mitigate the impacts of
The document grew out of both the bilateral discussions between investors and
companies, Liroff said, and a multi-lateral discussion process convened by Stephen Heim at Boston Common Asset Management and
According to a description of the multi-lateral discussion process by
an attendee from Mercy Investment Services, "Apache hosted a meeting with
representatives from oil and gas companies to discuss with investors expectations and methods for
helping companies understand these expectations. Based on this session, several groups are working
to develop a set of well construction and operation best practices that can reduce hydraulic
fracturing's potential harm on water and the environment, plus metrics for their reporting to
Boston Common has engaged with Apache for a number of years on issues relating
to corporate reporting and greenhouse gas (GHG) emissions reduction. In fact, as early as 2007,
Heim recognized Apache as "the most improved of any US oil and gas company in addressing climate
Among the important steps taken by Apache in regard to fracking has been its
support for the development of a chemical
registry for hydraulic fracturing.
"When investors got started doing this two years
ago, the concern was undisclosed risk in portfolios," Liroff said. "But as we all get educated, we
began to realize that in fact there were quite a number of practices that were good for the
environment and also good for the bottom line. Companies that didn't adopt best practices were
missing opportunities to save money that would be brought down to the bottom line for the benefit
of the company and its shareholders."
As a result, Liroff continued, "There was a lot of
talk about best management practices, until one investor suggested we think more about key
performance indicators. Focus less on what companies do, and more on what the result is. This is
how the document came about."
The 12 key performance indicators eventually included in the
document address such issues as board level transparency and disclosure of all chemicals used in
the process, mitigation of environmental impacts, compliance throughout the supply chain, and
securing the consent of all key stakeholders in communities.
On the heels of the
publication this week of the Environmental Protection Agency (EPA)'s discovery of chemical
compounds associated with fracking in drinking water in Pavilion, Wyoming, it is noteworthy that
the document clearly states, "Achieve zero incidence for accidental leaks of hazardous gases and
fluids from well sites."
The benefits of addressing such indicators and adopting best
practices include operational efficiencies, insurance in case of accident or natural disaster,
reduced air emissions and fresh water withdrawals, and protection of a company's social license to
operate, according to the document.
"The document was informed by the technical expertise
and careful review by some company people," Liroff said. "A key point of the document is that it is
based on the concept of comply or explain. There may be good reasons in some places where
compliance may not be possible, but what investors want to see is the extent to which these good
practices are indeed being used by companies."
The publication of the document coincides
with the onset of the shareowner filing effort for the 2012 proxy season, and Liroff noted that at
least one company is already referencing the document in order to compare what investors want with
what the company is doing.
"It's exactly the kind of exercise we want companies to do," he
said. "The ultimate goal is to get sufficient information from companies so investors can
distinguish between leaders and laggards in terms of sound management of these practices. Right
now, the reporting is so uneven that we can't. We're providing companies with a roadmap to
"I'd like to believe that because this document surfaced after so many
conversations with companies, and in fact draws on examples from 17 different companies, other
companies recognize that their challenge is to catch up with the leaders," Liroff concluded. "The
objective here is to increase disclosure and promote a race to the top, by establishing strong
performance goals and sound practices for achieving them."