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November 11, 2013
Shareowner Engagement yet to Convince Frackers to Disclose
    by Robert Kropp

A group of sustainable institutional investors issues a report on the hydraulic fracturing industry that reveals companies are failing to disclose impacts on communities and the environment from their operations.


The flows of natural gas made accessible through the controversial practice of hydraulic fracturing have led some to proclaim that natural gas can serve as a bridge fuel between more heavily emitting fossil fuels sources and renewable energy technologies.

Yet since 2009, when shareowners filed the first of 21 resolutions that just one year later had already 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 controversial practice.

A shareowner resolution filed with EOG Resources earlier this year by Green Century Capital Management stated, “State regulations do not provide adequate protection from the adverse effects of shale gas operations.” In addition to the environmental concerns addressed in the first wave of resolutions, shareowners are now expressing concerns over the impact on rural communities of the arrival of heavy industry.

In a recently published report, Green Century has teamed with As You Sow, Boston Common Asset Management, and the Investor Environmental Health Network (IEHN) to analyze the disclosures of 24 oil and gas companies engaged in fracking. Their analysis indicates that the “industry is consistently failing to report measurable reductions of its impacts on communities and the environment from hydraulic fracturing operations.”

A scorecard embedded in the report reveals just how poorly companies engaged in the practice are performing. The report uses 32 indicators, covering activities such as management of toxic chemicals, water and waste, air emissions, community impacts, and corporate governance. “Even the highest scoring company, Encana Corporation, provided sufficient disclosure on just 14 of the 32 indicators,” the authors found. Many of the largest oil and gas companies, including ExxonMobil and BP, provided sufficient disclosure on no more than two of the indicators.

The industry-wide inadequate disclosure is all the more frustrating when the lengths to which sustainable investors have gone to engage with companies on the issue. In 2011, IEHN and the Interfaith Center on Corporate Responsibility (ICCR) produced an Investor Guide that grew out of a multi-lateral discussion process including investors and companies. “Apache hosted a meeting with representatives from oil and gas companies to discuss with investors expectations and methods for helping companies understand these expectations,” Mercy Investment Services stated at the time. “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 investors.”

Yet the new report found that Apache Corp. provided sufficient disclosure on only ten of the 32 indicators.

In 2012, a coalition of institutional investors with over $1 trillion in assets under management called for the adoption of best practices by corporations engaged in hydraulic fracturing. Of the ten resolutions filed that year addressing the practice, six were withdrawn in favor of engagement.

“Companies should collect data and report quantitatively,” the report recommends. “Companies that have data management systems in place for collecting and reporting aggregate emissions for water, waste, or other key concerns, should make the information available.” Strictly narrative reporting, the report argues, fails to “sufficiently inform investors of the risks or strengths of companies’ hydraulic fracturing operations and practices.”

While “disclosure in the oil and gas industry has improved during the four years since investor engagements began,” the report concludes, “company disclosures are insufficient to meet the needs of investors seeking to evaluate how companies are reducing the potential health and environmental risks of natural gas and oil operations using hydraulic fracturing in the United States and Canada.”

 

 
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