Hydraulic Fracturing: The Call for Disclosure
By Michael Schweibinz
Over the past half-decade or so, institutional investors have begun to challenge the status quo. They are asking an unfamiliar question of oil and gas companies: Where is the disclosure? It’s a question that deserves an answer, in light of the reality that investors need quantifiable information in order to gauge business and operational risk. Hydraulic fracturing (or “fracking”) itself may be a controversial practice; however, the need for more transparency is essentially unquestionable.
It is clear that fracking has a significant impact on the environment, yet investors have insufficient information to effectively differentiate between the practices of individual firms. Since 2009, investors have called for reports on how companies “manage and mitigate the environmental risks and community impacts of their hydraulic fracturing operations.” Shareowners have filed almost 40 shareholder proposals in the past five years seeking greater disclosure regarding risk management practices. But the information gap is still as wide as ever.
Today, advocates continue to request increased reporting. Disclosing the Facts, a recent report by As You Sow, Boston Common Asset Management, Green Century Capital Management, and the Investor Environmental Health Network evaluates 24 companies involved in hydraulic fracturing “against investor needs for disclosure of operational impacts and mitigation efforts.”
While individual company scores varied, the results boiled down to the fact that companies are universally failing to report reductions of their impacts on communities and the environment from their operations. This does not necessarily mean that all of these companies have terrible practices – it simply demonstrates that shareowners cannot determine how they are doing based on current disclosure practices.
The scorecard evaluates companies on five measures:
- Toxic chemicals
- Water and waste management
- Air emissions
- Community impacts
- Management accountability
Scores ranged from 1-14 out of a total 32 selected indicators. No firm succeeded in even half of the selected indicators. This obvious lack of adequate disclosure on these key measures shows that investors simply do not have access to the data needed to evaluate industry risks or to compare individual company risk exposure with competitors.
By enhancing disclosure, companies should gain a competitive edge, increase transparency, and reduce several different risk factors. “Reputational risks, performance risk, spills, contamination, and lawsuits” will, in all likelihood, decrease with better practice and disclosure.
Mention of specific companies or securities should not be considered a recommendation to buy or sell that security. Past performance is no guarantee of future results.
First Affirmative Financial Network believes that as investors we must take responsibility for the impact our money has in the world. Are you making conscious decisions about the impact of your consumer purchases and investment decisions?
Posted: November 20, 2013