[Many electronics] companies’ failure to keep up with increasing global requirements for environmental performance was completely avoidable. It raises concerns about the level of fiduciary duty exercised by business leaders who should have done a better job of seeing it coming…. Gil Friend, Natural Logic et al., 2005 |
Overview Hydraulic Fracturing for Natural Gas DevelopmentWith Green Century Capital Management, an environmentally responsible investment advisory firm in Boston, IEHN is coordinating an investor campaign in the United States to promote improved disclosure by natural gas companies about the business and environmental risks of hydraulic fracturing. Onshore “unconventional” natural gas production requiring hydraulic fracturing, which injects a mix of water, particles, and chemicals underground to create fractures through which gas can flow for collection, is estimated to increase by 45% between 2007 and 2030. An estimated 60-80% of natural gas wells drilled in the next decade will require hydraulic fracturing. Fracturing operations may have significant impacts on surrounding communities. Experts cite risks of toxic spills of fracturing chemicals, and pollution of air or water, among other impacts. Fracturing operations involve the movement, storage, and disposal of millions of gallons of water and thousands to tens of thousands of gallons of toxic chemicals. But because of a lack of transparency, it can be very difficult to learn what chemicals are used by companies. Spills, regulatory penalties, and litigation linked to fracturing operations in been reported in several states where natural gas companies are active. Media attention to fracturing and levels of public concern about potential environmental impacts have skyrocketed since 2007. Currently investors lack sufficient information on the environmental health hazards of fracturing operations at individual companies—even though the companies face litigation, reputational, competitive, and regulatory risks. Investors lack sufficient information to distinguish the companies that fully understand and are effectively managing the risks attendant to fracturing from those that are not. In an effort to learn more about environmental hazards, investors have engaged approximately two dozen companies via letters, phone calls, and meetings. In the 2010 proxy season, investors filed shareholder resolutions at 12 companies. Resolutions were withdrawn in some cases when companies agreed to enhanced disclosures. Votes at six companies ranged from 21% to 42%, averaging 30%. Investors continued their engagements with companies during the 2011 proxy season, filing resolutions at 9 companies and dialoguing with others. Votes at five companies ranged from 28% to 49.5%, averaging 40%. During the 2012 proxy season, resolutions were filed at 10 companies and withdrawn from 7 in response to corporate disclosure commitments. Investors have specifically requested increased disclosure about environmental hazards and associated financial risks, and about corporate risk management policies such as adoption of precautionary best management practices beyond currently uneven state regulatory requirements. The following resources address key issues in the controversy over shale energy development:
Chesapeake Energy Corporation sought an opinion from Securities and Exchange Commission staff that would allow it to omit the 2010 shareholder resolution on fracturing from its proxy ballot, but was unsuccessful. The staff conclusions and the company and investor filings are available here. Chesapeake Energy Corporation published a statement opposing the 2010 shareholder resolution on fracturing on page 76 of its proxy statement. The investor response to the company statement is available here. Following a 25% shareholder vote supporting the resolution, Chesapeake significantly increased its disclosures on fracturing practices. See here. Williams Companies published a statement opposing the 2010 shareholder resolution on fracturing on page 71 of its proxy statement. The investor response to the company statement is available here. Following a 42% shareholder vote supporting the resolution, Williams significantly increased its disclosures on fracturing practices. See pp. 19-23 here. ExxonMobil published a statement opposing the 2010 shareholder resolution on fracturing--see the company statement following item 10 in its proxy statement. The investor response to the company statement is available here. ExxonMobil similarly opposed the 2011 resolution, which it unsuccessfully sought to omit from its proxy ballot. The investor response to the company's 2011 opposition statement is available here. ExxonMobil filed a challenge at the Securities and Exchange Commission to the 2012 shareholder resolution, but the challenge was rejected and the resolution was presented on the proxy ballot. ExxonMobil's SEC challenge and the investor response are available here. Companies have increased disclosures in response to investor requests or because they recognize the importance of disclosure to address public concern and distrust. For example, Talisman lists notices of violation in Pennsylvania on its website, Cabot describes in detail its program for monitoring water quality and sharing results prior to drilling in Pennsylvania, and Baker Hughes has published a method for measuring the toxicity of its fracturing chemical products that takes account of the toxic chemicals in the products that are not disclosed on "partial disclosure" Material Safety Data Sheets (MSDSs).
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