Jun 10 2012

Investors Want MEASURED Transparency

Investors Bring $1 Trillion of Pressure on Hydraulic Fracturing Industry;

Demand Disclosure & Commitment to Measurable Goals;

Meanwhile State Lawmakers ‘Gag’ Physicians & Restrict Industry Lawsuits;

Isn’t this Industry that ‘Discloses’ Frac Fluid?

Who Didn’t Get the ‘Transparency’ Memo


States like Pennsylvania and Ohio are swimming against the tide of transparency and disclosure involving high-volume hydraulic fracturing companies.  And it is a one trillion dollar tide.

Lawmakers in those states are advancing legislation to “gag” physicians and limit citizens’ ability to sue fracking companies over chemical disclosure.1

In contrast, a group of heavyweight investors want more disclosure.

A coalition of 55 large investors – with nearly one trillion dollars in assets – is telling the shale gas fracking industry it is time to “clean up,” disclose and commit to 12 measurable “Best Practices.”

Investor Influence

These are folks who invest money in energy companies; and the “growing coalition” includes investors in the U.S., Europe and Australia, according to the group’s announcement last month.2

About 10.6% of the market cap of the S&P 500 stock index is invested in the energy sector.  In developed markets outside of the U.S. and Canada, the portion is 8.4%.  This is specifically the MSCI EAFE index (Morgan Stanley Capital International Europe, Australasia, and Far East).

“Investors may be overweighted or underweighted to the index depending on their views of the prospects for the energy sector,” said Steven Heim, managing director and director of ESG Research and Shareholder Engagement, Boston Common Asset Management.

Hidden Risks to Energy Stocks

Richard Liroff, PhD., executive director of the Investor Environmental Health Network, summarized the issue in his opening remarks at the May 16 press conference (emphasis added):

 “Energy companies need to do a better job of disclosing environmental and social risks associated with extracting gas and oil from shale formations and their policies and procedures for reducing or eliminating these risks.

 “Such risks are associated with the broad life cycle of shale operations including, for example, the transporting and storing water, waste and chemicals.  They are not limited to concern about hydraulic fracturing in its narrowest, technical sense.”

Liroff was one of three investor speakers at the 45-minute press conference, which is available for replay at this link: http://www.hastingsgroupmedia.com/BCIEHNICCR/051612FrackingGuide.mp3

In response to a question from Platts, an industry publication, Liroff noted during the press conference that, “there might be hidden risks to their [energy industry] stocks from management practices that don’t specifically address environmental and social risks.”

The 12 Best Practices Guidelines are contained in a 36-page document titled, “Extracting the Facts: An Investor Guide to Disclosing Risks from Hydraulic Fracturing Operations.”  The 12 reportable goals include:

  • Manage risks transparently and at Board [of Directors] level:  Ensure environmental, health, safety, and social risks are core elements of corporate risk management strategy.
  • Assure well integrity:  Achieve zero incidence for accidental leaks of hazardous gases and fluids from well sites.
  • Reduce and disclose all toxic chemicals:  Comprehensively disclose and virtually eliminate toxic chemicals used in fracturing operations.

A pdf file of the full document can be downloaded at this link: http://www.iehn.org/documents/frackguidance.pdf

Liroff told this writer, “This is all about measured transparency.”

Risk of Public Opposition

This is echoed by international groups such as the International Energy Agency (IEA), comprised of members from 28 countries including in Europe, Asia and the U.S.  The IEA warned last month (emphasis added):

“But if the social and environmental impacts are not addressed properly, there is a very real possibility that public opposition to drilling for shale gas and other types of unconventional gas will halt the unconventional gas revolution in its tracks.3

IEA stresses the importance of “full transparency, measuring and monitoring of environmental impacts and engagement with local communities … and measures to prevent any leaks from wells into nearby aquifers….”

The energy industry lobbies and spends heavily with million-dollar checks to prevent disclosure and restrict the public right-to-know.  Meanwhile many companies tout that they “voluntarily disclose hydraulic fracturing fluid contents” (e.g., per Range Resources website).  What the industry does not admit is that this is not FULL disclosure.

Industry and government need to recognize that they are bucking a heavy headwind.  The ‘good ‘ol days’ are over and are not coming back.

Investors and an engaged public will not go away.

Links & Resources

1 Pennsylvania Act 13 of 2012 was signed into law by Governor Tom Corbett in February 2012.  Among its provisions is what is referred to as the Doctors Gag Rule which requires doctors to sign a confidentiality agreement and “provide a written statement of need” should they require specific information on the chemicals used in hydraulic fracturing.

Despite signing the bill into law, Governor Corbett told WHYY radio in Philadelphia that, “I’m not sure how that got put in there.”  Link: http://stateimpact.npr.org/pennsylvania/2012/05/16/governor-corbett-says-doctors-concerns-over-act-13-may-be-moot/

Ironically, the shale gas industry touts its public disclosure of fracking chemicals – usually on the industry friendly website FracFocus.org.  As Range Resources proudly says on its website:  “In 2010, Range was the first company to voluntarily disclose hydraulic fracturing fluid contents on a per well basis. It was our goal at that time to set a national model.”  This is not FULL disclosure, however, which the industry does not acknowledge – why not?

Link: http://www.rangeresources.com/getdoc/fecf2d47-a7e9-4b8e-b80d-395fc52f98ea/Commitment-to-the-Environment,-Safety,-Health—Lo.aspx

Act 13 (formerly HB 1950) – See section 3222.1; pp 98-99 on “Hydraulic fracturing chemical disclosure requirements”  http://www.legis.state.pa.us/CFDOCS/Legis/PN/Public/btCheck.cfm?txtType=PDF&sessYr=2011&sessInd=0&billBody=H&billTyp=B&billNbr=1950&pn=3048

Excerpt from Act 13 (emphasis added): (10)  “A vendor, service company or operator shall identify the specific identity and amount of any chemicals claimed to be a trade secret or confidential proprietary information to any health professional who requests the information in writing if the health professional executes a confidentiality agreement and provides a written statement of need for the information indicating all of the following:

(i)  The information is needed for the purpose of diagnosis or treatment of an individual.

(ii)  The individual being diagnosed or treated may have been exposed to a hazardous chemical.

(iii)  Knowledge of information will assist in the diagnosis or treatment of an individual.”

“(11)  If a health professional determines that a medical emergency exists and the specific identity and amount of any chemicals claimed to be a trade secret or confidential proprietary information are necessary for emergency treatment, the vendor, service provider or operator shall immediately disclose the information to the health professional upon a verbal acknowledgment by the health professional that the information may not be used for purposes other than the health needs asserted and that the health professional shall maintain the information as confidential. The vendor, service provider or operator may request, and the health professional shall provide upon request, a written statement of need and a confidentiality agreement from the health professional as soon as circumstances permit, in conformance with regulations promulgated under this chapter.”

1 Ohio Energy Bill (Senate Bill 315) – Text of bill: http://www.legislature.state.oh.us/bills.cfm?ID=129_SB_315

Provisions include restrictions on who has legal standing to sue energy companies that withhold “chemical trade secrets.”  Is there a pattern here?  Jack Shaner of the Ohio Environmental Council (formerly neutral on the bill until this provision was added) said:  “’Sadly, what started out as one of possibly the most ambitious chemical disclosure laws in the country has now turned into one of the most radical and anti-public right-to-know laws in the nation,’ Shaner said,” according to an Associated Press story.

Sparks fly over Ohio energy trade secrets measureAssociated Press, May 23, 2012: http://www.ohio.com/news/ohiocentric/sparks-fly-over-ohio-energy-trade-secrets-measure-1.309138

2 MAJOR PUSH TO CLEAN UP SHALE GAS FRACKING AS 55 TOP INVESTORS WITH $1 TRILLION IN ASSETS WEIGH IN – Press Release from Boston Common Asset Management, LLC, May 16, 2012   http://www.bostoncommonasset.com/news/shale-fracking.php

3 International Energy Agency – Press statement on “Golden Rules” needed by energy industry: http://www.iea.org/newsroomandevents/pressreleases/2012/may/name,27266,en.html

NOTE:  This article is cross-posted on the Accountability Central website at this link: http://www.accountability-central.com/voices-featured-commentators-and-bloggers/mike-benard-columns/  Accountability Central is part of the Governance & Accountability Institute, Inc.

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