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Forbes.com: Investors Tackle Fracking And Water Scarcity Risks

The Lone Star state just joined Colorado, Arkansas and Pennsylvania in requiring oil and gas companies to come clean on the chemicals they use in hydraulic fracturing, or “fracking,” the controversial natural gas drilling practice that’s sweeping the country and raising myriad environmental problems.
by Mindy S. LubberForbes Sustainable Capitalism Blog Posted on Jun 29, 2011

The Lone Star state just joined Colorado, Arkansas and Pennsylvania in requiring oil and gas companies to come clean on the chemicals they use in hydraulic fracturing, or “fracking,” the controversial natural gas drilling practice that’s sweeping the country and raising myriad environmental problems.

Though Texas’ new disclosure law has its shortcomings, it’s an important stopgap while efforts to pass comprehensive state and national fracking regulations languish.

Remarkably, some of the biggest players in the industry backed the bill, though a few came around only after it was watered down.  “The one thing hopefully that we all learned is you can’t just say, ‘Take our word for it,’” Matt Pitzarella, a spokesman for Range Resources Corp., told the Wall Street Journal.

Investors can claim some credit for helping to bring companies like Range Resources around. Led by the Investor Environmental Health Network and Green Century Capital Management, investors have been working behind the scenes to hold their portfolio companies’ feet to the fire and move them toward safer, more responsible fracking practices.

Over the past two years, these investors have filed nearly two dozen shareholder resolutions pressing oil giants like ExxonMobil and Chevron, and others, to publicly disclose the chemicals they use in fracking and plans for managing risks stemming from well blowouts, air and water pollution, drilling moratoriums, lawsuits and new regulations.

They’re making progress. Take Williams Companies, Inc., the biggest natural gas producer in Colorado’s vast shale rock region and 10th largest in the country.

Fracking

A shale-gas drilling and fracking site in Dimock, Penn. Photo courtesy of Vanity Fair.

At the company’s annual meeting last year, the shareholder resolution, filed by Green Century’s Equity Fund, got a resounding 42 percent shareholder support. That may seem unimpressive but when you consider how few shareowners bother to read a company’s proxy materials, let alone cast a vote, 42 percent in favor of a resolution sends a powerful message to management.

After the vote, investors worked with Williams, and the company substantially improved its reporting on key risks, particularly how the company manages wastewater and its actions to ensure well integrity, says Larisa Ruoff, Green Century’s director of shareholder advocacy.

This focus on fracking is part of a larger effort by investors to urge a broad array of companies to increase their attention to the risks posed by climate change, dirty energy sources, water scarcity, rainforest destruction and other global sustainability challenges.

Some of the nation’s largest public pension funds—which hold hundreds of billions of dollars of stock in nearly all of Fortune 500 companies—are involved in the effort, along with foundations, labor unions and socially responsible investors.

Think of these investors as the canaries in the coal mine. With a significant amount of money at stake, they are the first to sense a company’s fault lines, or to raise questions about hidden financial risks that can undermine shareholder value.  If you’re a pension fund, with payouts on investments due decades down the road, the long-term value of your portfolio is paramount.

Climate- and energy-related shareholder resolutions have exploded in recent years, to 109 this year with U.S. and Canadian businesses.

Among their recent successes, investors recently persuaded Southern Co., one of the nation’s largest electric utilities, to prepare a comprehensive “water action report,” detailing water use and consumption, water discharges and emerging water scarcity risks. Southern operates in the Southeast U.S. where prolonged drought and growing demand have led to interstate water wars and regulatory crackdowns that threaten utilities, which require vast amounts of water.

“Southern clearly sees water risk as a strategic challenge that needs to be met to assure the future growth and sustainability of the company,” says Connecticut State Treasurer Denise Nappier, whose retirement fund filed the resolution with the Georgia-based utility.

Of course, not all resolutions get favorable responses.  Some familiar companies — Massey Energy and ExxonMobil among them — ignore shareholder concerns year after year, even after high votes.

But that doesn’t deter investors, like the Connecticut Treasurer or Green Century, from continuing to press companies on how they are managing the environmental risks of fossil fuel sourcing and the ongoing shift to a clean, low-carbon global economy.  Those risks aren’t going away and investors want stronger assurances that companies are effectively navigating these market trends.

Read the post at Forbes Sustainable Capitalism Blog

Meet the Expert

Mindy S. Lubber JD, MBA

Mindy S. Lubber is the president of Ceres and a founding board member of the organization. She also directs Ceres’ Investor Network on Climate Risk (INCR), a group of 100 institutional investors managing nearly $10 trillion in assets focused on the business risks and opportunities of climate change. Mindy regularly speaks about corporate and investor sustainability issues to high-level leaders at the New York Stock Exchange, United Nations, World Economic Forum, Clinton Global Initiative, American Accounting Association, American Bar Association and more than 100 Fortune 500 firms. She has led negotiating teams of investors, NGOs and Fortune 500 company CEOs who have taken far-reaching positions on corporate practices to minimize carbon emissions, water use and other environmental impacts. She has briefed powerful corporate boards, from Nike to American Electric Power, on how climate change affects shareholder value.

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