Investors Challenge Natural Gas Companies to Increase Transparency and Protect the Environment
February 14, 2011 - Green Century Capital Management (Green Century) and the Investor Environmental Health Network (IEHN) are building on the successful shareholder campaign launched last year pressing oil and gas companies to disclose their plans for managing water pollution, litigation and regulatory risks that are increasingly associated with the ever-expanding natural gas hydraulic fracturing operations (also known as “fracking”) in the United States.
“High profile water contamination incidents, new litigation, and public protests that include calls for moratoria on natural gas permitting all suggest sizeable and rising business risks to companies and attendant threats to shareholder value,” said Richard Liroff, Executive Director of the IEHN which, along with Green Century, helped coordinate the resolutions. “Shareholders need assurance that companies are candidly disclosing these risks and are adopting best management practices to minimize them.”
In 2011 shareholder resolutions were filed with many of the natural gas industry’s most significant players, including ExxonMobil*, Chevron*, El Paso*, Cabot Oil & Gas*, Carrizo Oil & Gas*, Anadarko*, Energen*, Ultra Petroleum*, and Southwestern Energy*.
The shareholder proposals ask companies to disclose their policies and strategies for reducing environmental and financial risks from chemicals use, water impacts and a host of other issues. The resolutions also request adoption of best management practices, such as recycling and reusing waste waters, reducing the volumes and toxicity of chemicals, disclosing the chemicals used in fracturing operations and assuring the integrity of well cementing through pressure testing and other methods.
These resolutions build on the success investors had in the 2010 proxy season when similar shareholder proposals received around 30 percent of the vote. Green Century’s proposal at Williams Companies Inc. received the highest vote, with approval from 42% of voting shareholders**. “This impressive result is one of the highest on record for a first-year environmental proposal,” said Larisa Ruoff, Director of Shareholder Advocacy for Green Century.
“We believe these votes send a strong message to the companies that a significant portion of shareholders are deeply concerned about this issue and urge all companies to increase disclosure related to fracturing,” Ruoff said. In fact, this strong vote led to a productive dialogue with Williams and the company agreed to include a new section on the environmental impacts of hydraulic fracturing in its updated 2009 Corporate Social Responsibility (CSR) report.
Use of hydraulic fracturing, which involves high-pressure injection of water, chemicals and particles deep underground to break up shale formations and release trapped natural gas, has escalated in recent years. Oil and gas companies are increasingly turning to hydraulic fracturing, or “fracking” to unlock vast, yet previously unavailable reserves as conventional natural gas supplies have dwindled.
Environmental risks stem largely from poor well-construction practices, which can lead to drinking water contamination, well blowouts and gas leaks, and from inadequate wastewater recycling and management practices. Concerns about water contamination incidents are growing as operations expand, creating reputational and litigation liabilities for companies.
Lawsuits have been filed against four companies over alleged water contamination in Pennsylvania. New York State adopted a temporary moratorium on new permits for fracking. Philadelphia’s city council has urged a ban on fracking in the Delaware River Basin until environmental studies have been completed, and Pittsburgh, which sits atop gas deposits, has banned fracking within city limits.
“Natural gas can play a major role in meeting our nation’s near-term climate and energy challenges, but hydraulic fracturing must be done in a way that protects the environment and public health,” said Mindy S. Lubber, President of Ceres, Director of the $9 trillion Investor Network on Climate Risk and Green Century’s first president. “Investors believe that companies can profitably minimize fracking’s water contamination, gas leaks and other material risks by adopting best management practices and by phasing out the most toxic chemicals.”
* Neither the Green Century Balanced Fund nor the Green Century Equity Fund held ExxonMobil, Chevron, El Paso, Cabot Oil & Gas, Carrizo Oil & Gas, Anadarko, or Energen as of December 31, 2010. As of that date, Ultra Petroleum was not held in the Green Century Balanced Fund and comprised 0.13% of the Green Century Equity Fund and Southwestern Energy was not held in the Balanced Fund and comprised 0.23% of the Equity Fund. Please refer to the Green Century Funds website for current information regarding the Funds' portfolio holdings. These holdings are subject to risk as described in the Funds' Summary Prospectus and Prospectus. References to specific investments should not be construed as a recommendation of the securities by the Funds, their administrator, or their distributor.
** The percentage in favor was calculated by (i) dividing the number of votes in support of the proposal by (ii) the sum of the number of votes voted in support of and against the proposal. Abstentions and broker non-votes were not included in the calculation.
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The Green Century Funds are distributed by UMB Distribution Services, LLC. 2/11.
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