SEC Action Validates Investor Concerns about Hydraulic Fracturing Operations
Increasingly successful shareholder resolutions on behalf of investor coalition seek increased disclosure on environmental risk management
September 13, 2011 — In late August, the Wall Street Journal reported that the Securities and Exchange Commission (SEC) is pressing oil and gas companies to provide increased disclosure on the financial risks associated with the environmental impacts of their fracturing operations. This action by the SEC comes after two years of investor pressure in the form of shareholder resolutions by members of the Investor Environmental Health Network (IEHN) and the Interfaith Center on Corporate Responsibility (ICCR), including Green Century Capital Management (Green Century).
Since 2009, an investor coalition led by IEHN, Green Century, and members of ICCR, has pressed two dozen companies to increase their disclosure on key business risks associated with hydraulic fracturing, particularly the fate of wastewater and the management of chemicals associated with hydraulic fracturing operations. As these hazards have triggered public outcries and regulatory moratoria, the investors believe it is crucial to learn how companies are addressing and minimizing the hazards.
“As shareholders, we laud the SEC for taking this important step to inform investors by providing a more accurate picture of the environmental and business risks associated with hydraulic fracturing,” said Larisa Ruoff, Director of Shareholder Advocacy for Green Century, a member of ICCR. “Without comprehensive disclosure, investors have no way of knowing which companies are actively managing and mitigating the risks inherent to this type of development. We view the SEC action as crucial to informing shareholders about undisclosed risks,” she continued.
During the last two years the coalition filed shareholder proposals requesting greater disclosure on fracturing operations with 16 companies including Chevron*, ExxonMobil*, Chesapeake Energy*, Range Resources* and Cabot Oil & Gas*. In an effort to omit resolutions from their proxy ballots, some of the natural gas companies asserted to the SEC that their existing disclosures on their websites already “substantially implemented” proposed resolutions' requests for additional information on water usage, well casings and toxic materials. The SEC staff rejected these arguments and the resolutions appeared on company proxy ballots for all shareholders to consider. In 2010, a remarkable average 30%** of the shares voted supported the proposal and this year, average support increased to 40%**, including a near majority vote (49.5 %**) at Energen Corporation*. This level of support is nearly unprecedented for a new shareholder proposal.
“At company annual meetings, shareholders have been sending a loud and clear message to corporations reliant on fracturing operations that increased disclosure is necessary,” said Richard Liroff, Executive Director of IEHN. “Now the SEC is working to support these investor inquiries to ensure transparency on critical business risks,” he continued.
According to ICCR member Sr. Nora Nash of the Sisters of St. Francis of Philadelphia, “Resource extraction is changing our lives and our landscapes and nobody knows for certain what the long-term cumulative effects might be. Companies that are voluntarily disclosing are showing leadership. The SEC’s intervention to establish improved reporting parameters for the industry as a whole is necessary to inform investors.”
Green Century Capital Management is an investment advisory firm focused on environmentally responsible investing. Founded by a partnership of non-profit environmental advocacy organizations in 1991, Green Century's mission is to provide people who care about a clean, healthy planet the opportunity to use the clout of their investment dollars to encourage environmentally responsible corporate behavior. Green Century believes that shareholder advocacy is a critical component of responsible investing and actively advocates for greater corporate environmental accountability. Green Century manages the Green Century Balanced Fund and the Green Century Equity Fund, two environmentally responsible mutual funds.
* Neither the Green Century Balanced Fund nor the Green Century Equity Fund held Chevron, ExxonMobil, Cabot Oil & Gas or Energen Corporation as of June 30, 2011. As of the same date, Chesapeake Energy and Range Resources were not held by the Balanced Fund and comprised 0.35% and 0.16%, respectively, of the Equity Fund.
** 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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