Fracking Under Pressure

This new report by Dayna Linley, global energy sector lead for Sustainalytics, clearly outlines what’s going on in the world of fracking today, and what responsible investors should be aware of. Fracking is the colloquial term for hydraulic fracturing, that is, pumping fluids (usually water and chemicals) into a geologic formation at high pressure to release the natural gas (shale gas).

The report begins with some background on global energy demand, which is constantly increasing and driving the shift to unconventional oil and gas. ‘Due to restricted access to known reserves, many public companies are shifting their operations into higher risk areas and into unconventional oil and gas deposits. High-risk regions are generally characterized by social volatility or environmental sensitivity, while unconventional deposits are those that either contain heavier or more contaminated oil or gas, or that occur in less accessible reservoirs or rocks.’ This is followed by an explanation of the potential impacts of shale gas extraction on air emissions, land and water.

What should the socially responsible investor do? Investors should be aware of the risks, primarily reputational risk, regulatory risk and litigation risk, and should engage with companies to encourage the adoption and ongoing development of best practices. ‘Oil and gas companies, working with their energy service providers, should evaluate local conditions and regulatory frameworks to determine locally appropriate best practices to limit impacts to the environment, local populations and the bottom line.’

The section on best practices details some best practices: transparency, baseline water testing, use of green products, process changes regarding fluid management and minimization, GHG and air emission reduction and well integrity testing, contractor management and community engagement. Included are examples of corporate initiatives in each of these areas.

A final caveat - ‘…responsible investors should view shale gas development in the context of the broader need to shift our economy away from dependence on fossil fuels. Shale gas development, even with best practices in place, does nothing to contribute to this shift. Therefore, while pushing for best practices, responsible investors should push even harder for investment in renewable, sustainable forms of energy and for regulatory environments that incentivize such investment.’

See the sidebar for more stories on fracking.
Read the full Sustainalytics report here.

Private equity firms adopt responsible investment guidelines

The Private Equity Council, a group representing 13 heavy-hitters in the private equity world, has agreed to adopt a set of responsible investment guidelines that they will apply before investing in companies and during ownership.

The guidelines cover environmental, health, safety, labour, governance and social issues and follow a series of talks between council members and a group of the world’s major institutional investors, all under the umbrella of the United Nations-backed Principles for Responsible Investment (PRI).

“Private equity is all about investing for growth and maximizing returns to our investors. To accomplish that today requires considering a range of environmental, governance, human capital, and social issues,” said Private Equity Council president Douglas Lowenstein. “Today’s announcement explicitly and formally affirms PEC members’ commitment to fully integrating these responsible investment guidelines into both our pre-investment and post-investment processes.”

“We signed onto PRI because we believe that encouraging policies and practices that help create a better society for this and future generations is an excellent way to maximize our investment returns,” said Ted Eliopoulous, Interim Chief Investment Officer of the California Public Employees Retirement Systems, which is a limited partner in many PEC members’ funds.

Under the terms of the guidelines, PEC members will consider environmental, public health, safety and social issues associated with target companies when evaluating whether to invest, as well as during the period of ownership. Members will also seek to improve the companies in which they invest for long-term sustainability and to benefit multiple stakeholders on environmental and social governance issues.

Council members are: Apax Partners; Apollo Global Management LLC; Bain Capital Partners; the Blackstone Group; the Carlyle Group; Hellman & Friedman LLC; Kohlberg Kravis Roberts & Co.; Madison Dearborn Partners; Permira; Providence Equity Partners; Silver Lake, THL Partners; and TPG Capital (formerly Texas Pacific Group).