PRI research and evidence from the Disclosing the Facts report have identified that companies are gradually improving their disclosure on fracking practices.
However, several areas require improvement – areas which would greatly benefit from future investor engagement.
1. Encourage companies to reduce and report on their methane emissions
Methane emissions are being increasingly scrutinised and companies need to be prepared for further regulation. A report by the Environmental Defense Fund (EDF) found that few oil and gas companies were disclosing their methane emissions, making it difficult for investors to assess the company’s performance and risk management of methane.
The fracking engagement results also highlighted that 12 of the 30 companies benchmarked (40%) reported on their methane emissions in 2016 - an increase from seven in 2013. Many companies report on venting and flaring only, but this does not take into account all sources of methane and therefore is not a true reflection of a company fs methane emissions overall. Twelve companies reported beyond venting and flaring and disclosed actual methane emissions.
EDF recommends companies report against four metrics to demonstrate how they are measuring and reducing methane emissions:
- Methane emission rate: the volume of methane emissions expressed as a percentage of gas production or throughput.
- Methane emission reduction targets: the amount and timeline of intended emissions reductions (absolute or intensity based).
- Leakage detection and repair (LDAR) protocol: the methodology, scope and frequency of a company fs LDAR programme allows investors to ensure best practice.
- Company position on the role of public policy to reduce methane emissions.
2. Encourage companies to continue to engage with stakeholders and implement grievance mechanisms
While many companies have policies or commitments to engage with stakeholders, investors should encourage them to have a policy to maintain an active grievance or complaints mechanism. This helps increase the company’s transparency and accountability with the community.
The PRI 2016 benchmarking study identified 17 companies – or 57% – committed to maintaining an active grievance or complaints mechanism. However, only 23% disclose that their grievance processes are operated by an independent third party and only 13% quantitatively report on grievances received and addressed.
Investors can ask companies about how complaints are recorded, monitored, and resolved. This should then be publicly reported. Recourse to an independent organisation shows the willingness of the company to resolve all complaints in a fair and thorough manner.
The PRI Fracking Working Group found that 73% of companies demonstrated engagement with stakeholders but only 13% disclose a policy statement to seek free, prior and informed consent from indigenous peoples. Companies should be encouraged to continue to consult and engage with stakeholders to reduce reputational risks. Consultation, education, listening and responding to community concerns reduces the risk of protests and negative media attention. Not only can building relationships with stakeholders facilitate their understanding of the operation, but the company can also learn of concerns and manage the impacts appropriately, reporting back to the community.
3. Encourage compnies to monitor and report on water avilability and quality
Companies are increasingly operating in areas of high water stress. Ceres found that 57% of the 110,000 wells in the US that were fracked in the past five years were located in regions with high or extremely high water stress.
Where companies operate in areas that are arid or where there is high competition for water, there is a potential risk to water availability and changing regulations. A company needs to be able to assess water requirements for current and future production, physical water availability and the company’s potential impact in the catchment within which they operate. In addition to this, a company should identify the potential impacts of water stress on the operation and the effects on costs or revenues for the company.
Companies have made progress in managing water use and quality but are currently falling short in monitoring water resources and publicly reporting the results by region or project. The PRI investor group found that:
- 58% of producers disclose fracking-related water testing practices.
- Less than half of these companies (23%) publicly report results from fracking-related water testing.
- Very few of these companies report results at a regional or project level.
- No service providers report water testing results.
Testing water quality is essential to ensure that water resources are not compromised unintentionally and can be conducted at different points around a specified radius of the operation. This may include testing on other landowners’ property, in which case, permission and consultation should be sought.
Publicly reporting the results and sharing these with other water users and local stakeholders helps alleviate fears of water pollution. Where appropriate, participatory monitoring schemes can be implemented whereby local communities are involved in the water monitoring process to ensure transparency and trust. Companies should be encouraged to monitor local water resources before the operation commences in order to establish a baseline. This can then be used as a comparison for the results of monitoring throughout the operation.
Engaging with oil and gas companies on fracking: An investor guide
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