With existing fracking operations globally and a potential surge in regions such as China, fracking remains important to investors that hold global oil and gas companies with market exposure.
Investors need to be prepared to engage on the issue today and understand the potential future risks as the market and regulatory context evolves.
Fracking risks that concern investors include:
- Operational and physical risks. They can increase costs and impact the value of an investment. For example, fracking requires significant and continuous quantities of water, and it is harder to secure this at the right quality in areas that are experiencing water stress. Water discharge and pollution risks also occur through wellbore and surface leaks during the transportation, storage and disposal of contaminated water.
- The leakage of methane and other greenhouse gas emissions, both within and outside the company’s direct operations, contributes to climate change and undermines natural gas’s relatively cleaner reputation when compared to coal. It can also be a loss of revenue for the company, as in some cases methane can be captured and sold rather than vented or flared. Companies may also face increasing regulations to reduce their methane emissions, potentially raising costs.
- Reputational risk and social license to operate. Community concerns about fracking operations often receive media attention. A company’s ability to adequately respond to and manage local community concerns, including contaminated drinking water and increased noise, can affect reputational risks and the social license to operate.
Policy and regulation.
- Companies need to be able to adapt to meet changing regulatory requirements. In 2016, the US, Canada and Mexico committed to cut methane emissions from the oil and gas sector by 40-45% compared to 2012 levels by 202517. Other regulations may include water withdrawal limits, green completions, and disposal guidelines. Bans and moratoriums in different countries have also limited fracking. For example:
- Scotland has imposed a moratorium on fracking while a full public consultation and research is conducted into the impacts on public health18.
- The Victorian government in Australia announced a permanent ban on the exploration and development of onshore unconventional gas, including fracking and coal seam gas, in the state.
Taking these risks into account, and through consultation with fracking experts, the PRI Fracking Steering Committee identified four areas to engage companies operating in different jurisdictions:
- water use and quality;
- air emissions;
- community impact and consent.
These focus areas reflect the most material risks and where companies could make a significant improvement in their performance and disclosure.
Other investor initiatives
- The PRI’s Australian Unconventional Gas Group: encourages best-practice management of ESG issues for coal seam and unconventional gas operations. The working group focuses on continued engagement with Australian operators in the unconventional gas sector.
- Disclosing the Facts: the 2016 edition of this annual scorecard benchmarked the public disclosures of 28 companies on 43 fracking key performance indicators. They also coordinate together investor engagements with individual companies on their hydraulic fracturing operations
Engaging with oil and gas companies on fracking: An investor guide
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Why engage on fracking?