Elizabeth Pines: Reporting Risks of Fracking to Investors: The Role of Institutional Investors

As stakeholder concerns have increased about the risks of fracking, a number of efforts have been made to pressure companies to disclose these risks to investors. In 2011, Exxon and Chevron’s shareholder vote resulted in a 28% and 41% vote to better disclose risks of fracking, respectively. As You Sow, an activist organization whose mission is to “promote environmental and social corporate responsibility through shareholder advocacy, coalition building, and innovative legal strategies” (As You Sow, About Us), has been pushing large corporations that engage in fracking to disclose risks to investors, specifically related to the chemicals they use in the process. Disclosures in annual financial statements filed with the U.S. Securities and Exchange Commission (SEC), could be a revolutionary first step to disclosing information to investors and other external users, and could set a precedent for other fracking companies (Inside Washington Publishers, 2011).

While companies argue that their practices conform to all regulations related to fracking, advocacy groups and environmental activists urge that fracking disclosures are important for investors. Exxon has particularly been feeling the increased pressure. After several institutional investors co-filed a proposal, including New York City’s pension funds, which own $1.02 billion in Exxon stock, Exxon agreed to report on fracking risks in April 2014. (Scheyder, 2014). Following this immense pressure, Exxon released its first report in September 2014, discussed previously, titled “Unconventional Resources Development – Managing the Risks”.

In 2011, the Securities and Exchange Commission (SEC) requested that oil and gas companies provide it with information about their fracking processes, including the chemicals and amount of water used and their efforts to reduce the environmental impact of fracking. This request was not mandatory, nor was it publicized. The purpose was for the SEC to ensure “investors are being told about risks a company may face related to its operations, such as lawsuits, compliance costs or other uncertainties” (Solomon, 2011). At the time, oil and gas companies were being asked to disclose certain information to the SEC, which then would be publicly disclosed at the discretion of the federal agency. The industry criticized this effort, partly due to concerns of adding another layer of regulation in an already highly regulated industry.

The SEC’s involvement in fracking brings another interesting perspective to the fracking debate: when environmental disasters occur or political attention is brought to safety issues related to oil and gas practices, stock prices drop dramatically. The SEC has attempted to mitigate effects felt by shareholders by requesting preemptive information. Thomas P. DiNapoli, New York State Comptroller, said, “Only through appropriate disclosure do you get the information you need to make informed and sound investment decisions” (Solomon, 2011).