Our clients often note that investors are a key audience for their sustainability reporting, and interest in environmental, social, and governance (ESG) issues is on the rise both for socially responsible and “mainstream” investors. But is this growing investor pressure translating to increased transparency?
Disclosing the Facts (DTF), an investor-developed scorecard of ESG disclosures in the hydraulic fracturing industry, illustrates how a well-developed rating system based on publicly available corporate ESG disclosures can drive dramatic improvements in both transparency and performance.
In 2011, in the face of increasing public and regulatory interest in the use of hydraulic fracturing to extract oil and gas, two investor groups – the Investor Environmental Health Network (IEHN) and the Interfaith Center on Corporate Responsibility – teamed up to develop Extracting the Facts, a disclosure guide for oil and gas companies on their key issues, risks, and impacts. Developed in consultation with a wide range of stakeholders, including oil and gas companies themselves, the report led to an annual scorecard of disclosures ranking the largest oil and gas companies involved in hydraulic fracturing in the U.S. and Canada.
The results of this effort have been impressive. Since the first ranking in 2013, public disclosures by the companies included in the rankings have increased significantly. That year, for example, 23 of the 24 ranked companies reported on just 10 or fewer of the 32 recommended disclosures, and the highest number reported was 14.
In the recently released 2019 report the top four companies addressed 80 percent or more of the 25 indicators.
BuzzWord’s oil and gas industry clients took the top two spots in the 2019 scorecard, with Southwestern Energy (NYSE: SWN) coming in first place with 23 out of 25 possible points, and Apache earning 22 points. Hess, a third BuzzWord client, scored ninth with 15 points and would have tied for third but for some data timing issues.
Regarding SWN’s top ranking, Bill Way, President and Chief Executive Officer, said, “The company has completed 10 projects that produced a combined fresh water benefit to the environment, where we work and live, totaling over nine billion gallons in five years. Additionally, SWN received top marks for our practices in implementing and disclosing best methane reduction practices. SWN has limited methane emissions from its Appalachian assets to 0.057 percent — which is 96 percent lower than the national average.”
The success of the DTF scorecard underscores the power of well-informed investor interest to drive increased corporate transparency around key industry-specific ESG risks and impacts.
Whether the DTF ranking model could be applied to other industries is an important question. Richard Liroff, a main author of the reports, told BuzzWord that “the issue is scalability. It takes significant resources to conduct the stakeholder engagement needed to develop a credible rating and become immersed in the research and technical details.”
Among the practices reported on: Seventeen companies stated clearly that their public disclosures of chemicals used for hydraulic fracturing do not include chemicals protected by claims of trade secrecy. Sixteen companies discussed practices for assuring the operational integrity of their wells. Fifteen companies reported, on a play-by-play basis, the percentages of wastewater recycled and reused for fracturing additional wells. But there is still room for further disclosure: Only one company earned credit for disclosing its post-drilling monitoring practices. Only three companies earned credit for disclosing, in percentage terms (from a base year), quantitative reductions in the toxicity of the chemicals they use for fracturing.
BuzzWord has worked with our oil and gas clients to improve transparency on key ESG issues and increase their scores on the DTF scorecard for several years. For example, we helped Southwestern Energy develop their first Corporate Responsibility Report in 2014. The resulting GRI G4 Core report moved the company from 27th to 6th in the DTF ranking. We’ve since helped them expand their disclosures and move from fourth place in 2016 to first place in 2017 and 2019. Similarly, in 2017, we helped Apache Corporation develop robust methane related content as part of their most recent sustainability report, which helped them tie for first in the 2017 DTF scorecard.
 The Disclosing the Facts scorecards have been produced each year by IEHN, As You Sow, Boston Common Asset Management, with participation in the first several scorecards by Green Century Capital Management.