Major investors turn the screw on companies over 'fracking'

Oil and gas explorers come under pressure to clamp down on controversial extraction process

A coalition of the world's biggest institutional investors stepped up the pressure on oil and gas companies to become greener yesterday, as they kicked off a campaign to clamp down on their "fracking" activities.

An alliance of 200 institutions – which control more than $20trn (£13trn) of assets worldwide and include Scottish Widows, the BBC Pension Trust, the US pension giant Calpers and APG of Holland – have pledged to take action to reduce the amount of methane which oil and gas companies emit when fracking for hydrocarbons.

Fracking – or hydraulic fracturing – is a controversial practice that involves blasting a mixture of sand, chemicals and water into shale rocks to release the hydrocarbons they contain.

The process releases into the atmosphere large quantities of methane, a greenhouse gas that is about 20 times more potent than carbon dioxide, which makes it a key contributor to global warming.

The alliance of institutions, which also includes the pension fund for Britain's railway workers and Aviva Management, will begin by discussing companies' approach to controlling methane emissions from fracking, discussing regulatory measures with policymakers and working with the industry to "develop a framework to enable monitoring of companies' progress on methane control".

Although no specific punishments are planned for non-compliance, a spokesman for the alliance said failure to comply with the institutional shareholder requests "will inform investors' judgement about quality of management with possible consequences for investment decisions".

Craig Mackenzie, the head of sustainability at Scottish Widows Investment Partnership, said the campaign marked a significant step forward in the involvement of institutions in green issues.

Noting that as recently as five years ago, only a handful of smaller shareholders were interested in a company's environmental record, Mr Mackenzie estimates this coalition of largely mainstream institutions controls about a fifth of the shares of major global oil companies such as BP, Shell and ExxonMobil.

But what really sets this campaign apart from others is its focus on a single issue, in this case the methane emitted from fracking, he said.

"Drilling into a particular issue is much more effective. It's becoming apparent that if you have a high level of generality it's hard to know if anything is getting done," Mr Mackenzie said, adding that having a clear focus makes it much easier to establish specific targets.

Other single-issue campaigns, concerning topics such as water shortages and food scarcity are likely to follow, he said.

The fracking campaign has been orchestrated by a grouping of three investor alliances: the European Institutional Investors Group on Climate Change, the North American Investor Network on Climate Risk and the Australia/New Zealand Investor Group on Climate Change.

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