European banks want more hard data on risks from frackers

Europe's Climate Principles Framework Initiative, which includes some of the world's largest banks, has released new guidelines on fracking for energy companies.

"Fracking" is the popular term for horizontal drilling and well completion operations using hydraulic fracturing to extract natural gas from shale formations. The banks, including Crédit Agricole S.A. and Standard Chartered Bank, wish to see quantitative data on key performance indicators showing how energy companies are managing and reducing environmental risks and community impacts in their fracking operations.

The guidelines identify 16 areas of "responsible business practice." Four relate to companies' overall quality of management, accountability and disclosure, and 12 relate to specific operational activities.

By relying on the guidelines when making investment decisions, financial institutions can minimize risks to both their investments and their reputations from environmental hazards and adverse community impacts. The financiers couldn't be any more clear: "Companies' quantitative disclosure of their performance against KPIs will be fundamental to their credibility and to track progress."

The call for quantitative data signals that energy companies' qualitative descriptions of environmental and community impact management are insufficient. Because what gets measured gets managed, corporations must show investors their measurable steps to reduce the chances of the kinds of incidents that have led to bans and moratoria on shale gas development in the U.S., Europe and elsewhere.

Non-financial data are as critical as traditional hard financial data related to profits, operating costs and the like, as a failure to minimize environmental risks can negatively impact companies' bottom lines. This is especially true when the value of company investments in leases and licenses is lost to bans and moratoria.

The four practices related to management and accountability include topics such as oversight of risks by boards of directors, supply chain and contractor management, community engagement and consent, and fines, penalties and litigation. The 12 topical areas include such issues as well integrity, toxic chemicals reduction and disclosure, waste water management, air emissions, occupational exposures and fresh water use.

Next page: A growing appetite for data