Fracking :: in a nutshell

As the global debate rages around fracking, large deposits are now estimated to be found underneath the UK.  Much has already been written, in terms of both the positive and negative issues, so we thought a brief summary with an ethical investment perspective would be useful, even in a rapidly changing landscape! Fracking involves drilling wells up to several kilometres underground to extract shale gas.  The process is complex and uses millions of gallons of water, mixed with sand and chemicals, to crack rocks which release the shale energy.  Large reserves have been found and exploited in the United States, the most useful place to observe the benefits and damage. This new industry has created lots of jobs and eased the energy supply situation so that the US is far less dependent on imports such as Middle Eastern crude oil.  However, the immediate environmental effects are evident with the long term consequences still not fully known.  There have been hundreds of cases of water contamination, from both the gas and the chemicals used.  Studies suggest increased risk of cancer and an even greater risk of nervous and immune system illness.

The proponents

Proponents of fracking In the UK insist that operational standards here will be much higher than in the US.  The Institute of Directors (IoD) has come down firmly on the side of fracking, with a number of high profile articles explaining the economic advantages of job creation, community benefit and securing our energy supplies for at least the next decade, reducing our dependence on gas import from Russia and other regimes, some with questionable human rights practices, that could cut off supplies to the UK, at short notice.

The critics

However, there are many critics and opponents of fracking, from a variety of places and we need to heed their voices.  Friends of the Earth has gathered research from many sources, including The UN Environment Program  which has said that fracking can lead to unavoidable environmental impacts, even with high operational standards.  Local communities in the areas already affected by exploration are worried about increased earthquakes and pollution of the landscape over a wide area in a small country. Many of us are concerned that fracking will divert money, attention and effort away from energy conservation and renewable, less harmful energy methods. Furthermore, Water UK, representing all major water suppliers, has made public its concerns about the process given, for example, fears of aquifer contamination and the strain on the water supply around extraction sites. Lastly, few would disagree that the act of fracking will itself release huge quantities of carbon into the atmosphere and will completely unwind the carbon reduction targets to which Britain has signed up with Europe and international treaties.  The jury is also out as to whether shale gas will even reduce our gas/energy bills or be found in the vast, accessible quantities that have been claimed.

The investment landscape

Until recently, it was safe to say that the main companies involved in fracking  in the UK were either smaller or privately owned and less likely to be found in any conventional main stock market listed funds and even less likely to be in ethically/environmentally screened portfolios.  However,  the apparent prospects for the most high-profile company involved in the UK - Cuadrilla, headed by Lord Browne  (ex BP CEO) - and the lure of even larger deposits than first thought, are encouraging  mainstream companies to invest in the sector. For example, Centrica (formerly part of British Gas) has taken a 25% stake in Cuadrilla’s main existing exploration licence. Some ethical equity funds are currently invested in Centrica, a stance we firmly believe they must now reconsider. To compound the dilemma, even water companies and equipment suppliers which may be in SRI funds, will find it hard to resist either bidding or supplying services.  Investors and fund managers may try to avoid the worst companies and culprits but it may be much harder to avoid any involvement. For example, the company which purifies water the most effectively may argue that if fracking is a “fait accompli” better to use and treat water wisely than hand business to a less effective one! Likewise, as we all use modern appliances, enjoy the benefits of modern living, it may be outside our hands at present, whether we either consume gas  or invest in a company with a connection to the fracking industry, even remotely. The apparent economic argument in favour of fracking has just received a huge boost with the Chancellor’s decision to offer significant tax breaks for the industry. This means that onshore shale gas production will be taxed at 30%, compared to 62% for new North Sea oil operations and 81% for older offshore fields. One might question why such lucrative breaks are necessary if the industry is already set to be such a money-spinner for the government! Meanwhile, some of us will continue to campaign for greater investment in renewables, energy efficiency and much more effective ways of organising our lives, for which we need a big hand from the government of the day - and big business to support, and not lobby against, those efforts. What next for your investments? When reviewing or setting up new investments, you should talk to you adviser at Gaeia about pragmatic approaches to investing in the area of renewable energy, whether it is to avoid investing in companies involved in initiating fracking, or identifying companies active in developing other renewable energy sources.  Be reassured that we can select funds that include renewable energy in the mix. Gaeia Team: Tel 0161 233 4550 Sources: www.foe.co.uk/fracking, www.iod.com
SGNewsltr/170713

Read our 2020 Voting Guidelines

As investors, we vote at company AGMs. It’s a responsibility we take seriously. Read the updated Voting Guidelines.

Read more

Get in touch with our team

We’re available by phone and email, but most of all in person to provide expert advice and assistance.

Read more

Climate Change in a Covid-19 World

How climate change risks sliding down the political agenda due to COVID-19 and what investors can do about it.

Read more