Institutional Shareholder Services recently proposed a new policy that clarifies its support for shareholder proposals requesting greater disclosure of a company’s natural gas hydraulic fracturing operations and efforts to manage and mitigate the potential impacts of those operations. As background for the new policy, ISS notes the increasing media and public policy attention on hydraulic fracturing operations, the high level of support hydraulic fracturing proposals received in 2010 and 2011 and ISS’s recommendation of votes in favor of each of those proposals. The ISS release on its proposed policy, found here, specifically requests comments on the scope and reasonableness of the proposed policy, providing exploration and production and oilfield service companies an opportunity to shape the final policy. The deadline for comments is October 31, 2011. Comments should be sent to email@example.com.
The proposed ISS policy with vote recommendation is as follows:
Generally vote FOR proposals requesting greater disclosure of a company's (natural gas) hydraulic fracturing operations, including measures the company has taken to manage and mitigate the potential community and environmental impacts of those operations, considering:
- The company's current level of disclosure of relevant policies and oversight mechanisms;
- The company's current level of such disclosure relative to its industry peers;
- Potential relevant local, state, or national regulatory developments; and
- Controversies, fines, or litigation related to the company's hydraulic fracturing operations.
Present ISS policy does not specifically speak to proposals regarding hydraulic fracturing. ISS reports that its General Environmental Proposals and Community Impact Assessments policy, found at page 60 of the 2011 U.S. Proxy Voting Guidelines Summary, has guided its prior evaluation of hydraulic fracturing proposals. That policy recommended that shareholders vote for or against requests for reports on environmental policies or potential environmental impacts on a case-by-case basis after consideration of a wide range of factors. In contrast, the proposed policy would generally recommend a vote for hydraulic fracturing proposals. It is unclear from ISS’s proposal why it believes that hydraulic fracturing proposals should not continue to be considered on a case-by-case basis as other environmental issues are, especially in light of the fact that hydraulic fracturing has had no proven impact on drinking water sources. It is also unclear from the proposal whether ISS will consider the extensive information that many companies already make available through their websites and through third party websites, such as www.fracfocus.org. Commenters may wish to urge ISS to revise its policy to consider these proposals on a case-by-case basis and to recommend "no" votes where companies make reasonable levels of disclosure of information that is material to investors. Concerned companies should also contact ISS with ideas on how to maintain transparency related to hydraulic fracturing operations without creating duplicative and immaterial disclosure, ceding board discretion to conduct operations and inviting shareholder challenges to the day-to-day operations of exploration and production and oilfield service companies.© 2013 Bracewell & Giuliani LLP