In Wake of Recent Energy Disasters, Investors Press for More Information

August 20, 2010

The year’s two largest crises in the energy industry, BP’s Gulf of Mexico oil spill and Massey Energy’s coal mining disaster in West Virginia, are both being cited as reasons for investors who are working for measures to mandate that oil, natural gas and other energy companies disclose more information about the environmental and safety risks involved in their endeavors.

Additionally, as so clearly displayed by the BP disaster, some environmental catastrophes are so huge that the result to investors is an enormous financial burden.

In response to the increased visibility of the risk of disasters, the Securities and Exchange Commission (SEC) recently introduced new rules to facilitate the ability for investors to place environmental risk proposals onto proxies for corporation’s annual meetings.

Over 100 energy and environment-focused proposals from shareholders were introduced to 88 United States and Canadian companies in 2010, up 50% from last year.

The proposals addressed many issues, including the potential environmental and safety risks associated with shale oil extraction, coal ash, and possible environment-affecting emissions.  However, the average of voting shares in support of those proposals was only from 20% to 40%.

A proposal at Massey Energy, where 29 people died after an explosion on April 5th in West Virginia, gathered nearly 53% of the shares in favor of having the company set specific goals for lowering greenhouse gas emissions.

In the case of BP, many investors had originally invested in the company based on their declared commitment to the development of alternative energies.

After the Deepwater Horizon explosion however, BP saw its stock plummet from as high as $60 per share prior to the incident to $27 per share in June.  BP’s current cost in managing the Gulf of Mexico oil spill has reached $6.1 billion, and will definitely increase over the rest of the year.  Also, BP has suspended its stock dividends, with no announcement of when they may return.

Much environmental focus has also been made on companies which engage in hydraulic ‘fracturing’, a process used to extract oil and natural gas from shale.  This process, which can use up to 9 million gallons of water per operation, also uses several varieties of toxic fluids and chemical additives.

Prior to these disasters, the SEC was already making changes to its business guidelines concerning environmental risks.

In October of last year, the SEC announced that it would not allow companies to always reject shareholder proposals about their environmental risks and how those risks could potentially affect the companies’ operations, and ultimately, the value of their stock.  This was a major change in policy as, prior to the October decision, the SEC justified the automatic blocking of environmental risk proposals, arguing that they interfered with the day-to-day operations of corporations.

In January of this year, the SEC decided to require companies who are traded publicly to disclose in their documents to the SEC any information on how their dealings could affect possible climate change.