An exchange traded fund that tracks the growing unconventional, hydraulic fracturing energy industry has struck oil, but some caution about potential risks associated with lax disclosure rules and potential compliance issues down the road.
Opponents to hydraulic fracturing, or “fracking,” are becoming louder as byproducts like contaminated water and polluted air grow along side increased production, reports Jeff Benjamin for InvestmentNews. [Shale Revolution Lifts Unheralded ETF to All-Time Highs]
In early November, a report by activist investor organizations and asset managers revealed growing concern over transparency in reporting guidelines, which are loosely followed. The report found that 24 major fracking companies failed to meet half of 32 separate indicators of disclosure practices. Additionally, the report discovered that the larger companies in the space are less likely to disclose risk factors.
Indicators in the study include factors like how water is transported, or whether executive compensation is linked to health, environment and safety performance.
“In a lot of cases, these companies are just hiding their light under a bushel, because there are some well-managed companies that are just not disclosing,” Paul Bugala, a senior sustainability analyst at Calvert Investments, said in the article. “This is material information, both in terms of how a company manages risk and how competitive the company is, but the industry has grown so quickly there is a lack of awareness that investors need this information.”
The greater disclosure allows investors to make a more informed decision as the information reveals how a company manages its business and how it shapes up against the competition.