The RI team at Nordea recently embarked on a research trip to the US. The headline was shale gas, probably one of the hottest topics within responsible investments today. Recognising the matter as a complex one, we approached it from multiple angles, meeting with policy makers, think tanks, industry, environmental organisations, as well as local communities.
The recent boom in shale gas exploration has prompted much debate around the consequences to the environment, as well as the health and safety of the local communities directly affected by the production. In the eyes of opponents, natural gas has gone from a favourable ‘bridge fuel’ to suddenly threatening the acceptance of an immediate need for renewable energy sources. Moreover, they argue that leaking methane – an unintended yet largely preventable consequence of shale gas production – has the potential to reduce the benefits of natural gas vs. oil and coal, as methane acts as a much more aggressive global warming agent than CO2, to the effect of anywhere between 72-84 times more heat generation over 20 years, according to The Climate Principles and the Environmental Defense Fund. And the list goes on.
Conversely, proponents highhlight the indisputable fact that the US economy has been refuelled by the shale gas revolution, providing a much needed boost to a struggling labour market and slowing GDP growth; IHS Global Insights predict that shale gas will support 870,000 jobs and generate around 0.75% of US GDP by 2015. Further, electricity prices have already declined 10% due to cheaper gas prices, creating a positive multiplier effect across industries. On the environmental front, the increased use of natural gas as an alternative to more carbon-intensive fuels has helped bring down US carbon emissions to 1996-levels. The benefits are many.
While we do not question the immediate economic potential, we are concerned with the longer-term consequences. Our research efforts therefore focus on a number of central issues:
– Methane leaks and the impact on global warming
– Water usage and contamination
– The regulatory framework and its enforcement
– Corporate best practices, accountability and the business case for sustainable operations
– Impact on communities
Our aim is to devise the impact these issues could have on the investment case of the oil and gas sector, and the potential of each to change the broader investment landscape across industries as it looks today. While we appreciated the complexity of the subject in advance of our trip, this notion was not only confirmed, but greatly reinforced. We therefore are continuing our research, following up with a second phase that will explore deeper our remaining questions.
At Nordea we strongly believe that active management and responsible investments go hand in hand, and require first-hand experiences of the businesses and industries in which we invest. This includes active ownership, challenging the status quo and pushing for better ways of conducting business.