Institutional Investors of the World Unite on 'Fracking'

A group of activist investors representing $1 trillion in assets under management are seeking action from the hydraulic fracturing industry due to the increasing level of uncertainty about its potential for environmental damage.

(May 18, 2012) — A group of institutional investors representing $1 trillion in assets under management have united to push for higher standards for hydraulic fracturing, a process energy companies use to extract natural gas.

The process — known as “fracking” — involves shooting chemicals and millions of gallons of water into wells to release natural gas in shale rock, which has been controversial and blamed for a variety of environmental damage.

Boston Common Asset Management, the Investor Environmental Health Network, and the Interfaith Center on Corporate Responsibility (ICCR) announced that 55 major investment organizations and institutional investors concerned about environmental, social and governance issues (ESG) have joined forces to support “best practices” for shale gas franking. The group is supporting a number of core goals and practices that they believe companies that use fracking should abide by, including the following:

1) Manage risks transparently and at board level.

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2) Reduce surface footprint.

3) Assure well integrity.

4) Reduce and disclose all toxic chemicals.

5) Protect water quality by rigorous monitoring.

6) Minimize fresh water use.

Steven Heim, Managing Director and Director of ESG Research and Shareholder Engagement, Boston Common, said: “Assuming that hydraulic fracturing is going to continue to be used in some form, investors need to have greater certainty in the marketplace as to industry practices and government regulation. Currently there is no such certainty and that is really why investors are speaking up. The marketplace has spoken: The best course here for investors, the environment and human health will be if all shale gas extractors wake up, get the message, and use these tools to do it right.”

Sister Nora Nash, Director of Corporate Social Responsibility, Sisters of St. Francis of Philadelphia, and member of the ICCR, noted that shale gas companies must earn their ‘social license’ by operating in a more responsible manner.

“Companies must address the community and environmental concerns prompting bans and moratoria. They must listen closely, respond sensitively, and account to both investors and communities for their actions. Otherwise, this is an uncharted process of unwanted development that deprives communities of their rights and leads to litigation and loss of investor confidence,” according to Nash.

The supporting organizations represented in the coalition encompass dozens of institutional investors in the US, Europe, and Australia, including: APG All Pensions Group, Australian Council of Superannuation Investors, Dexia Asset Management, Mercy Investment Services, Green Century Capital Management, and Regnan – Governance Research & Engagement Pty Ltd.

(May 18, 2012) — The asset management industry is expected to benefit from a moderate incentive compensation increase in 2012, thanks to economic recovery and varying impact of regulation despite ongoing uncertainty in world markets.

Johnson Associates projects Wall Street bonuses in 2012 will increase 10% to 15% for traditional managers of equities, with bonuses for fixed-income managers rising 15% to 25% due to improving stability of the asset class. The firm predicts bonuses among hedge fund firms will rise 5% to 15%, citing improved performance off of a challenging 2011.

Bonuses among private equity firms, however, may not be as stellar, as the consulting firm predicts an increase in incentive funding of only up to 5%, since the private equity landscape still remains cautious.

The forecast for bonus payouts by traditional and alternative money management firms comes from Johnson Associates, which recently released its first quarter trends and year-end projections on Wall Street incentive pay. According to the firm, asset under management levels are expected to increase primarily from market appreciation as net flows remaining stagnant.

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Meanwhile, investor sentiment remains uncertain, the consulting firm says, noting that projections are mindful of European turmoil but do not reflect a significant worsening of the current environment.

The latest forecast from the consulting firm is notably more optimistic compared to its forecast in August, when it asserted that money manager incentive pay was “down considerably” from three to six months prior.

According to the August report, while asset management and alternatives businesses were generally stable, the report noted that year-over-year growth in asset under management levels from market appreciation. At the same time, low interest rates continued to hinder fees. Additionally, the firm noted that hedge funds surpassed their high-water marks with asset inflows, but a solid first quarter was eroded by second quarter declines.