Beyond the Fracking Wars: Reaching Consensus with Multi-Stakeholder Frameworks
February 10, 2013
This is the second installment of a two-part series that was originally published by the International Law News, Volume 44, Number 2, 2015. ¬© 2015 by the American Bar Association. View the first installment here.
Creating Conditions Above and Below Ground for Unconventional Oil and Gas Development through a Governance and Sustainability Framework
In the Southern Cone, regulatory frameworks, public policy initiatives, and opportunities for public-private partnerships are neither harmonized nor harmonious. South America shows different approaches to government regulation over hydrocarbons and ownership schemes over minerals, as well as their development and management, government-private sector relations and development, access to technology, regulations, implementation of industry sustainability standards, and different jurisdictions’ approaches to their own quality of governance and rule of law. Creating opportunities for leveraging, engaging, and innovation will require that the immediate future of unconventional oil and gas development in South America be characterized by development on three fronts:
1) a strategic approach to hemispheric policy development, diplomacy, and cooperation;
2) understanding the importance of social licensing processes and how that could affect the private-sector bottom line; and
3) the role of the legal profession in these developments.
Hemispheric Multi-Stakeholder Engagement
Strategic engagement and dialogue within the Americas among those who share the wealth of unconventional oil and gas resources will prove to be beneficial for the region and hemisphere at different levels. So-called energy diplomacy can have a direct impact on the establishment of solid dialogue and diplomatic relations that leverage good policy, regulatory frameworks, and industry best practices supporting energy independency and/or efficiency (depending on a country’s needs). When it comes to preventing and/ or mitigating the environmental, social, and governance (ESG) impacts of hydraulic fracking, one company’s best sustainability practices or even research initiatives trying to understand the true environmental impact of this activity are not enough. A multi-stakeholder approach, one that brings together governments, the oil and gas industry, research and academic institutions, industry associations, investors, shareholders, and even NGOs, can be the catalyst for leveraging best sustainability practices, investing in serious academic research that identifies the true impact (even the negatives) of hydraulic fracking, and providing standards for prevention, mitigation, and further technological and research development. This, in turn, will leverage international and regional standards that governments, the private sector, and even NGOs can agree upon to integrate as important for their own operations and activities. At the same time, it will serve to create the conditions for operating within a governance and rule-of-law framework.
Social License to Operate and Shareholder Participation
Bans and moratoria are denials of companies’ social license to operate arising from concerns about environmental and social risks. Richard A. Liroff, Shareholder Engagement as a Tool for Risk Management and Disclosure, in Beyond the Fracking Wars, supra. Confronted with this reality, the unconventional oil and gas industry needs to incorporate sustainability standards that call for a responsive management guided by committed shareholder participation on these issues. Reducing environmental and community impact requires not only strengthening federal, state, and local regulations within a governance and rule-of-law framework but also having industry itself incorporating the highest international safeguard, sustainability, and multi-stakeholder engagement standards at the operational level—even when there are no local regulations requiring them to do so.
And this is when shareholder engagement is so very important. Management cannot do it alone or be left alone on these key strategic decisions that have a direct impact on risks and rewards. Today, it is widely acknowledged by the investor community that how a company manages ESG has a direct impact on financial numbers and investor’s returns. Id. The investor and shareholder communities have already begun mobilizing around these issues by developing best practices that permeate management at different levels. Id. (citing 12 core management goals for natural gas operations identified in Extracting the Facts: An Investor Guide to Disclosing Risks from Hydraulic Fracturing Operations, a guide published by Investor Environmental Health Network (IEHN) and the Interfaith Center on Corporate Responsibility (ICCR), including Green Century Capital Management and Boston Common Asset Management. While this is still a process in development, it certainly is already creating a positive impact that should be leveraged and embedded across the industry and within standards even more forcefully in jurisdictions that have different approaches to regulating, governance, rule-of-law, and sustainability frameworks.
The Legal Profession and Sustainability
The sustainability, business, and human rights movement is a movement that has begun to change how businesses across the globe operate that has gained momentum in recent years with the private sector and legal profession, owing in part to the passage by the UN Human Rights Council in 2011 of the UN Guiding Principles on Business and Human Rights (Guiding Principles) and the 2012 Rio+20 Sustainability Conference. In light of these, many corporations and the legal profession as a whole are looking at how to adopt sustainability and human rights policies as part of their headquarters and field operations to avert costly disruptions and reputational harm in the context of implementing due diligence mechanisms. Other international multi-stakeholders, as well as industry-related initiatives, are at the heart of this discussion because they are providing the framework for the private sector to engage with other sectors and generate best practices across regions through sustainability reporting and integrated operational practices.
An entirely new regime and system are emerging; these are comprised of both soft and hard law (international law), where soft law standards are being increasingly embedded as part of due diligence mechanisms and sustainability operations of the private sector. It has been noted that this process is acknowledging the “standard setting power of soft law into the development of emerging norms into the international community while also integrating social expectations into these rule making process.” U.N. Human Rights Council, Business and Human Rights: Mapping International Standards of Responsibility and Accountability for Corporate Acts, Report of the Special Representative of the Secretary-General (SRSG ) on the Issue of Human Rights and Transnational Corporations and Other Business Enterprises , A/HRC/4/035 (Feb. 9, 2007).
In turn, this new regime and system are also influencing a new field of practice that does not only involve human rights or environmental law. The complexity of the legal questions emerging from this new field of practice increasingly requires that corporate lawyers, whether in-house or those advising industries that, as a result of hydraulic fracking, have the potential to collide with ESG standards and run into serious conflicts or reputational damages, be well versed in these standards and emerging system of laws so that they can integrate them as part of their advisory services to their clients.
This is the second installment of a two-part series that was originally published by the International Law News, Volume 44, Number 2, 2015. ¬© 2015 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion 35 thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.