Is fracking appropriate for ethical investing?

The link between ethical investing and environmental investing should be fairly natural and obvious. Investing in the environmental sector should be ethical, and investing ethically should take the environment into consideration.

In a post on the Alliance Trust Socially Responsible Investing hub, the company clarifies its position on fracking. Although judged by many as a no-go zone on both environmental and ethical grounds, it is not excluded from Alliance Trust’s SRI mission – in fact, it goes further. “We won’t exclude a company just because it is involved with fracking,” it says. “Fracking is a net positive activity.”

The enormous quantities of water involved, not to mention the potential for causing earthquakes and causing carcinogenic runoff, makes it questionable to consider fracking under the umbrella of ‘socially responsible’ investing. However, proponents of fracking say that the energy ultimately gleaned from it produces half the C02 impact of coal. Alliance Trust says the environmental impacts so far have been minimal.

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It is relevant to mention the fact that we still do not have the full picture on fracking, so the long-term consequences are unknown, but the controversy it has generated among environmental campaigners would surely be cause for concern.

Alliance Trust “does not invest in the majority of [the oil and gas] sector mainly due to the emissions associated with using these products”, showing that environmental concerns are on its socially responsible agenda. However, its stated reason to be wary of companies with high exposure to shale gas is “the expected economics of these projects are overly optimistic…which results in expectations of investment returns being too high”. In short, the reason to avoid fossil fuels is environmental, but the reason to be wary of shale gas is economic.

Impax, an environmental investing specialist that works with Old Mutual Global Investors on its ethical funds, bans “environmentally damaging practices” from its investment list. It steers clear of shale gas extraction companies in its socially responsible funds. “Impax does not invest in these extraction companies in any of its funds, and they would also be excluded from the Old Mutual Ethical fund by the environmental damage screen,” says Anne Gildin, head of brand communications at Impax. That said, it still invests in water companies that are involved in cleaning the fracking water, though some water companies are excluded on other ethical grounds, including operations in regions such as Gaza and Burma.

The intersection between ethics and the environment, then, is hazy, uncertain and still up for debate.