Fund management business Alliance Trust Investments is set to change its policy to a more precautionary view on unconventional gas, which includes fracking, following concerns raised by clients over the uncertain environmental impact of the industry.
The move will mean that companies with more than 10% of their operations in unconventional gas –shale gas or coal bed methane – will no longer meet the required criteria for investment in the Sustainable Future sustainable and responsible investment (SRI) funds, confirmed Mike Appleby, SRI analyst at the firm, which previously did not have a formal threshold limit for unconventional gas.
The change came about following concerns raised by clients. Appleby explained this included uncertainty over how fracking operations were managed and the fact that the full impact on the environment as yet remains unclear. He noted that whilst more stringent management policies are being bought in, these would take some time “to filter through”.
Questions around the amount of fugitive emissions, unintended gas or vapour leaks released during operations also affected the decision.
Appleby said, “The key is uncertainty. We are not saying we will never invest in shale gas, but as things stand we are not comfortable with the operations being of the highest standards as well as the lifecycle analysis in the carbon intensity merits of unconventional gas as compared to more polluting alternatives such as coal.”
Fracking, the technique by which shale gas is extracted from shale rock, has been the subject of conflicting reports and opinions, making it difficult for many sustainable investors to decide where they stand on the matter. The fracking debate has recently heated up after government plans revealed up to two-thirds of Britain could be fracked whilst exploring the possibility of “large scale shale gas production”.
The changes in Alliance Trust’s criteria will mean that some companies that the firm currently holds will no longer by eligible. In these cases, Alliance Trust will divest and sell over a six-month grace period.
Appleby added, “To put things into perspective, we hardly own any oil and gas companies anyway. Around 90% of oil and gas companies were not eligible under our previous criteria; now it will be around 95%.”
He added that the firm saw more interesting investment opportunities in the energy efficiency and renewables industries.
Alliance Trust Investment manages seven investment funds across its Sustainable Future range. The two best performers over the last year are the UK Ethical fund and the Sustainable Future UK Growth fund, which have recorded benchmark-beating returns of 32.25% and 30.82% respectively.