Pressuring Extraction Companies to Be More Transparent
Public companies and private firms in the US oil and gas industry respond differently to public pressure and environmental regulations, particularly when it comes to disclosing the chemicals they use in hydraulic fracturing (fracking). And it is interesting to see how these companies are adjusting their behavior faced with increased transparency requirements regarding the use of potentially harmful chemicals.
To explore this, in a research study of mine I analyzed an extensive dataset about over five million chemical ingredients used in more than 170,000 wells across 20 states. One of the key things that emerged is that public companies—i.e. traded on stock exchanges—are far more likely to reduce their use of toxic chemicals and increase transparency in their operations in response to regulation. Why? Because they face pressure from investors, shareholders, and the general public. They need to keep up appearances and are more likely to align with growing expectations about Environmental, Social, and Governance (ESG). These companies respond to public scrutiny by disclosing more about what they’re doing and cutting back on the use of trade secrets, which may be viewed as a way of concealing harmful activities.
Private firms, on the other hand, are a different story. Since they aren't under subject to the same level of scrutiny, they have more freedom to keep secrets—and often do so. As public pressure rises, these firms tend to use trade secrets to conceal the use of toxic chemicals, especially when the risk of regulatory consequences looms large. In other words, rather than being more transparent, private companies often double down on secrecy.
One of the most interesting part of this research was using the 2016 U.S. presidential election as an exogenous shock. The election of Donald Trump signaled a shift toward a more lenient regulatory framework as his administration rolled back over 100 environmental regulations. After the election, I found that private firms started reporting more on their use of toxic chemicals and sheltered less behind trade secrets. It seems that with the fear of stricter regulations easing, private firms felt more comfortable disclosing what they were doing. Public companies, however, continued their more transparent practices, staying on course with reduced toxic chemical use and fewer trade secret claims.
Another interesting finding was what I call the “spillover effect.” Even in a less regulated environment, I found that private companies sometimes mimic the behavior of their public counterparts, especially when those public companies are performing well. For example, in areas where public firms with cleaner practices were operating highly productive wells, nearby private firms were more likely to adopt similar, greener methods.
The implications of these findings are crucial for policymakers. While public pressure can be a powerful tool in getting public companies to adopt more environmentally friendly practices, it’s not enough in the case of private firms. Since private firms face less scrutiny, they need stronger incentives—or direct regulation—to move away from harmful practices. Otherwise, we end up with a system where public companies are doing the right thing because they have to, while private firms continue to operate under the radar.
This research highlights the importance of firm heterogeneity and is a reminder that one-size-fits-all policies don’t always work. Public companies, driven by the pressures of shareholders and the publi, might adopt greener practices, but private companies need a stronger push. If they want real environmental progress, policymakers need to recognize these differences and craft policies that ensure that both public and private firms are held accountable. While transparency can drive public companies to reduce their ecological footprint, we can’t expect the same results from private firms without additional regulatory measures.
So, what does this all mean? Essentially, while public pressure and information disclosure can encourage positive changes, they aren’t enough on their own to drive widespread environmental improvement. For industries where private firms play a disproportionate role in determining the environmental footprint, we need policies that target them more directly—because when it comes to environmental responsibility, the principles of transparency and accountability should be requirements for all firms, not just the ones which have shareholders to answer to.