O2 sensor - 1 wire

[450slcguy]

I recently replaced my O2 sensor with the bosch 1 wire splice in type. After doing the splice I notice that the metal coax like outer jacket to the ECU was quite frayed and connected by barely a few threads. The main sensor wire goes to pin 2 on the ECU. The coax like sleeve connects to pin 4 on the ECU.

Is that outer metal jacket a ground? Could that frayed sleeve affect the operation of the LAMBDA unit? If it's a ground, would splicing a hard wired ground into it be effective? Not sure how tp handle this, any comments or suggestions?