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20 December 2010
SocialFunds: Shareowner Resolution Addresses Risk Management at BP
Source:
www.socialfunds.com
by Robert Kropp
Long-time shareowner Christian Brothers Investment Services leads investor effort to engage with BP on better disclosure of risk assessment and mitigation.
SocialFunds.com -- As disastrous as the Deepwater Horizon platform explosion in the Gulf of Mexico was, it is only the most recent of a long history of health and safety violations at BP. Other well-publicized examples of such violations by the company include the 2005 explosion at its Texas City Refinery in Texas, which killed 15 workers and injured more than 170. In 2006, 200,000 gallons of oil spilled in Great Prudhoe Bay in Alaska, despite concerns voiced as early as 2001 that maintenance of BP's Alaskan pipelines were insufficient.
Since the Gulf tragedy, in fact, many more health and safety violations dating back to at least 1999 have been made public by a variety of media sources. A ProPublica article posted in June reveals "that the company repeatedly disregarded safety and environmental rules and risked a serious accident if it did not change its ways." And according to a cable released by WikiLeaks, a gas leak at a platform in Azerbaijan led to "the largest such emergency evacuation in BP's history."
Frustrated with the repeated health and safety violations by BP, as well as the company's poor disclosure of risk assessment and management procedures, a coalition of investors led by Christian Brothers Investment Services (CBIS) has prepared a shareowner resolution that it will file with the company in January, if the results of engagement are not satisfactory by then.
According to Julie Tanner, Assistant Director of socially responsible investing (SRI) at CBIS, organizations that have signed onto the resolution thus far include Calvert, several member of the Interfaith Center on Corporate Responsibility (ICCR), and the Swiss-based Ethos Foundation, among others.
"We expect to have 100 co-filers" by the time the resolution is ready to be submitted, Tanner told SocialFunds.com "All of us together thus far have close to 8 million shares and about $60 billion under management. The group can send a strong signal to the company, and I think the company is open to improving engagement."
In a supporting statement released with the draft of the resolution, the coalition noted, "The Spill has resulted in estimated total charges of $40 billion. It has damaged BP's reputation, endangering the company's social license to operate. To meet the costs of the Spill, BP has cancelled three quarters of dividends, reduced its investment program by 10 percent in 2010 and 2011, and has committed to sell $30 billion in assets, actions that will curb our company's growth."
"To regain trust, improve BP’s reputation, and demonstrate an understanding of the Spill's impact on the direction of our company," the statement continued, "We direct the board to conduct a review of the company's current risk assessments and risk management plans for BP’s major North American operations, and to report to shareholders on its assessment of those risks and how they will be managed."
That BP had been for years, up until the Gulf disaster, a highly regarded sustainable company—it was listed on both the Dow Jones Sustainability Indexes (DJSI) and the FTSE4Good Index Series—became something of an issue of contention among sustainable investors after the Gulf tragedy.
As Adam Kanzer, the Managing Director and General Counsel of Domini Social Investments told SocialFunds.com at the time, "BP was specifically excluded years back based on their safety record, and we told them this."
Furthermore, "Divesting is a powerful tool, and if you don't use it enough you don't have it in your toolbox," Cary Krosinsky of Trucost said.
Yet, as Tanner told SocialFunds.com, "Once we've sold, we've lost our leverage."
"CBIS doesn't evaluate companies on environmental and social issues, in terms of screening from the portfolio," Tanner continued. "But we've been in business for 30 years and have seen many SRI successes where companies change their behavior, sometimes very quickly."
The investment strategy followed by CBIS states, "Our socially responsible investment program includes both principled purchasing decisions and active ownership strategies. Our focus is not exclusively on screening companies from our investment portfolios (although we do exclude some) but on engaging the companies we invest in to become better corporate citizens."
"We've been engaging with BP since 2005, and in the past the company always brought senior people to discuss the issues," Tanner said. "The engagement was frequent and proactive. BP was good at disclosure and reporting on social and environmental goals."
"But a couple of years ago, it stopped communicating and disclosing in the same robust way," she continued. "BP moved its investor relations from New York to Houston in 2008, and since that time shareholders haven't really been able to engage with BP. However, there was a meeting with investors held on December 1st, and that meeting was helpful as a preliminary platform for discussion."
BP posted an account of its meeting with sustainable investors on its web site, stating that it has accepted all 28 recommendations addressing both its drilling operations and management systems, and its contractor and service provider oversight and assurance.
"What we're seeking is better disclosure," Tanner said. "There's been very little disclosure to this point on the Gulf. How are they incorporating lessons from the Gulf into their other operations?"
"There have been significant safety violations and loss of life in Texas City, and in 2006 in Alaska where there was 200,000 gallons of oil spilled," she added. "There seems to be a pattern where this has continued. Obviously, we need to know the risks associated with these operations. How is it possible to measure progress when there haven't been many goals and objectives established on these issues?"
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