You can give BP some credit: its investment in rebranding itself as a “green” company over the past decade, at US$125 million annually, managed to not only soften its image to consumers, but find its way into the portfolios of several ethical investment funds. Then April 20 and the Deepwater Horizon fiasco hit, and now many of these funds are scrambling to wash themselves free of BP.
The rapid shedding of BP from investment funds is not merely a public relations move; BP’s diminished shareholder value of about US$100 billion has not only dashed British pensioners’ retirement funds, but has thrown college presidents, politicians at all levels of government, and yes, mutual fund mangers into the hot seat. These fund managers have begun to sell off their shares of BP, and last week, the American mutual fund company Calvert Investments announced that it sold a significant portion of its BP shares, but will still work with BP to improve its environmental performance.
Calvert manages several ethical funds, including its Sustainability Achieved through Greater Engagement (SAGE) fund, the aim of which is to encourage companies to improve its environmental, social, and governance (ESG) performance through shareholdings. The firm established SAGE in December 2008 in part to prod BP into improving its safety practices, be more transparent in its Canadian tar sands exploration, and reverse its decline in alternative energy investment.
Alas, the relationship was not a happy one. Even before April 20, Calvert had criticized BP, alleging in its spring engagement report that BP had done little to address mounting safety concerns that escalated after the 2005 accident at its Texas City refinery that killed 13 workers. BP never addressed its ESG issues to Calvert’s satisfaction, and the company’s stock performance finally led Calvert to drop the struggling British oil giant from its holdings. However, BP is still present in many of Calvert’s smaller funds, a strategy that Calvert’s management hopes can help the company turn a corner so desperately needed.
Naturally the question begs, Why would Calvert even bother with BP in the first place? Critics of ethical funds often complain that many companies in a fund’s portfolio are only “green” in image or their logos. But many fund managers have to maximize their fund’s performance to shareholders’ and management’s expectations, and ethical funds are no exception. Many fund managers will buy shares in a company that would send CSR advocates scurrying for cover because in the end, the best choice may be a relative one: when you have to diversify your holdings, sometimes the least evil option is the only one. Read a fund manager’s job description and the demands placed on them, and you will see why some unseemly companies may be listed on your ethical fund’s statement.
That may change. Even Great Britain’s press, which was first defending BP, has been all over ethical fund companies, exposing the fact that nine of Europe’s leading ethical funds all held BP stock. Even iconic Marks & Spencer, had its own ethical fund that included . . . BP shares. No easy solution exists: investment in ethical funds has quadrupled in the past decade, so surely BP shares are hiding here and there.
Yesterday I attended a virtual CSR conference and tuned in to a session that included Mike Wallace of the Global Reporting Initiative. He showed us a graph showing how companies in the Dow Jones Sustainability Index outperformed those in the Dow’s Industrial Index. Sure, there will always be a straw man when evaluation who is generally a CSR model and who is not, but if there’s a silver lining out of this 74-day Gulf nightmare, a shift in investment strategies may already be underway.