The £14bn (€20.1bn) pension fund of BP, the global oil and gas giant, is evaluating how it might integrate a responsible investment approach in its day-to-day running under new trustee chief executive officer, Sally Bridgeland, former consultant with Hewitt Associates and respected SRI advocate, who joined the company in June.
BP was given a sharp reminder of the risks of poor corporate behaviour following its recent $373m (€258m) settlement with the US Department of Justice and Commodity Futures Trading Commission for environmental crimes, including $50m relating to a Texas refinery explosion in 2005 that killed 15 people, and price-fixing charges for manipulating the propane market in 2004. Bridgeland says the company is serious about corporate social responsibility and conscious it must now take steps to make a difference. Her words echo BP America chairman and president Bob Malone, who said following the recent settlement: “In the months and years since these violations occurred, we have made real progress in the areas of process safety performance and risk management. However, there is more to do and we are committed to doing it.”The task of translating CSR into corporate pension fund activities appears unenviable considering the few SRI leaders amongst large companies, but it is axiomatic. Two thirds of UK corporate pension fund trustees responding to a recent survey by the UK Social Investment Forum (UKSIF) said they believed environmental, social and governance issues had a financial effect on their investments. While at Hewitt, Bridgeland was instrumental in setting up the Long Term Pension Fund Mandate Competition in 2003, which encouraged pension funds to adopt a longer perspective when selecting asset managers, rather than hiring and firing based on short-term performance numbers. The idea was that pension funds might invest as company owners rather than stock traders.
Her new project at BP, which follows on from work initiated by her predecessor Reg Hinkley, who was also a founding member of the sustainable pensions board at UKSIF, bears some of the same hallmarks: “When we started doing the Long-Term Mandate Competition there was a sense that SRI was either a marketing tag or something for extremists. We had to change the
perception, because neither would be something that a company like BP would be comfortable with. The project we are involved in here includes reviewing the company’s beliefs on CSR and figuring out what can encourage companies to change what they are doing over time.”
In relation to the pension fund, she says this means weighing up all risks, not just financial, and assessing the fund’s responsibility towards its beneficiaries: “We’re already getting a much clearer picture of how far the trustees feel we need to go in this area. It’s not an easy balance because there may be times when the pension fund has to do something different from the company. Fundamentally though, BP is a long-term business and treats its pension fund in the same way, which is why there is an equity bias in our investment strategies. That’s a good platform to work from with our in house fund management team.”
Bridgeland’s research has thrown up several key questions. One is investing in renewable energy; a key business for BP, which is the third largest producer of solar panels in the world. “How might you use BP’s knowledge of renewable energy in the pension fund investments? Would you be diversifying your risk wisely against the sponsor’s risk or would levering on their knowledge give you an advantage?
“It’s those kinds of debates we are entering, which go to the heart of the relationship between pension fund and sponsor,” she says.Another question is what big themes are on or off the trustee agenda: “World poverty, human rights, loan sharks: are we going to be a pension fund that has an opinion on these issues? Other issues such as demographics and quality of life are also inherently issues for the members of a pension scheme. Do we need an explicit policy as a result? There’s no point in paying a good pension if it won’t buy much when you retire.”
““World poverty, human rights, loan sharks: are we going to be a pension fund that has an opinion on these issues?”
A third is whether the pension fund will be judged by the activities of the company: “We have to be ready for that because there are reputation risks to consider. Oil and gas companies like BP are not short of activists who want to target them.”
BP has made a good start in being open to the challenges it faces both internally and in its pension fund. Bridgeland says this is what persuaded her to take up the position: “I’m happy to be in a job with a pension fund doing something to make progress in this area. I don’t think we will see a quick result, but it is a long-term engagement that will be built on progressively and persistently.”