On 15 April 2010, just 5 days before BP’s infamous Deepwater Horizon oil spill occurred, the recently appointed chairman of the British oil major made remarks about the importance of long-termism at his inaugural AGM.
Carl-Henric Svanberg, now at Volvo, told shareholders that BP required a board “with a long-term perspective because the energy industry, by its nature, works to long-time horizons”.
BP’s board appetite for long-termism was tested that very same day, with a climate shareholder resolution on tar sands filed by FairPensions (now ShareAction) and the Co-operative Asset Management.
The majority of shareholders, 93.79%, sided with the board and voted against. Nonetheless, some green shoots of dissent emerged as 6.21% backed the proposal and 9.2% abstained.
For Lynn Stout the Deepwater Horizon disaster was yet another example of the endemic shareholder value thinking
BP’s spill proved just 5 days later that the oil major was far from walking the talk on long-termism. Its broader shareholder base, however, was not entirely exempt from blame.
The 398-page National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling report showed the ugly face of a disaster that could have been prevented.
Published in January 2011, it exposed not only BP’s “chronic” safety lapses and “tarnished reputation for safety”, but also systemic failures of regulatory oversight within the industry that started decades before the disaster.
The Commission concluded that most of the mistakes and oversights at Macondo (the name of the well) “can be traced back to a single overarching failure — a failure of management”.
BP had budgeted $96.2m (€88.4m) and 51 days of work to drill the Macondo well. By the day of the spill, the project was almost 6 weeks behind schedule and more than $58m over budget.
In addition, the Deepwater Horizon rig, built for $350m, incurred in leasing costs $1m per day, according to the Commission’s findings.
The late governance scholar Lynn Stout argued that BP’s “foolish gamble”, rushing to save $1m a day, ended up costing shareholders dearly.
According to Stout, the Deepwater Horizon disaster was yet another example of the endemic shareholder-value thinking that drives short-termism within corporations.
In her own words, from the book The Shareholder Value Myth, “the quest to ‘unlock shareholder value’ drives directors and executives to run public firms like BP with a relentless focus on raising the stock price”.
A Transatlantic coalition
In perspective, however, some good came from that “well from hell”, as Macondo was dubbed due to its depth (more than 18,300 feet below sea level, including an ocean depth of 5,000 feet) and complexity to drill.
Arguably, not all shareholders strictly followed the thinking that Stout denounced. Indeed, it was the Exxon Valdez oil spill in the 1980s that prompted the late founder of Trillium Asset Management, Joan Bavaria, to round up some like-minded peers and campaigners to launch the Coalition for Environmentally Responsible Economies – better known now by its acronym CERES.
"It was an incredibly stressful time. It was nearly impossible to get any information" – Julie Tanner, CBIS
And Deepwater Horizon triggered its own wave of responsible investment activity, laying the foundations for the collaborative shareholder engagement that can be seen regularly in headlines nowadays. The gradual focus on BP’s climate issues has come on the back of a group of investors in the US and the UK teaming up after Deepwater Horizon, spearheaded by $7bn manager of managers Christian Brothers Investment Services (CBIS). CBIS had a long history of engagement with BP on ESG, including climate and indigenous issues of BP’s operations in the Arctic National Wildlife Refuge.
Julie Tanner, Managing Director at CBIS’ Catholic Responsible Investment, tells RI that those efforts to have a more fulsome and strategic response to BP’s governance failures crystallised into “a transatlantic coalition” with other investors across the pond.
“It built the foundation for many other successful partnerships, like the Aiming for A coalition, where we teamed up again with Helen Wildsmith and others to press BP on its climate response,” she says.
Tanner recalls that CBIS began considering a shareholder proposal at BP partly because of the lack of response from its board, which had completely closed ranks after the Deepwater Horizon oil spill.
“It was an incredibly stressful time. It was nearly impossible to get any information. They wouldn't engage. They just wouldn't speak to shareholders, partly for legal reasons,” she says.
By September 2010, the Bly report made things worse. Named after BP's own head of safety and operations, Mark Bly, the company’s internal inquiry was seen as an attempt to shift the blame on contractors.
Tanner says this raised the alarm bells: “We felt the only way to get answers was to go through the shareholder resolution process, rarely used in the UK”.
By December 2010, a shareholder resolution on health and safety grounds had been filed, aiming to bring independent oversight to the board’s management of the crisis – as reported by RI at the time.
Meanwhile in the UK, there were “a lot of overlapping engagement groups”, says Helen Wildsmith, Climate Change Stewardship Director at CCLA Investment Management, the £9bn (€10.3bn) asset manager for churches, charities and local authorities.
Wildsmith had spent much of 2010 focused on the tar sands engagement with Shell, she tells RI. By the Autumn, however, she recalls being involved in organising meetings, alongside Edward Mason (then at the Church Commissioners) and James Corah (CCLA), for a BP board member to come and present to the Church of England’s Ethical Investment Advisory Group.
She recalls spending all of January 2011 negotiating with BP's company secretary and finally brokering an agreement whereby European and US church investors would co-file again if things didn’t move forward sufficiently.
CBIS’ Tanner recalls: “We agreed to withdraw in exchange for more information, for a meeting at the board level. And ultimately that led to the request for an independent expert being approved, not just at the Gulf’s [Gulf of Mexico] but operations around the globe”.
By that time the climate issue started to be a sort of “elephant in the room” – Helen Wildsmith, CCLA
But the Transatlantic coalition didn’t drop its guard at the following AGM in 2011. CBIS urged investors to vote against BP’s accounts and reports, publishing a critique of the company’s 10-K on the grounds that it still lacked the information that shareholders needed.
CBIS’ coalition also called for a voting against the members of the board’s Safety, Ethics & Environmental Assurance Committee. With 43% of votes against him, the Chair of the Committee, Sir William Castell, stepped down the following year.
And CBIS’ critique of the annual report raised concerns over BP’s declared strategy to transition to a low-carbon economy.
“The company’s joint ventures with Rosneft for Arctic exploration and its entry into oil sands production suggest a contradiction between BP’s strategy and its public statements about climate change,” CBIS stated.
Wildsmith says the idea for Aiming for A – the coalition of responsible investors engaging with oil majors – came to mind then, in March 2011. By that time the climate issue had started to be a sort of “elephant in the room”, she says, and the collaboration with US peers made her fully understand “the different role of shareholder resolutions between Europe and the US”.
(Read here about Wildsmith “Clerkenwell Moment”)
Loosely speaking, Aiming for A launched in 2012 https://www.responsible-investor.com/articles/why-were-aiming-for-a and morphed later into the Institutional Investors Group on Climate Change. To some extent, both are part of the genealogy of the current Climate Action 100+ initiative.
SANE BP and Follow This
On another April day – this time 20 years ago – one of the first climate resolutions per se was filed at BP.
Greenpeace spearheaded a proposal asking the oil major to withdraw from the Northstar offshore Arctic oil field in Alaska and reinvest the capital in its solar arm, BP Solarex.
At the time, following a merger in 1998, BP was known as BP Amoco, and the deal meant some new US shareholders held the stock – crucially, among them was Trillium.
10 years on from the oil spill in the Gulf of Mexico and 20 years from Greenpeace’s resolution to reinvest in renewables, BP has just offered promises yet to be fulfilled
One year later an umbrella group called SANE BP was formed by Greenpeace, the US Public Interest Research Group and ESG investors in the US and the UK.
At the 2000 AGM, SANE BP’s proposal garnered a shocking 13.5% of support, including Trillium’s, in a vote that bears a striking resemblance to current events – albeit with different dramatis personae.
Instead of Greenpeace, read Follow This, the green shareholder group. And to the list of supportive shareholders add the names of six Dutch institutional investors: NN Investment Partners, PME and PMT, ACTIAM, Aegon, Kempen Capital Management and Achmea Investment Management.
The Scope 3 emissions proposal filed by Follow This at BP last year might have revived that SANE BP spirit of collaboration between campaigners and investors.
The resolution achieved 8.4% of support, far beyond the support of the six Dutch investors, and 7% of abstention. It happened against all odds, as Climate Action 100+ proffered an alternative resolution that many thoughts would override the dissenting proposal of Follow This.
Follow This founder Mark van Baal tells RI that filing resolutions and engaging are not mutually exclusive activities. History shows that campaigners and investors can be more effective in partnership – when neither has the monopoly over engagement and shareholder activism.
In an unprecedented twist, BP recently embraced Follow This’ proposals around shareholder support on Scope 3 emissions and they will be working on a joint resolution for the 2021 AGM.
But as David Blood, co-founder of Generation Investment Management, said recently, “incrementalism” might not be enough when it comes to engaging oil majors.
The tragedy of the horizon means also that 10 years on from the oil spill in the Gulf of Mexico, and 20 years from Greenpeace’s resolution to reinvest in renewables, BP has only now offered promises, yet to be fulfilled.
Dividends and fiduciary duty
One episode often forgotten about the Deepwater Horizon crisis was the row over BP’s dividend between the UK and US governments. Obama and US lawmakers wanted BP to stop dividend payouts until the full cost of cleaning up the spill was known. Cameron opposed it saying that it was in everyone’s best interests (particularly British pensioners) that BP continued to be a “strong and stable company”. Ten years on, have the interests of British pensioners fully aligned with climate and environmental goals?