UK - The Gulf of Mexico oil leak has raised awareness of the need for pension funds to measure environmental, social and governance (ESG) risks and assess their impact on investments.

FairPensions, a lobbying group for UK pension funds and managers to adopt responsible investment practices, said the failure by BP to stem the oil leak in the Gulf of Mexico - caused by a fire and sinking of the Transocean Deepwater Horizon drilling rig - had caused the oil company's share price to plummet.

In turn this had raised concerns among UK pension funds, as their portfolios "typically include large holdings in BP". FairPensions also argued the oil spill, which occurred in April and which is still ongoing, "raised further evidence of concerns about BP's long-term risk management, gaps in investor scrutiny and low cost solutions".

BP has already been the subject of a special shareholder resolution tabled by FairPensions on concerns relating to the Canadian Tar Sands project. The lobby group noted: "The need for responsible ownership has been underlined by the financial crisis and by the latest in a list of avoidable BP crises."

This list also includes the Prudhoe Bay oil leak in Alaska in 2006, which is the basis of a class action against the company, brought by Lothian Pension Fund and others, accusing BP of "recklessly failing" to maintain oil pipes. (See earlier IPE articles: Pension funds lose oil sands campaign against BP and Lothian takes co-lead against BP)

FairPensions said it urged investors to act as responsible owners, and monitor and manage ESG and corporate governance risks. Yet its research has shown the recognition of the financial risks of these issues is not usually matched in practice by pension schemes and their fund managers.

Duncan Exley, director of campaigns at FairPensions, said: "From oil leaks to irresponsible lending, environmental, social and corporate governance issues have a history of precipitating crises which damage our economy and our investments.

"We urge investors - or the government if necessary - to put in place measures to ensure that these issues are monitored and managed so that the next crisis is less likely to affect us all."

Topics