Environmental funds battled BP for years

BOSTON Thu Jun 3, 2010 4:30pm EDT

Sgt. Chad Birch with the Louisiana National Guard fills up a Tiger Dam with water form the Gulf of Mexico to protect the Grand Isle from encroaching oil coming that may come to shore with a high tide in Grand Isle, Louisiana June 1, 2010. REUTERS/Sean Gardner

Sgt. Chad Birch with the Louisiana National Guard fills up a Tiger Dam with water form the Gulf of Mexico to protect the Grand Isle from encroaching oil coming that may come to shore with a high tide in Grand Isle, Louisiana June 1, 2010.

Credit: Reuters/Sean Gardner

BOSTON (Reuters) - Even before BP Plc's massive oil spill in the Gulf of Mexico began in April, the company was losing its sterling reputation with fund managers focused on the environment.

Though once hailed for its investments in renewable energy and a green advertising campaign, the British oil giant worried fund managers over a string of accidents and safety fines dating to 2005.

The company also had dialed back its outreach, and even as BP became a mainstay of sustainable-investing stock indexes, many specialists had sold their shares or were moving to do so.

"Safety has environmental and investing implications," said Joe Keefe, Chief Executive of Pax World Management LLC in New Hampshire, which owns $2.4 billion in shares of companies that meet environmental or social criteria.

Pax World had owned BP stock at various points before 2008, and a fund now known as its Global Women's Equality Fund had bought 8,000 BP shares in stages this spring. It sold all of them on April 29 -- nine days after the disaster began -- mainly because of safety issues with BP elsewhere, such as $3 million in fines the company faced in March over alleged violations at a refinery in Toledo, Ohio.

The shares closed at 584 pence on April 29, and closed at 449 pence on Thursday, having lost almost a quarter of their value. The American depositary receipts rose four percent on Thursday to $39.25

Adam Kanzer, managing director of Domini Social Investments, a competitor that also picks stocks partly on environmental records, said BP approached his firm several times about buying a stake in recent years, to no avail.

At one session with a BP representative, Kanzer said, "We were telling her that safety issues were a big issue for us, that they needed to clean up their record if they wanted to be in our portfolio."

A BP spokesman did not respond to questions.

BP's souring track record with socially responsible investing (SRI) fund managers matters because the company's glowing green reputation once was a competitive advantage.

Its "Beyond Petroleum" advertising campaign touted its investments in areas such as natural gas and solar power to distinguish itself from other oil companies. Previous chief executive John Browne also courted SRI managers, many of whom still hold stakes in BP.

For instance, Wells Fargo & Co's Wells Fargo Advantage Social Sustainability fund had about 3 percent of its holdings in BP as of April 30, down from 3.5 percent as of January 31, according to a company spokeswoman and to Chicago data firm Morningstar Inc.

Legg Mason Inc's Legg Mason Investment Counsel Socially Aware fund had 2.7 percent of holdings in BP as of March 31, down from 2.9 percent at the end of the year. Neither company made fund managers available to comment.

BP has faced critics who accused it of "greenwashing," using environmentalist rhetoric while missing marks such as failing to spot corroded Alaskan pipelines that led to a 2006 spill.

It has plenty of earlier missteps on its record as well such as bungling the leadership of containment efforts following the 1989 Exxon Valdez tanker spill, reviewers found.

But whatever the case, SRI managers say BP dialed back its outreach when Tony Hayward took over as chief executive in 2007. At one point Hayward even considered a plan to spin off BP's green-energy businesses but shelved the idea amid the worldwide economic crisis.

"There was some cursory engagement that Hayward kept up," said Andrew Logan, oil industry program director at Ceres, a coalition of environmentally minded investors. "But what seemed clear was that under Lord Browne there was some sense that meetings would lead to actions by the company, whereas under Hayward it seemed like they were being done for show."

No company has ever faced an environmental crisis like BP does now. The full tale of the run-up to the April 20 explosion on board a drilling rig leased to BP and the company's response may be difficult to judge for years.

The situation now will force some judgments from those who had considered BP a worthy environmental holding.

On June 1 the investment firm that oversees the Dow Jones Sustainability Indexes said it had removed BP as a component. In a statement the firm said its decision was based on factors including the extent of the spill's consequences for the environment and local population, and for the company's reputation.

But a spokeswoman for the competing environmental indexes "FTSE4Good" said they still list BP and that its inclusion would not be reviewed until a regular meeting in September.

Mark Regier, a director of the MMA Praxis mutual funds in Goshen, Indiana, which owned 119,000 BP shares as of April 30, said he has been pleased with the company's openness since the spill but needs to hear more details before deciding how it will affect the firm's investments.

Communications with BP had deteriorated in recent years, Regier said, though he added he spoke with a BP director several weeks ago. "Something changed, there was a bit of a loss of a connection" after Hayward arrived, Regier said. "What we have seen over the last few months was an improvement."

(Additional reporting by Tom Bergin and Matthew Daily, editing by Philip Barbara)