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January 06, 2011
Advance Chapter of Report on Gulf Disaster Is Released
    by Robert Kropp

The National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling finds that the Deepwater Horizon explosion was caused by failures of management, and asserts that the root causes were systemic.

Its full report on the Gulf of Mexico oil spill is not due until next week, but yesterday the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling published an advance chapter from the report. The Commission was established by President Obama last May to examine the causes of the Deepwater Horizon explosion.

The verdict of the Commission? Last April's disaster, which killed 11 workers and seriously injured many others while spewing over four million barrels of oil into the Gulf over a three-month period, was not an unpreventable accident. Rather, the report asserts, "Most of the mistakes and oversights at Macondo can be traced back to a single overarching failure—a failure of management."

Among the failures of BP and its partners, Halliburton and Transocean, documented by the Commission were inadequate risk management of well design, inadequate review and supervision of the design for the cement slurry used to seal the bottom of the well, the unnecessary removal of drilling mud that if left in place might have helped prevent a blowout, inattention to signals that a blowout was imminent, and an ineffective response to the blowout.

The report details nine decisions made that increased the risk of a blowout, and determined that in each case a less risky alternative existed. Furthermore, of the nine decisions, at least seven saved time and money, and seven were made from onshore and not the rig itself.

The report continued, "Government regulators lacked the authority, the necessary resources, and the technical expertise to prevent" the disaster from occurring.

Commission Co-Chair Bob Graham said, "We know now that the blowout of the Macondo well was avoidable. This disaster likely would not have happened had the companies involved been guided by an unrelenting commitment to safety first. And it likely would not have happened if the responsible governmental regulators had the capacity and will to demand world class safety standards." However, as the report found, "Efforts to expand regulatory oversight, tighten safety requirements, and provide funding to equip regulators with the resources, personnel, and training needed to be effective were either overtly resisted or not supported by industry, members of Congress, and several administrations."

"The blowout was not the product of a series of aberrational decisions made by rogue industry or government officials that could not have been anticipated or expected to occur again," the report asserted. "Rather, the root causes are systemic and, absent significant reform in both industry practices and government policies, might well recur. The missteps were rooted in systemic failures by industry management."

Commission Co-Chair William K. Reilly said, "A key question posed from the outset by this tragedy is, do we have a single company, BP, that blundered with fatal consequences, or a more pervasive problem of a complacent industry? Given the documented failings of both Transocean and Halliburton, both of which serve the off shore industry in virtually every ocean, I reluctantly conclude we have a system-wide problem."

According to the Commission, its full report "will contain its complete examination of impacts and considerations regarding the BP's Macondo well blowout, including chapters on a history of events before and after the blowout, the need for both improved corporate and government safety rules and response practices, challenges for restoring and protecting the Gulf's environment, considerations regarding the Arctic and drilling frontiers, and the Commission's official recommendations to President Obama, the Congress and industry for avoiding a similar episode."

In the months following the disaster, BP's stock lost more than half of its value, and its reputation as a top sustainable company—probably undeserved, considering its long history of health and safety violations—was ruined, leading to its removal from several sustainability stock indexes. Because of the trend toward a best-in-class approach to investment strategy by sustainable investors, companies in industry sectors such as oil and gas that distinguish themselves from their peers on environmental, social, and corporate governance (ESG) issues have increasingly been included in sustainable portfolios.

While firms such as
Domini Social Investments have excluded BP from its portfolio for years due to health and safety violations, others such as Christian Brothers Investment Services (CBIS), have elected to retain their holdings, preferring to attempt to improve the corporate governance practices of BP through engagement.

Last month, CBIS announced that it had prepared a
shareowner resolution that it will introduce in the 2011 proxy season, unless engagement with BP leads the company to conduct a review of its current risk assessments and risk management plans for its major North American operations, and to report to shareowners on its assessment of those risks and how they will be managed.

"What we're seeking is better disclosure," Julie Tanner, Assistant Director of socially responsible investing (SRI) at CBIS, said.

Last week, the
Investor Network on Climate Risk (INCR) sent a letter to the National Commission on the oil spill, asking that it recommend the development of guidance from the US Securities and Exchange Commission (SEC) on disclosure by companies engaged in deepwater drilling.

In the letter, Mindy Lubber, Director of INCR and President of
Ceres, wrote, "These regulations or guidance would help protect investors from future losses by allowing investors to understand the quality of oil and gas companies' risk management policies and practices, and seek to improve them where they are deficient."


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