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April 12, 2011
Investors to Vote Against BP's Annual Report
    by Robert Kropp

One year after the Gulf of Mexico disaster, the investor coalition contends that BP's accounts and reports lack disclosure of information about the company's strategy.


The Gulf of Mexico oil spill disaster began with the explosion of the Deepwater Horizon oil rig on April 20, 2010. The explosion killed 11 men and injured 17 others, and an estimated 5 million barrels of crude oil flowed into the Gulf until the well was sealed in July. This year's annual meeting of BP, to be held in London on April14th, is the first since the disaster, and an international coalition of investors led by Christian Brothers Investment Services (CBIS) announced it would vote against the company's annual report.

According to an
assessment of BP's annual report compiled by CBIS and other members of the Interfaith Center on Corporate Responsibility (ICCR), "Investors had a fair expectation of robust and substantive disclosure on the way in which risks are and will be managed. Investors also expected more detailed information about the company's strategy, including both short- and long-term goals and objectives, relating to BP's role in averting catastrophic climate change. BPs 2010 Annual Report must be viewed as incomplete in these respects."

Specific issues raised in the assessment include health and safety, remediation of the Gulf of Mexico oil spill, transition to a low-carbon economy, and board oversight.

The decision by CBIS to vote against BP's annual report follows the withdrawal in January of a shareowner resolution addressing risk assessment by the company. The resolution was withdrawn following "an historic agreement" with the UK-based
Church Investors Group (CIG). In the UK and elsewhere in Europe, it has been customary to emphasize engagement over the more confrontational shareowner action increasingly common in the US.

"Speaking out is not that common in the UK," Julie Tanner, Assistant Director of socially responsible investing (SRI) at CBIS, told SocialFunds.com. While the coalition voting against the annual report includes the UK-based
Ecumenical Council for Corporate Responsibility (ECCR), as well as the Ethos Foundation of Switzerland, Tanner expressed hope that more UK-based investors will join the initiative.

Donna Meyer, SRI Consultant for
CHRISTUS Health, told SocialFunds.com, "We're working closely with investors in the UK and in Europe. Given how global these companies have become, we're going to have to work with our neighbors in other countries. Maybe we can work through differences in approach and develop a new model of worldwide collaboration."

Yesterday, the
California Public Employees' Retirement System (CalPERS) announced that it too will vote against BP's annual report, indicating its concern "with the absence of information related to key performance indicators and re-evaluation of the board's role in oversight of risk management."

Further support for the coalition's efforts has been provided by proxy advisory services Glass Lewis and PIRC, both of which advised against voting for the annual report. According to Glass Lewis, "Shareholders should voice their opposition to these deficiencies by rejecting the Company's accounts and reports as a form of protest against the Company's continual failure to correct these issues to satisfaction."

Tanner told SocialFunds.com, "We do have a couple of meetings set up with the company, one on the sustainability report and a meeting with Mark Bly, the head of safety and risk. We welcome more information from the meeting with Mark Bly, but even if he addresses risk concerns, there has to be more disclosure in writing so we can hold them accountable."

"The disclosure and level of detail is far from enough to give me confidence that safety and risk has sufficient board oversight, and that contractors and joint ventures are being looked at closely," Tanner continued. "Very few goals and very few measurements are included, so how am I as an investor supposed to hold the company accountable when I don't have any benchmarks, indicators, or goals? Time and time again, we're left with more questions."

In March, BP published a
Responsible Investor Briefing, which promised to provide details on its implementation of 26 recommendations by Bly. Although the briefing references a "7 point strategic agenda" as well as a Project Execution Plan, it does not provide specifics on implementation. Furthermore, according to Tanner, the details provided in the briefing were not included in the company's annual report.

For Meyer at CHRISTUS Health, engagement with BP represents a new direction in shareowner advocacy for the organization. "We're a health care organization, and most of our engagement in the past has been directly related to health, such as international access to medicine," she said. "But we decided to expand our guidelines beyond health to include companies that have impacts on our communities and our environment."

Referring to her contribution to the assessment of BP's annual report, Meyer said, "My contribution was focused on the Gulf coast. BP didn't get to any specifics on how they intend to remediate the crisis that has already happened. The Texas City disaster should have been a wake-up call for the company to improve risk management and safety procedures, but violations keep happening."

In 2005, an explosion at BP's Texas City Refinery in Texas killed 15 workers and injured more than 170. In 2009, the US Occupational Safety and Health Administration (OSHA) imposed a fine of $87.4 million, the largest ever by the agency, on the company for failing to correct safety hazards in Texas City.

Meyer's assessment of BP's Gulf Coast remediation efforts notes an absence of "appropriate objectives, evaluative context, or external assessments to help investors understand the level of progress being made."

"Little information is provided on issues with significant reputational and financial implications" as well, according to the assessment, and no mention is made "of any structured independent oversight and assessment."

 

 
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