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Financial Planning > Charitable Giving > SRI Impact Investing

The Green Advisor: Food for Thought From a Tragedy

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A few years ago, British Petroleum officially changed its name to the simpler BP, a point that seems to have been lost on many officials in the Obama Administration, much to the chagrin of the British tabloids, which seem to be taking the whole matter personally. These days the two letters could just as easily stand for “big problem.”

The economic and environmental costs resulting from the Deepwater Horizon disaster in the Gulf of Mexico are still being tallied, but the number seems to shift upward on a daily basis. What will ultimately happen with BP, whose stock price has plummeted, has lost almost half its market value as this issue went to press, and is now the subject of bankruptcy and takeover rumors, remains to be seen.

In addition to the horrific scenes of oil-soaked pelicans, and other wildlife, and the heartbreaking tales of fishermen and others whose livelihoods are endangered, for the readers of this magazine there’s the added burden borne by those who had invested in the company both financially and psychologically. That seems to be especially apparent in the SRI community, where opinions of BP had been pretty high.

“It is a fascinating dilemma,” says John LaPann, president and chief investment officer of Federal Street Advisors, a Boston-based investment consultant to institutional-sized families and individuals and mid-sized foundations, of the conundrum facing SRI investors. “The trend in social investing, in environmental investing, has been to not automatically screen out any company that’s doing something that you don’t 100% approve of but instead try to look at the balance between what they’re doing well and the other aspects of their business,” he says.

Steve Schueth is president of First Affirmative Financial Network, headquartered in Colorado Springs and a veteran of more than 20 years in the SRI space. Schueth points to BP’s “Beyond Petroleum” campaign, a reported $200 million public relations effort launched at the time the corporation stopped calling itself British Petroleum. “And we–meaning the SRI community–believed that then-CEO John Browne was serious about this,” he recalls, adding that since Browne was replaced by Tony Hayward three years ago the company’s move toward alternative energy has been moved to the back burner. “There was a period of time where the SRI community was looking for an oil company for portfolio diversification,” Schueth says. “There was sort of wishful thinking–’We need one; who’s the best one out there?’ was the question. The best one out there by virtue of a couple of different metrics was BP.”

Why BP Looked Good

From an SRI standpoint BP looked a lot better than its industry peers (see sidebar). Schueth says the company scored high marks for transparency, and even though its safety record was spotty, BP’s management was more open about it than its competitors. In the area of solar, wind, and biofuel development BP was way out in front of the others.

“They stood out as being a little bit better, a little bit more progressive, a little more in tune with what the socially conscious investor wants to see from a company,” says Schueth. “Then a new CEO comes in and it’s only now become apparent that [he] does not have the same values and the company is not being led in the same way that it was.”

At that point–and the same principles would apply for any SRI investment–Schueth explains it becomes a question of purity versus best of class. “Another way to think about it is light green versus dark green,” he explains. “The impression was, and this was a hopeful impression several years ago, was that BP as an oil company was doing better; was becoming darker green than its competitors. For those asset managers and investors who were okay with a best-of-class approach, BP found its way into the portfolio because it tended to be better than the other big oils. What we’ve discovered is that best of class is a strategy for rationalizing the lighter green companies–companies that might be a little bit better than their competitors, but really aren’t very good over all in terms of their environmental and social record and impact.”

Still a Place for Big Oil?

Despite what’s happened with BP, Schueth thinks that there could still be a place for big oil in the portfolios of those who consider themselves SRI investors. “When dealing with clients, whether its an institutional or an individual client, I put the question to them, ‘Are you comfortable owning a big oil company, knowing that they may be the best of the worst, but still not very good, for purposes of portfolio diversification?’ Some clients say yes, and other clients say absolutely not.

“Another thing that I think this brings home is something that social investors have been talking about for a long time: looking at costs that don’t show up on the balance sheet today,” adds LaPann. “Here’s a tremendous environmental cost, which in fact has turned into a financial cost for BP. Not just in stock price, there’s now a rumor that they’re going to have to declare bankruptcy. While the adage ‘Do well while doing good’ seems trite, this is probably the classic object lesson: If you are involved in activities that carry an environmental risk, sooner or later those risks are going to play themselves out to the detriment of the company and to the detriment of investors.”

“We have no illusions that the U.S. economy is not going to continue to be run on oil and gas, on hydrocarbons, for the foreseeable future, but we also think that this accident, this tragedy, needs to be a catalyst for much greater investment in alternative energy…and a reminder that we have a choice to become less reliant on such risky fuel sources,” concludes Bennett Freeman, Calvert Asset Management’s senior VP for Sustainability Research and Policy. That’s a choice advisors can help their clients make in their investment portfolios.


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