Calvert News & Commentary

Statement from Calvert Investments on BP plc Regarding Gulf of Mexico Oil Spill

6/22/2010

Calvert shares the extraordinary anger and frustration felt by the millions of Americans whose lives and livelihoods have been disrupted since the catastrophic BP Deepwater Horizon spill on April 20. We also share the growing realization on the part of more Americans that the worst environmental disaster in our nation’s history may have been avoided with adequate risk management on the part of BP and its contractors, combined with sufficient regulatory oversight by the U.S. Government.

Following the spill, Calvert called upon BP to deliver on its stated commitment to accept full responsibility for the cleanup and meet legitimate compensation claims. We have supported President Obama’s six-month moratorium on deepwater offshore drilling to give a presidential panel time to investigate the accident. We also strongly support the announcement of an initial $20 billion escrow account funded by BP, but operated independently of the company to oversee the claims process.

Calvert believes that the spill and its almost unfathomable environmental and economic impacts are due first and foremost to the irresponsibility of BP, but also to critical lapses by key agencies of the U.S. Government. We believe that both BP and those agencies must be held accountable, and that accountability must begin with full and transparent investigations of their respective policies and practices that together failed to manage the safety and environmental risks inherent in deepwater offshore drilling. These combined failures made such an accident likely, if not inevitable.

In recent weeks, report after report has indicated that BP repeatedly directed its contractors, including Transocean, to undertake risky procedures in order to reduce costs and save time and made minimal efforts to contain the added risk at the Deepwater Horizon rig. Unfortunately, similar tendencies to cut corners at the expense of project safety and maintenance were root causes of BP’s 2006 Prudhoe Bay pipeline spill, the largest of its kind on Alaska’s North Slope, and the 2005 Texas City refinery explosion, which claimed 13 lives and resulted in historic fines from the Occupational Safety and Health Administration (OSHA).

At the same time, reports have also demonstrated the negligence of U.S. Government agencies, especially the Department of Interior’s Minerals Management Service (MMS), which failed to provide the oversight necessary to manage the significant risks associated with deepwater oil drilling. In particular, the MMS, which is the agency responsible for overseeing oil drilling, has engaged in permissive licensing of our nation’s deepwater petroleum resources at a rate far out of line with the regulator’s staff and technical capacities. Further, evidence that companies under MMS supervision too often regulated themselves validates President Obama’s June 16 comment that a reformed agency led by Michael Bromwich should act “as the oil industry's watchdog—not its partner.”

We call on the Board of BP to conduct an immediate investigation of the procedures and circumstances – together with its relationships with Transocean and other key contractors involved in the Deepwater Horizon platform – that contributed to this disaster. We also call on the BP Board to strengthen its governance and oversight of the company’s environmental, health and safety (EHS) policies and practices, including its arrangements with key contractors around the world. Similarly, while we acknowledge the change of leadership at the Department of Interior’s Minerals Management Service (MMS) and that the presidential panel has already been formed, we expect concrete recommendations to be delivered and implemented that will significantly strengthen regulatory and operational oversight of offshore drilling.

In Calvert’s view, this catastrophe is another tragic reminder of the grave risks posed by America’s heavy dependence on oil and gas. That reliance means continuing exposure to safety and environmental hazards posed by domestic operations, together with carbon emissions that accelerate global warming. It also means continuing to rely on the many repressive and corrupt regimes that export oil and gas to the U.S. and in turn compromise our national security and energy security.

As President Obama said during his June 16 address from the Oval Office, “The tragedy unfolding on our coast is the most painful and present reminder that we must embrace a clean energy future now.” In Calvert’s view, the Obama Administration can help promote a clean energy future by enhancing federal incentives for alternative energy research and development. In turn, companies – and especially those with the greatest exposure to carbon-related risks – should use those incentives to invest in technologies at a scale that indicates the serious pursuit of market leadership. Above all, a regulatory mechanism to hold companies accountable for environmental externalities, such as carbon, must be implemented so that the marketplace can adequately assess a company’s risks related to the environment.

BP is not and has never been a holding in Calvert Signature™ portfolios, which permit investment only in companies which pass each and every one of our seven environmental, social and governance (ESG) criteria. Indeed, Calvert was struck by BP’s continuing safety challenges during our 2008 review of the integrated oil and gas industry. However, the company was held until June 21, 2010 in the Calvert Large Cap Value Fund, the first fund in Calvert’s SAGE™ Strategies (SAGE stands for Sustainability Achieved through Greater Engagement), launched in December 2008. Through the SAGE™ approach to sustainable and responsible investment, Calvert engages with select companies as shareholders to advocate specific new commitments and performance objectives focused on the most salient ESG-related risks and opportunities pertaining to the industries in which those companies operate.

From the beginning of the SAGE™ engagement in December 2008, Calvert has called upon BP to complete implementation of the safety and maintenance recommendations of the BP U.S. Refineries Independent Safety Review Panel that was prompted by the Texas City refinery disaster in March 2005. Unfortunately, the Deepwater Horizon disaster shows that BP remains exposed to significant risk associated with safety and maintenance.  Calvert will continue to communicate its concerns to BP, most urgently its dual calls to the company’s Board to investigate the procedures and circumstances that led to this accident and to strengthen its oversight policies and practices.

Additionally, Calvert’s SAGE™ objectives with all five remaining oil and gas companies in the enhanced engagement portion of the portfolio (Anadarko, ConocoPhillips, ExxonMobil, Marathon Oil, and Royal Dutch Shell) will expand to take account of the implications of the BP spill for the entire industry.  We call on companies with deepwater exploration and production operations to conduct urgent reviews of their safety procedures and spill contingency plans with the appropriate regulatory agencies. The objectives will also ask each to establish legally-binding EHS standards for all entities involved in their joint operating agreements. More stringent industry standards can diminish the risk that the practices and events that led to BP’s Deepwater Horizon disaster are repeated.  

Company holdings represented the following percentages of assets under management in the Calvert Large Cap Value Fund as of May 31, 2010: Anadarko, 0.58%; BP, 1.82% ConocoPhillips, 2.48%; ExxonMobil, 2.33%; Marathon Oil, 2.24%; and Royal Dutch Shell, 2.40%. Calvert may or may not still invest in, and is not recommending any action on, companies listed. See the most recently available information on holdings in the Calvert Large Cap Value Fund here.

Current and future portfolio holdings are subject to market risk.