Feature Article

Perils of the deep

Pensions and the BP catastrophe

The environmental disaster unfolding in the Gulf of Mexico highlights ethical concerns both about drilling for oil in some of the most fragile ecosystems on earth, and the dependence of pension funds on companies such as BP

Renowned more for his rational coolness, President Obama has turned up the emotional heat as he is faced with growing anger over the undeniable environmental catastrophe in the Gulf of Mexico.

Just as concerned, shareholders of BP are awaiting news about whether BP will maintain its historically consistent payment of dividends; none more so than British shareholders for whom BP dividends represent approximately one-sixth of all annual dividend payments.

The turmoil has driven BP’s share price down by nearly 40 per cent since the disaster struck in April. The knock-on effect will be felt by almost everyone as the size of BP means that most pension funds will hold an investment in the company in their portfolio. At worse, in the absence of dividend income, pension funds will need to sell other holdings and so further drive down the market.

At a time when many economies worldwide are constrained by public indebtedness almost to breaking point, interest rates on cash deposits are kept extremely low to encourage growth, and growing inflation devalues the spending power of our money, pensioners (and pension funds who often stand in as proxies) are on the hunt for a dependable income stream that reliably matches the living costs that they inevitably incur.

How will the monthly pension on which millions rely be paid if dividends stop coming and interest rates make the prudence of cash deposits or government gilts counterproductive? In their search for income, will those who earnestly want to prioritise ethical investments over returns be forced increasingly to sup with the devil using a shorter spoon?

It is arguable whether the major oil companies match the criteria for an ethical investment. With many of the most obvious and easily accessible sites for drilling in production or exhausted, the oil industry is encroaching on remote pristine areas of outstanding beauty worldwide, threatening such areas as the Canadian Arctic tundra, once too difficult to reach.

While the companies promise to behave responsibly, no matter the efforts to minimise risk, the threat to the environment is ever present while the profit motive often places a limit on safety measures. And, of course, as the world gropes for a viable alternative, oil will remain for some time to come the essential lubricant for all our economies.

Oil doesn’t only fuel our transport but also is an important ingredient in the manufacture of our medicines, the fertilisers that increase the yield of our crops, and indeed most other products. As importantly, oil is in so much demand that it is an extremely liquid commodity in the financial sense. Once it gushes and is harnessed, it can be sold anywhere and everywhere in the world. Oil companies are renowned for being profitable, cash generative and relatively resilient in a downturn, capable of paying higher than usual dividends. Two of the big oil companies, BP and Royal Dutch Shell, account for 25 per cent of UK dividends.

But oil isn’t the only commodity with such resilient profit characteristics. The sale of tobacco and alcohol also hold up well in a recession. And, perhaps unfortunately, oil, tobacco and alcohol collectively represent a significant part of the stock market and an even greater proportion of reliable dividends. Indeed, together with the banks (now vilified for their profligate ways) and the large pharmaceutical companies (their opposition to the manufacture of cheaper generic drugs enraging many), these sectors represent nearly 70 per cent of all dividends paid.

Ethical investors can perhaps feel like sheep surrounded by wolves, uncertain whether the necessity of investing wisely for the short and long term means surrendering or compromising their most cherished beliefs. Indeed, in the gospel of Matthew, Jesus told his disciples that he was sending them out in exactly those terms. The remedy Jesus recommended was to be “as wise as serpents and as innocent as doves”.

The conundrum is how that command can be implemented. After all, it is reasonable for Jesus’ followers to seek the security of regular income and safe investments, let alone charities and Churches that need an investment policy that will allow them to pass on their inheritance to future generations and maintain their good works in this generation. Only purists would deny that pragmatism should often determine a course of action in an imperfect balancing of good ends and dubious means.

The conundrum of being in the world and yet not of it creates a constant tension. It is a tension that is assuaged by the valiant who become anchorites or hermits. Such a special vocation, however, is for the few. Even the monastic Religious must find a balance in their engagement in the world as the centuries-long conflict between the Spiritual and Conventual Franciscans testified before papal intervention achieved as much harmony as was possible.

A Christian approach to ethical investment should not seek to withdraw from the world, fearful of contamination, but recognise that there are no pure choices and engage in the battle. Indeed, the long tradition of Roman Catholic Social Teaching has done much of the hard theological work to ground and orientate our thinking when interacting with the “real” world and the ethics that derive from it.

As recently as June 2009, Pope Benedict XVI published Caritas in Veritate, in which he stated that “only in charity, illumined by the light of reason and faith, is it possible to pursue development goals that possess a more humane and humanising value”. In other words, sentimentalism is not good enough – but neither is a lack of loving concern about the consequences of our actions on the lives of those around us.

Justice, love and the common good are not ideas that should be banished from the boardroom but embraced. Moreover, a profound sense of responsibility for our actions and their effect on the environment is no mere box-ticking exercise but a humble recognition of our stewardship of creation. The Pope reminds us that we are all in this together and that in solidarity we have a responsibility towards the poor, towards future generations and towards humanity as a whole.

It is not about keeping the devil at a distance but accepting that the spoon can never be long enough. The end goal must be to convert the devil in the Sign of the Cross. Christian believers, funds and Churches can use all the levers at their disposal as shareholders and stakeholders to nip at the heels of the likes of banks and oil producers to influence their behaviour. If their ownership is sufficiently concentrated, they would have the power to change boards and policies and make them more to their liking.

In practice, it means attending shareholder meetings and asking questions. It means seeking out like-minded shareholders so that resolutions can be placed on the agenda for voting. It means not re-electing directors who don’t listen to their shareholders. It means understanding a company’s articles of association. It means agitating for meetings with management and boards. It also means using the press. If Hugh Fearnley-Whittingstall can rally enough support to take on Tesco on behalf of battery chickens, surely Christians collectively can make themselves heard loud and clear? Shareholder activism has been shown to work even if only a small number of investors are committed.

But Christians will also need to recognise that the world is necessarily disfigured and that, no matter the precautions or the good intentions, bad things will happen. If, hypothetically, when the facts are fully known, it becomes clear that BP did everything it reasonably could to prevent the catastrophe, then Christians should also be prepared to defend the difficult choices that the company made. A decision was made to extract oil from a deep seabed well because oil remains a necessary commodity. What would a Christian- influenced board have done differently?

Only by answering how the world could be different can Christians engage honestly with big business. It isn’t enough to be an Elijah denouncing the powers that be when there are few, if any, alternatives. Mr Obama may well permanently ban offshore drilling around the coast of America but it is doubtful if he will be as concerned to ban US companies from drilling off the coasts of other countries.

Preferential ethics has no place in the Christian lexicon. Situational ethics have. Risks and bad consequences can – and must be – accepted once it is understood that sin is part and parcel of a world that struggles to become the Kingdom of God. Paul wrote: “I have fought the good fight, I have finished the race, I have kept the faith.” The Christian vocation is to engage in each individual battle: making sure that better decisions are made and more precautions are taken.