Investment advisers urge BP Amoco shareholders to vote to end Arctic oil exploration

The UK's largest fund adviser on corporate responsibility has advised its clients to vote for a resolution urging BP Amoco to cancel its plans for oil exploration in the Arctic, to halt the construction of the controversial Northstar drilling project and to redirect the project's budget to BP's solar energy subsidiary, BP Solarex.

Pensions and Investment Research Consultants (PIRC) issued the advice in its analysis of BP Amoco’s forthcoming Annual General Meeting on April 13 (see related story). The resolution was lodged by a shareholder group – SANE BP – a group including Greenpeace UK and the US fund manager, Trillium Asset Management.

Stuart Bell, Research Director at PIRC told edie that PIRC believes the resolution is in BP Amoco’s interest. “The main issue addressed by the report is the allocation of resources by BP on fossil fuel versus renewable energy,” Bell said. “The resolution asks the company to shift from one to the other. We accept that BP must increase its investment in renewable energy, but have been unable to ascertain BP’s overall strategy for moving to dependence on renewable energy. We think the company should be able to demonstrate that strategy. If the company is able to demonstrate it is ahead of the game on renewable energy it will be able in future to take advantage of the renewable energy market and regulatory restrictions on fossil fuels arising from concerns about global warming.”

The resolution requests the board of directors to implement the following policies for the company:

  • cancel all plans for oil exploration and development on the coastal plain of the Arctic National Wildlife Refuge and in the Arctic Ocean
  • stop the expenditure of any funds by the company to achieve these objectives, including investments for the development of the Northstar project.
  • make capital freed up by the cancellation of Northstar available to BP Solarex to up-scale its solar manufacturing capacity

BP Amoco argues that it can only move as fast as the market for solar energy will allow. The company says it has already repositioned itself as a gas rather than oil company following its merger with ARCO (see related story), and intends its solar power subsidiary, BP Solarex, to be the biggest solar company in the world, with a sales target of $1Bn by 2007 (see related story). BP Amoco has also argued that writing off Northstar would destroy shareholder value, while reinvestment in solar energy would bring lower returns.

However, PIRC says that BP’s strategy is too passive a response to market development. “Our view is that if they adopt a proactive response to renewable energy they could change the market place to their advantage,” says Bell. The PIRC report says that a company with the resources and scale of BP Amoco could increase demand through lobbying, marketing and promotional activity as well through investing in research and development and production.

PIRC accepts there would be a short-term cost associated with the strategy set out in the resolution. But, the report says, “there could be substantial benefits for shareholders from BP Amoco putting substantially more resources into solar and developing a clear position of market leadership, given the pressures which are building for significant action to halt global warming.”

PIRC accuses BP of taking the short-term view. “Institutional shareholders are interested in the sustainability of companies over a 20, 30 or 40 year horizon,” says Bell. “They are not simply interested in financial benefits, they want to get both enhanced returns and environmental sustainability.

Bell concedes that even if the resolution got a majority vote, BP Amoco’s directors woud not be obliged to order the cancellation of Northstar. “We think it’s unlikely that we’d get a majority, but this is a signal that shareholders would like more transparency on BP’s sustainability strategy.”

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