Ten years ago, the U.S. suffered one of the largest environmental disasters in in its history: the Deepwater Horizon oil spill in the Gulf of Mexico. British Petroleum (BP) was eventually found liable of gross negligence and reckless conduct and paid record-setting fines. BP’s corporate reputation was in shambles, and the price of its stock plunged. The incident was terrible on many levels including environmental, social and governance (ESG). That was ten years ago. Can BP, or any company, makes amends for such an egregious betrayal of law and principle? Can a company exit the “penalty box?”
The original spill began on April 20, 2010 and was not sealed until September 19, 2010. The U.S. federal government estimated the size of the spill at nearly 5 million barrels (210 million gallons). The damage to beaches, wildlife, the environment and the local economies was massive. In 2012, the company settled with the Justice Department, pleading guilty to, among other items, 11 counts of manslaughter and one felony count of lying to Congress. The company was fined a record $4.5 billion, agreed to government monitoring of its safety practices and ethics for four years and was temporarily barred from new contracts with the U.S. government. Four years after the incident, September 2014, a U.S. district court ruled that BP was primarily responsible for the oil spill due to gross negligence and reckless conduct. In 2015, BP agreed to pay a record $18.7 billion in corporate fines in addition to the Justice Department fines. As of 2018, the company paid more than $65 billion for cleanup costs, charges and penalties. BP’s stock price fell nearly 50% from its pre-spill level in 2010 through the court settlement in 2015.
Now, ten years later, BP management agreed to draft a climate change shareholder resolution in the face of investor pressure to reduce exposure to fossil fuels. The resolution will be voted on next year, and it would codify its pledge to achieve carbon neutrality by 2050, in line with the Paris Agreement. In 2019, the British government set a similar national goal to reach net zero emissions by 2050, so, in one sense, the company is aligning itself with British goals. Still, the resolution will require a dramatic shift in spending from fossil fuels to renewables. Chief Executive Bernard Looney, in prepared remarks, captured the shift in focus and strategy: “Listening and engaging with stakeholders has been an essential part of defining our net-zero ambitions and aims. BP has to change, and faster than ever, because the world in changing fast, and so are society’s expectations of us.”
Via Nova believes companies that betray their environmental, social and legal responsibilities damage the corporate reputation, profitability and stock price. The BP Deepwater Horizon oil spill is one of the clear examples in history of this betrayal. However, we also believe that companies can change for the better and should be allowed to change. Companies that return to and embrace their stakeholder responsibilities, their customers, workers, and the environment, can be good companies and good investments. Now we wait to see if actions follow words.