BP Drags Down Norway Pension Fund

A major Norwegian pension fund has named oil producer BP its worst performing stock, with the fallout from the Gulf of Mexico spill crisis losing $1.7 billion for the fund.

At the end of March - just weeks before the explosion of the BP-operated Deepwater Horizon rig triggered one the biggest oil spills in history - Norway's Government Pension Fund Global had NOK18.9 billion ($3 billion) invested in BP. But by the end of June, the value of the fund's investment almost halved to NOK10.5 billion or $1.7 billion.

"BP's share price halved during the quarter, making it the fund's single worst performer," said the fund in its second quarter results, released last Friday.

Returns on the fund's oil and gas stocks dropped almost 15%, with that sector the fund's hardest hit, followed by basic materials, financials and technology.

In addition to BP, other poor performers included mobile phone company Nokia and computer giant Microsoft.

Mark Robertson, a London-based communications manager at investment research group EIRIS, said the results demonstrate how environmental, social and governance (ESG) issues can have an "incredibly dramatic impact" on a company's share price with the high-profile spill serving to focus investors' minds on responsible investment issues.

"For years we've been saying [to investors] you should worry about environmental, social and governance issues and sustainability, not just because it's about building a more sustainable world, but also because these are exactly the kind of issues - environmental pollution, bribery, corruption, climate change - which have got the potential to signific antly damage a company's bottom line," he said.

Robertson recommended investors engage with companies to better understand their ESG position. He added that while it is easy to see why BP has come under scrutiny, the focus could extend to the wider oil and gas sector, particularly as companies go to increasingly greater lengths to secure oil.

Neil McIndoe, London-based head of environmental finance at research consultancy Trucost, said the experience of BP highlights the importance of identifying and managing investment risk. He said rather than excluding investment in certain sectors - as some socially responsible investment funds do - pension funds should for look to factor environmental efficiency into their overall investment process.

"No-one who's held BP funds in the last little while has done as well as they'd have hoped," he added.

Overall returns at the Norwegian Government Pension Fund Global fell 5.4% in the quarter, driven by the widespread drop in global equity markets. Meanwhile, equity investments dropped 9.2%, which the fund attributed to European sovereign debt problems, funding challenges for banks and fears of an economic slowdown, particularly in Europe.

By. Charlotte Dudley

Source: Environmental Finance