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BP oil spill triggers call for tighter UK ESG pension rules

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  • BP oil spill triggers call for tighter UK ESG pension rules

UK - The government is being urged to tighten regulations requiring pension schemes to disclose what environmental, social and governance (ESG) issues are taken into account in their investment policy following the impact of the Gulf of Mexico oil spill on the BP share price. 

Lobbying group FairPensions, which has previously tackled BP and other oil companies on issues such as Tar Sands projects, has launched an online campaign to encourage pension scheme members and members of the public to call on the UK pensions minister, Steve Webb, to strengthen the pension fund regulatory framework to further protect scheme members from ESG risks.

FairPensions claimed the oil spill in the Gulf of Mexico, which followed an explosion and the sinking of the Deepwater rig with 11 deaths, is the latest in a growing list of "avoidable" ESG crises to impact pension funds.

Earlier this week, the group noted doubts about whether BP would be able to pay out a quarterly dividend to shareholders next month in the aftermath of the spillage underlined the need for pension funds to protect against these types of risks. (See earlier IPE articles: Pension fund investors must protect against BP-style financial risk, says lobby group and BP debacle highlights need for responsible ownership)

FairPensions admitted investors could not be expected to predict the precise circumstances of events such as the oil spill, but warned greater scrutiny of company risk-management strategies by pension funds could help manage investment risks.

The latest campaign is supported by MPs including Zac Goldsmith, Martin Horwood and Caroline Lucas, who have tabled an Early Day Motion in the House of Commons calling for a review of pension regulation in this area.

Lucas said: "Pension funds need to take environmental risks much more seriously in their practices and not just their policies - and the regulatory framework needs to be updated accordingly."

FairPensions noted the falling share price and pressure from the US to scrap the next dividend payout, which accounts for £1 in every £8 of dividend payments made to UK pension funds - could impact retirement savings.

However, Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), said: "BP's difficulties should not have an immediate or serious impact on those saving into a pension or those who have retired."

She argued that, over the last few years, pension funds have moved away from UK equities and that the average pension scheme is now spread across a number of companies and many types of global assets.

"We estimate UK pension funds' exposure to BP is about 1.5% of total assets, which are in excess of £800bn.

"The worry for institutional investors is that this disastrous oil leak will hit BP's prospects for longer-term growth and future dividends.

"BP's priority should be to get this crisis under control to protect the long-term strength of the company."

But Duncan Exley, director of campaigns at FairPensions, claimed UK pension schemes' scrutiny of companies' exposure to ESG risks was "inadequate" and that while the BP oil spill is a stark example, "the problem is much wider".

"We are urging the government to implement simple, cost-free measures to help protect our retirement savings - and we need your help to make it happen," he said. 

Further information on the campaign can be found at the FairPensions website.

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