Pension fund investors must protect against BP-style financial risk, says lobby group
UK - Doubt as to whether BP will pay out the next quarterly dividend have underlined the need for pension funds to protect against future financial risk, according to FairPensions, a group lobbying for UK pension funds and managers to adopt responsible investment practices.
Press reports had suggested BP had avoided a decision on whether or not to pay its next quarterly dividend after heavy political pressure following the oil spill in the Gulf of Mexico.
Duncan Exley, director of campaigns at FairPensions, said: "BP's refusal to confirm its ability to pay its next quarterly dividend, and the implications this will have for UK pension funds, highlight the potential for this crisis to damage UK savings and the need for investors to put in place measures to guard against such risks in the future."
Last week, FairPensions pointed out the implications of the collapse in BP's share price for investors.
The lobby group said its research on pension funds and fund managers showed recognition of the financial risks of 'extra-financial issues' was usually unmatched by practice on the part of pension funds and their fund managers.
Exley said: "From oil leaks to irresponsible lending, environmental, social and corporate governance issues have a history of precipitating crises that damage our economy and our investments.
"We urge investors to put in place measures to ensure these issues are monitored and managed so the next crisis is less likely to affect us all."
But the impact of the oil spill could go much further than any potential effect on BP's dividends, said Amarendra Swarup of Pensionomics.com, the online pensions research forum.
"The oil spill has brought sponsor risk to centre stage - few could think of a stronger corporate sponsor [than BP]," he said.
"While the financial cost to pension funds is limited to the equity and dividends, the knock to their confidence in their own sponsors will prove to be far more lasting.
"If the largest and most secure are at risk, then the perceived risk of an unexpected downturn in business is even greater for the other hordes of weaker sponsors the majority of pension funds depend on for their precious contributions."
David Paterson, head of corporate governance at the National Association of Pension Funds, said:
"Our understanding is BP made up about 6% of the FTSE 100 before the recent falls.
"Many pension funds are indexed, and it would be reasonable to assume something close to that figure is held.
"With UK equities representing 20-25% of total assets, this implies a 1.5% exposure to BP.
"With the share price down around 35%, the damage is, therefore, about 0.5% of assets."
Mark Salt, spokesman at BP, said: "There has obviously been pressure from various people.
"BP will make the decision in the normal course of time, close to 27 July, when it has to be declared."