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Money Morning Mailbag: BP's Post-Oil-Spill Reputation Leads Readers to Consider Socially Responsible Investing

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By , Associate Editor, Money Morning •

BP PLC (NYSE ADR: BP) stock plunged 16% to hit a 14-year low in New York trading Wednesday as some investors panicked over growing liabilities and others worried about socially responsible investing.  

In London trading Thursday BP fell 6.7% to 365.50 pence, its lowest closing price since January 2003 and 44% lower than the day the Deepwater Horizon rig exploded.

"The share price is political and in no way fundamental," said Jason Kenney, an analyst at ING Wholesale Banking in Edinburgh. "The U.S. needs to realize it needs BP to survive to clean up the mess. Scapegoating has gone too far."

The U.S. government has continued attacking BP for not yet stopping the spill. U.S. Attorney General Eric Holder said Thursday the government might consider legal action against BP to force dividend suspension. The U.S. government expects BP put its dividend toward compensating workers who will lose their jobs due to a moratorium on deepwater drilling.

"The dividend has become a political issue," Mark Fletcher, an analyst with Citigroup Inc (NYSE: C), said in a note to clients Thursday. "The U.S. administration seems to think that BP needs to conserve cash for spill-related expenses."

BP's inability to control the spill thus far and the speculation that the company's negligence contributed to the accident have caused some investors to pull out of the stock on moral grounds. Readers' thoughts have flooded in through Money Morning's Mailbag, post-story comments section and Facebook page regarding corporate accountability and transparency. Some readers accuse investors who put profit above all other factors as exercising "moral bankruptcy."


While some look at this as an opportunity to buy BP stock cheap, others wonder if it's ethical to make money off a company tagged with being responsible for the worst oil spill in U.S. history.

BP has previously fared well with those who deemed their investing behavior to be "socially responsible." If the investors wanted a stab at oil industry profits, they went for a leader like BP with a better reputation than its competitors.

"All companies, like all people, have flaws and advantages," Meir Statman, a finance professor at Santa Clara University's Leavey School of Business, told Business Week. "In this sense, BP was considered to be one of the relatively good guys."

BP's "good guy" moves include devoting 3% of capital spending to renewable energies like wind, solar and biofuels, although its motives for such investment may not be coming from an earth-friendly point of view.


"No. 1, [BP] understood there are [public relations] benefits for making those investments, and second, they do actually believe they can lead to greater growth and earnings potential in the long run," said Pavel Mochanov, an analyst with Raymond James. "Against the backdrop of this kind of disaster, the fact that BP makes solar panels and owns wind farms is not going to be much help."

Many "socially responsible" investors held BP shares at the time of the spill through their mutual fund choices. Two Legg Mason Social Awareness funds and a Wells Fargo Social Sustainability Fund included shares of BP, and some are holding on to the company, like mutual fund manager MMA Praxis.

"Over the years, [BP] committed itself to high standards," said MMA Praxis' Director of Stewardship Investing Mark Regier. ""We're waiting for all of the facts to come out about why this happened and what should and could have been done to prevent it. We need to let the investigations run their course."

Others, like Pax World, sold BP after the spill and others had already removed the company from its holdings because it lacked confidence in BP's health and safety standards.

The oil spill and its profitable side effects have left many investors asking themselves, "What is a profit worth to me?" Those investors green-at-heart have an easier answer than others – and may have never touched oil industry stock to begin with – but some wonder if they are giving up a moneymaking opportunity they'll later regret.

Recent numbers show that not everyone is pulling out of BP. TD Waterhouse reported that trading in BP has more than doubled and buys outnumbered sells four to one. A June 3 online Motley Fool poll showed 70% of investors polled would buy BP stock, and only 14% would sell.

Citigroup's Fletcher maintains a "Buy" rating on BP, although he raised its risk level Thursday to high from medium. Fletcher cites BP's strong asset base of over $130 billion and predicts an annual cash flow of $40 billion between 2011 and 2013. 

But fund managers still holding the stock aren't sure how much longer they can do so as the disaster has led them to question BP's corporate character.

"This certainly makes us pause," said MMA Praxis' Regier. "Was this truly an accident? And where does it fit in the line of events since the transition of leadership? We need to see the company owning the crisis and the solution."

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