"To BP, or not to BP?" a frequently asked question in recent months, was being debated in the socially responsible investment space long before the major oil company's spill in the Gulf of Mexico. Some SRI asset managers had already distanced themselves from the company given BP's fossil fuel focus, poor safety record and retreat from a previously strong commitment to sustainability.

So how did BP retain high responsibility ratings despite these significant concerns-and why are some SRI mutual funds and separate accounts continuing to hold the company in their portfolios when it is reportedly responsible for the worst environmental disaster in U.S. history?

The incident also raises broader investment questions. First, can corporate responsibility reports really teach us about a company's efforts when BP's Sustainability Review 2009, published just days before its Deepwater Horizon rig exploded in April, made no mention of the dangers of deepwater drilling? Second, what environmental, social and governance (ESG) implications does it have for companies in general?

The BP spill is "a wake-up call for mainstream investors and SRI alike to take non-financial risks deadly seriously [and evaluate] the potential materiality of certain risks," says Bennett Freeman, senior vice president of Sustainability Research and Policy for the Bethesda, Md.-based Calvert Asset Management Company. "Safety issues have to loom larger than ever before."

Need more convincing? Freeman points to three more crises this year that he says also drive home the point: Toyota Motor Corp.'s massive safety recalls; Massey Energy Co.'s West Virginia coal mine explosion, the industry's deadliest accident in over two decades; and the Securities and Exchange Commission's allegations that Goldman Sachs was betting against the failing mortgage securities it was selling to uninformed institutional clients.

BP-despite huge investments in alternative energy and other industry-leading environmental efforts-was never "green" enough for Calvert's Signature portfolios. But it was held until June 21 in the Calvert Large Cap Value Fund, what it calls an "enhanced engagement" portfolio, which is open to companies that fail to meet all its core ESG criteria. Calvert dialogues with many such companies to help them identify and meet objectives focused on reducing their ESG-related risks. It plans to continue these efforts with BP. "We have to make a real effort to engage with as many companies as possible to ask questions," says Freeman.

"These are business questions, not just environmental questions sitting out there in an environmental zone," says Tim Smith, director of the Environmental, Social and Governance Group at Walden Asset Management in Boston. "Traditional analysts should be ready to answer these questions as much as us [ESG analysts]."

We'll discuss how to dig deeper for answers in a moment, but first let's consider why BP, dropped from the Dow Jones Sustainability Indexes on May 31, remained a "green" contender for so long despite its serious issues.

BP's 2005 commitment to provide $8 billion in capital by 2015 to its alternative energy ventures attracted many SRI managers. Over the past four years, it has already invested $4 billion in this area, which includes biofuels, wind, solar and carbon capture. Much credit is also given to BP's "best in class" approach to ESG issues and willingness to engage with the SRI community.

Good policies and a decent record on climate change, human rights, diversity and governance made BP one of Walden's larger oil holdings, says Smith. Walden held on after BP's deadly Texas City refinery accident in 2005 and its Prudhoe Bay spill on Alaska's North Slope in 2006 because the company committed to improving safety.

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