The BP Crisis as a 'Preventable Surprise': Lessons for Institutional Investors

Abstract

With high-impact, low-probability events increasing in frequency and impact, this article shows what investors can learn from BP’s Gulf of Mexico spill. It identifies six causative drivers, one of which is shareholder value maximization; shows why these events are “preventable surprises”; and describes how investors could choose to be enablers of sustainable capitalism rather than of the dysfunctional markets experienced today. Arguing for a fundamentally different mindset that includes, among other things, acknowledging the importance of “sustainable cash flows” and “ESG beta,” the authors highlight a practical management agenda for long-horizon asset owners who have a twenty-first-century understanding of fiduciary duty.

Keywords: Investment Beliefs, Long-Term Investment, Organizational Learning, Pension Fund, Risk, Sustainable Cash Flows