Background
Many companies in the oil & gas sector have for some time now been increasingly focused o­n operations in highly complex and difficult environments including deepwater (such as in the Gulf of Mexico), the Arctic and unconventional resources such as the Canadian oil sands. The easy oil is now more or less the exclusive domain of national oil companies, with international oil companies like BP relegated to extreme environments where they operate at the limit of their technical capacities and capabilities.
The events in the Gulf of Mexico were, of course, unpredictable, but the underlying demand for oil is not likely to weaken in the short to medium term, and so we can expect international oil companies to continue to exploit difficult to access resources in frontier environments with the challenges that this will continue to pose.

Traditional Investment Criteria
BP’s challenges are impacting many UK pensions and raise the point about the level of investment concentration within funds.The issue is that BP made up 7% of the FTSE All Share before the spill, and its dividend accounted for £1 out of every £7 from UK investors' pension funds.

BP’s previous dividend alone accounts for over 11% of the FTSE All Share income. Together with Shell, the two stocks represented almost a quarter of the index’s total dividend. Because of the tendency to measure the short term performance of fund managers relative to an index benchmark, many of funds default to having some position in the largest stocks, even if the fund manager has a negative view of the company’s prospects. That means that a significant proportion of a portfolio is invested in stocks which the fund manager thinks are a poor investment. 

For some fund managers, not owning BP would represent a high level of risk to take: if it outperforms the manager looks exposed for missing out. This is what can lead to a herd mentality.  Any manager who decided to take a neutral weighting and hold 7% of a fund in BP shares before this event will be able to report to their clients that relative performance has been unaffected, even though the shares have fallen by 50%.  

Ethical Investment Criteria
Henderson Global investors, for instance, has for many years been unconvinced about BP's ability to manage environmental, health and safety issues (EHS) effectively. Accordingly they sold out of BP some years ago, o­n the basis of their views about the company's ability to deliver strong EHS performance across the business.

Within the SRI investment process we consider a range of sustainability concerns in the analysis of BP, which lead to the belief many years ago that the shares represented a poor investment and carried a high level of risk that was not appreciated by the majority of investors. When building portfolios a proper diversification must be achieved from the bottom up.  That means controlling the size of positions not with reference to their index weight but with reference to liquidity and stage of maturity, and in terms of absolute position size, total number of holdings and concentration at a sector level.  Certainly mistakes are made along the way but an active decision has been made within a framework which ensures diversified exposure.