Government's green agency invests millions in companies that pollute

The Government's environment watchdog has been investing tens of millions of pounds in oil companies and firms which have been sharply criticised for their records on green issues.

The Environment Agency, which is in charge of flood protection, has invested £64m in oil firms which have been condemned for contributing to flooding by causing climate change. Last year the agency's pension fund invested £46m in BP Amoco – its largest holding – and £18m in Shell. Both firms have been fined large sums by the agency for polluting water with petrol or oil products.

The watchdog also invested £19m in Barclays Bank which has been challenged by green groups for allegedly helping to finance logging in the Indonesian rainforest. Barclays has also been criticised for allegedly helping to arrange finance for the Yusefeli dam in Turkey that would flood environmentally sensitive areas.

MPs and environmental campaigners yesterday called on Michael Meacher, the Environment Minister, to order the agency to abandon its stocks immediately.

Friends of the Earth said it was a "scandal" that the body charged with protecting Britain's environment had a financial interest in companies which pollute. "This is astounding," said a spokes- man. "BP has been prosecuted for a succession of environmental and safety breaches in the last three years. As an oil company they have a heavy responsibility for the climate change that's causing so much flooding which the Environment Agency has a duty to try and prevent."

A Labour MP said it was "inconceivable" that the Environment Agency should not pursue an ethical investment policy which ruled out the purchase of shares in companies it investigates. Alan Simpson, MP for Nottingham South, said: "Investing in the same companies that are prosecuted raises serious questions about a conflict of interest."

Last autumn BP was fined £60,000, thought to be the highest fine in the UK for pollution from a petrol station, after fuel leaked into groundwater in Luton. Shell was fined £20,000 by the Environment Agency in 1998 for spilling 140 tons of a non-toxic soap into the Manchester Ship Canal.

Last night a spokeswoman for Shell said the company took its environmental performance "extremely seriously". She said: "We endeavour to maintain high standards, report on incidents that have happened and what we have done about them every year."

BP Amoco said: "Our environmental record is a good one. From time to time we make mistakes and when we do we take action to correct them."

Barclays said it had no direct investments in Asia Pulp and Paper Group which has been accused of logging in Indonesia. "As a general rule Barclays policy is to maintain relationships with companies able to demonstrate good environmental performance and risk manage- ment," a spokesman said.

Around 11,000 employees make contributions to the Environment Agency pension fund which is worth over £200m and is also funded by contributions from government.

The Environment Agency's finance director, Nigel Reader defended the fund which is managed by a number of investment managers under the guidance of a committee.

He said that the agency did not use an "ethical investment fund" but was willing to apply some environmental criteria, without excluding stocks.

"Like any pension fund the overriding duty it so maximise the return in the fund – that is the overriding criteria," he said. "We are not saying 'thou shalt not invest in oil companies'. But we do have the opportunity to apply best environmental practice."