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What Chevron Owes the People of Lago Agrio

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There's a bitter irony in the voices of residents of Lago Agrio, or 'Sour Lake' in Spanish, when they mention the name of their northeast Ecuadorian hometown. Once a prosperous base for Amazonian drilling operations for sulfur-rich 'sour crude' petroleum, Lago Agrio is now the center of what amounts to an industrial cancer zone larger than the state of Rhode Island. Its population is surrounded by poisoned farmland and heavily polluted waterways and burdened with elevated rates of disease.

Now, the battle over responsibility for this region's current condition is at the center of an expensive and extensive legal struggle between Chevron, the giant multinational energy company, and Lago Agrio's persistent indigenous people. A U.S. Appeals Court decision last Monday in New York makes it more likely than ever that Chevron will be forced to make a massive payout to the people of the Ecuadorian Amazon.

While Ecuador is nearly 3,000 miles away from New York, the final outcome of this case could have an impact on the New York State pension fund. As Comptroller, I serve as trustee of New York's $146.9 billion Common Retirement Fund which holds nearly $780 million worth of Chevron stock. The Fund benefits when its portfolio companies remain profitable by pursuing responsible and sustainable business policies in the communities in which they operate. Chevron is no exception.

The allegations against Chevron are well known. Starting in the 1960s, Texaco, which was subsequently acquired by Chevron, disposed of nearly 16 billion gallons of hazardous waste in the most indiscriminate ways -- dumping pools of byproducts into unlined dirt pits, streams and rivers, thereby literally creating hundreds of real-life "sour lakes" of toxic effluent in the Amazon.

Since taking office as New York State Comptroller four years ago, I have asked Chevron's board of directors to settle this marathon litigation and spare the company's battered reputation any further damage. The board has chosen to ignore the wishes of the many investors and observers who supported my call.

In February of this year, however, an Ecuadorian court found Chevron liable for nearly $18 billion in compensatory and punitive damages. That's about one dollar for each gallon of poisonous waste the company is alleged to have dumped.

Chevron may have ended the careless disposal programs identified by plaintiffs in the case, but the damage from decades of uncontrolled pollution is still being felt in the area today and is the basis for the significant judgment against the company. To prevent these types of risks from ever happening again, I have asked Chevron to appoint an independent director to its Board with significant environmental expertise. The advice of an environmentally competent professional who will guide the formation and adoption of future policies would be invaluable.

There's also a broader lesson to learn from Lago Agrio's story. Gulf coast residents are still grappling with the long-term environmental and economic effects of last year's Deepwater Horizon oil spill. The conclusion to draw from Chevron's case in Ecuador, and BP's $20 billion fund to compensate those victimized by the Deepwater Horizon disaster, could not be more clear: short term profits at the expense of environmental protection and human rights often cost companies more in the long term.

It's time for the energy industry to start afresh with a new approach to environmental responsibility and risk management, both domestically and internationally. Chevron must do what's right for its investors, and its future viability, by negotiating a fair settlement that restores the company's reputation. Chevron, its shareholders and the general public have not and will not benefit from a never-ending courtroom drama.

Thomas P. DiNapoli is the New York State Comptroller and trustee for the $146.9 billion New York State Common Retirement Fund, which provides benefits for more than 1 million public workers, retirees and their beneficiaries.