Responsible Investor

Targeted Sudan divestment will have two immediate outcomes. First, divestment can influence key foreign companies to cease their operations in problematic industries in Sudan, thereby increasing economic pressure on Khartoum. Reports indicate that the departure of Rolls Royce earlier this year specifically commanded the attention of the Sudanese government. Second, companies that remain in Sudan can use their leverage to push for peace, expand their humanitarian programs, and implement improved corporate social responsibility policies (specifically focusing on security, revenue transparency, corruption, labor standards, and environmental practices). These companies will contribute to an end to the Darfur conflict, and help assure a sustainable peace throughout the country.
Fiduciary duty, a paramount concern of investors, requires that financial risk be managed appropriately. Investors that hold securities in companies with links to problematic industries in Sudan face substantial material risk. These companies are subject to operational risk from spreading violence in the country, an unstable business environment created by political crisis, and substantial reputational risk posed by public campaigns highlighting their financial ties to a genocidal regime.
A widespread divestment campaign also has the ability to affect share price negatively. It has been argued that there always is a buyer for a sold share. However, if a critical mass of investors begins to sell a company, its share price will depress relative to peer competitors.

Furthermore, a number of countries have threatened to sanction Sudan if the situation continues to deteriorate. Notably, a piece of legislation pending in the US Senate would prohibit companies with scrutinized operations in Sudan from receiving US federal contracts.

“By conservative estimates, 2.5 million people have been displaced and over 200,000 killed, but numbers are likely much higher.”

Some fund managers have mistakenly argued that they cannot divest because of legal restrictions or fiduciary obligations. First, it is consistent with prudent management of financial risk to exclude targeted companies because of the substantial material risk they present to investors. Second, no single market, sector, or asset class within Sudan is excluded categorically from a portfolio; therefore, financially equivalent alternatives are available. Targeted ex-Sudan market indices will have a tracking error of less than 0.3%, and the total percentage of most portfolios invested in Sudan-linked companies is less than 0.2%. Third, it also is important to consider the interests of funds’ beneficiaries, particularly whether they want their money invested in companies that subsidize a genocidal regime when financially equivalent alternatives exist. For companies in Sudan, the business case is also strong.

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