A shareholder proposal asking J.P. Morgan Chase to enact a policy limiting or barring investments linked to genocide is attracting mounting support among US institutional investors. Two of the country’s largest public pension fund systems – $160bn (€123bn) Florida State Board of Administration (which manages the $127bn Florida Retirement System fund) and $140bn New York State Common Retirement Fund – have confirmed their intention to vote in favor of the proposal, despite J.P. Morgan’s statement that it opposes such a policy.
This is the second consecutive year that a proposal calling for genocide-free investing will be up for vote at J.P. Morgan’s annual general meeting, to be held on May 15. Last year, J.P. Morgan submitted a request to the Securities and Exchange Commission for permission to omit the proposal from its proxy ballot, citing what the firm claimed to be “vague and indefinite” wording in the resolution. The SEC denied the request and the proposal appeared on J.P. Morgan’s ballot, where it received 7.69% of the vote. Shareholders who voted in favor of the resolution last year included AFSCME Employees Pension Plan, Connecticut Retirement Plans and Trust Funds, New York City Pension Funds, and asset management giant T. Rowe Price.
Both this year and last year, the proposal was submitted as part of an ongoing effort led by Investors Against Genocide, a privately funded Boston-based non-profit dedicated to education and engagement on the topic of investments that connect unwitting investors to genocide and other egregious humanitarian crimes. The non-profit has made J.P. Morgan one of the main targets of its campaign because of the firm’s $1.5bn stake in PetroChina, the majority-owned subsidiary of China National Petroleum Company, a Chinese state-owned oil behemoth that is a major player in Sudan’s red-hot, complicated oil industry. J.P. Morgan’s holdings make itone of PetroChina’s largest investors. Since 1997, the US has enforced economic sanctions on Sudan that include a strict ban of any business ties with the Sudanese oil industry, explaining that such ties are likely to benefit the government in Sudan’s capital city of Khartoum, which has been accused of permitting and committing extreme human rights violations. Sudan’s president, Omar Hassan al-Bashir, faces International Criminal Court charges of genocide.
When the country’s southern region seceded from the north last year, creating South Sudan, the US responded by easing its oil industry sanctions on South Sudan to
encourage investment in the fledgling country, but aggressive sparks of renewed violence – mainly over the region’s oil – have led the UN Security Council to slap both Sudan and South Sudan with threats of harsher sanctions.
Investors Against Genocide argues that J.P. Morgan’s substantial investment in PetroChina, while legal, is out of step with the spirit of these sanctions by the US, the UN and others, and may be helping to fund the atrocities perpetuated by the government in Khartoum.
J.P. Morgan, in its statement of opposition to the proposal, urges shareholders to vote against the resolution because, its says, not only does the firm already employ “extensive risk management processes and procedures to consider human rights,” but it also holds the “vast majority” of PetroChina shares in a custodial capacity, on behalf of its clients.
Both Patrick Doherty, director of corporate governance at New York State Common, and Michael McCauley, senior officer of investment programs and governance at Florida SBA, say that their funds’ decision to vote in favor of the proposal this year follows a desire to be consistent with policies already in place within their systems.
Doherty says that in 2009, New York State Comptroller Thomas DiNapoli began a program of attempted engagement with a list of companies whose operations in some way aid the Sudanese government, with an aim to divest from companies that were unresponsive, which it did in 2009 (PetroChina was among those companies it dropped). Doherty adds he hadn’t been aware of the fund’s continued connection to PetroChina through its J.P. Morgan investment until representatives from Investors Against Genocide contacted the fund. He says that the scheme’s vote in support of the most recent resolution is in keeping with its larger policy on Sudan-linked investments.McCauley of Florida makes a similar point about system-wide consistency.
“The proposal touches on several elements that are similar to the Protecting Florida’s Investment Act (PFIA),” he says, “which has been in effect since 2007 and requires the SBA to engage companies with certain business operations in Sudan and possibly divest of publicly traded equity or bond holdings under specific circumstances.”
He adds: “The resolution at J.P. Morgan submitted by Investors Against Genocide appears to closely align with the main objectives of the PFIA.”