Should pension funds withdraw their investment from companies with links to repressive regimes?
The question is once again exercising the minds of scheme investment chiefs around the world.
The latest to decide it must is the $50bn (€34bn) Massachussets Pension Reserves Investment Management Board, which has sold $54m of shares in eight companies, including Alstom and PetroChina, targeted by the Sudan Divestment Task Force, a non-governmental organisation operating divestment campaigns in the US, and now working with pension funds in Europe. Massachusetts became the 21st US state to adopt a policy to divest from companies working with the Sudanese government. US pension funds have now pulled assets worth hundreds of millions of dollars from companies operating in Sudan, although it is notable that most have done so as a result of state-led political decisions.
It’s worth recalling why. Since 2003, more than 200,000 people are estimated to have died as a result of the conflict in Darfur where the government is accused of using militia death squads against its non-arab population.The Sudan Divestment Task Force says the government relies heavily on foreign investment, particularly in oil companies, to fund the militias. It claims the authorities have shown an historic responsiveness to economic pressure, but that political pressure and diplomacy have failed to stop the genocide. Calvert, the big US SRI mutual fund company, which has also pulled Sudan investments, said it was “struck by the growing and potential further impact of the Sudan divestment movement, the most significant to have emerged since that directed at apartheid in South Africa.”
When a handful of European pension funds recently pulled almost €150m ($215m) in investments from French oil company Total in a matter of days in protest at the company’s involvement in Burma, they were making the same point as their US peers. In effect they were saying: we don’t want to be associated with these companies and believe that by making a public statement to that effect we may influence their behaviour. Targeted corporations counter that by pulling out of problem countries they could worsen the situation, depriving the country of much-needed investment and the promotion
of liberal values. The choice for investors is to decide which moral argument is right. And it is a question of morality. On a pure financial basis, divestment has little or no impact on a company’s share price. When one investor sells there is another waiting to buy. Total’s share price is above where it was a year ago before the latest round of protests over its involvement in Burma began. When Warren Buffet sold investments in PetroChina earlier this year, activists claimed it was as a result of pressure on the Chinese company’s links to Sudan. Buffet certainly sold early, losing profits he would have taken in the company’s recent float. However, the Berkshire Hathaway chairman said defiantly that his decision was based entirely on the share valuation: “If it went down a lot, I’d buy it back,” he said, revealing that Berkshire had made about US$3.5bn on a $500m investment.
On the flip side, investors that have taken divestment decisions, such as the Norwegian Petroleum Fund, which has a boycott list of 20 major companies, have not shown any performance lag as a result of exclusions. Some institutional investors argue that a non-confrontational approach through engagement with companies is the best hope for change. If that is so, thenI believe we need to see more evidence from investors and companies as to what has been achieved through negotiation.
Activists are upping the pressure on investors. An NGO coalition, which included three Nobel peace prize winners, recently sent an open letter to UBS, which was running the flotation of China National Petroleum, PetroChina’s parent, damning it for supporting the Chinese company’s activities in Sudan. Fidelity, the US fund manager, has also come under pressure from activists and announced in a filing in the US that it had sold 91% of its American depositary receipts in PetroChina in the first quarter of 2007. Clearly such political campaigns are unlikely to die down.
Therefore, what’s both surprising and disappointing is that more pension funds haven’t surveyed their members to gauge their views on questions of socially responsible investment and divestment. I can only think of two – the UK Universities Superannuation Scheme and TIAA–CREF – that have done so, and the former after it came under pressure to do so by activist fund members.
Whether a pension fund decides to divest or not, the question is no longer one it can avoid asking itself or its beneficiaries.