TIAA-CREF

Investments in genocide, hidden from view

November 30, 2010

Here’s what Eric Cohen, the chairperson of Investors Against Genocide, told a congressional hearing today:

It has been over 12 years since the U.S. imposed sanctions on Sudan and noted serious human rights abuses, seven years since the Darfur genocide began, six years since Congress declared it a genocide, and five years since the movement for targeted divestment from Sudan began Yet most financial institutions are still investing in the worst companies funding the genocide, and, through the fund offerings of these investment firms, millions of Americans are caught in the web of these problem investments, almost always unknowingly and without the possibility of choosing.

Tragically, he’s got a point. Better, he’s got a proposal–a requirement that mutual funds disclose whether they chose to be “genocide-free,” which is simpler than it sounds. Better yet, he had a receptive audience on Capitol Hill–Rep. Gregory Meeks of New York and Gary Miller of California, who are the chairman and ranking member of a subcommittee of the House Committee on Financial Services, as well as such interested legislators as Mike Capuano of Massachusetts, who has been active on Sudan issues. Congress could act to mandate fuller disclosure from the mutual fund industry next year.

Genocide in Darfur

Investors Against Genocide has been campaigning against money management firms that own stock in companies that do business in Sudan since 2006. (See Fidelity’s Sudan Problem at fortune.com and  Fidelity, Vanguard and the genocide in Darfur) The group has asked financial institutions to avoid investments in foreign firms that are known to substantially contribute to genocide or crimes against humanity, an approach it calls “genocide-free investing.” (U.S. companies can’t operate in Sudan) Socially responsible mutual fund families Calvert Investments and Domini Social Investments have also taken a leadership role, cleansing their portfolios of companies doing business in Sudan and asking others to do so. As Domini’s general counsel, Adam Kazner, told the submcommittee:

Investors are not simply passive actors in this system – they are playing a critical capital allocation role, and should be mindful of the implications of their investment decisions.

Congress has stepped up to the plate before. In 2007, it passed the Sudan Accountability and Divestment Act (SADA), which prohibits the government from contracting with companies doing business in Sudan and supports state and local divestment efforts. Thirty-five U.S. states have enacted legislation or adopted policies affecting investments related to Sudan, primarily in response to the Darfur crisis and Sudan’s designation by the U.S. government as a state sponsor of terrorism.

So what’s the problem? Essentially this–a small group of foreign companies continue to operate in Sudan. According to Cohen:

In Sudan, the CNPC group (including PetroChina), the Sinopec group, Petronas and ONGC are internationally recognized as providing the government of Sudan with the funding needed to support the genocide in Darfur. The government of Sudan has used 70% of its oil revenue to provide arms and funding for the genocide. Some of these same problem companies are also active in Burma and Iran.

Some U.S.-based mutual funds then invest in those companies. Fidelity, Vanguard and Franklin Templeton have been singled out by Investors Against Genocide for holding shares in Chinese oil companies.

No one from the  fund industry testified before Congress. Fidelity has said that stopping the genocide is a matter for government officials, not mutual fund managers, while Vanguard has said it has a human rights policy, while continuing to invest in companies doing business in Sudan.

Shareholder proposals calling for divestment were defeated at Vanguard and Fidelity funds, but that’s no surprise since most mutual funds investors automatically vote their proxies with managements. It’s safe to say that most investors would rather not see even a tiny fraction of their money supporting genocide in Sudan, or winding its way to Iran or Burma, with their terrible human rights records.

Investors Against Genocide has scored a couple of big victories. TIAA-CREF, to its great credit, first lobbied the Chinese oil firms to get out of Sudan and then sold its holdings. (Here’s the fund’s announcement.) The American Funds group also sold its stock in PetroChina, but did so without explanation.  Cohen told me: “I congratulate them even though they won’t say anything publicly.”

Some investors have taken note. Last May, the Unitarian Universalist Association’s Board of Trustees announced that it would end a 10 year relationship with Fidelity and move their $178 million retirement accounts to TIAA-CREF in order to be genocide-free.

You can read all the testimony, as well as a GAO report on the issue, here. Cohen’s testimony provides specifics on how genocide-free disclosure would work. Mutual funds would be required to disclose if they have a policy prohibiting investments in countries that have been subject to U.S. government sanctions for human rights violations. Right now, they report on their holdings only once a quarter, and their human rights policies, if any, can be hard to find.

Says Cohen: “Right now you need a doctorate in research to have a clue about who’s on what side.”

This seems like a classic example of investors’ right to know. Transparency would shed some light on the values of the investment firm, and we can hope that markets would do the rest.

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Fidelity, Vanguard and the genocide in Darfur

June 18, 2009

Recently, I voted in a contested election with repercussions for a big Islamic nation. (No, not Iran.) As a shareholder in mutual funds run by Vanguard and Fidelity, I voted to ask both mutual fund companies to sell their holdings in companies doing substantial business with Sudan, and thereby helping to finance the genocide in the Darfur region.

If you own stocks or mutual funds, this is the time of year when shareholder proxy ballots arrive in the mail, usually accompanied by pages of small print asking you to change the corporate bylaws or “elect” a slate of directors who have already been chosen. They’re boring and easy to ignore.

This year, however, shareholders of Vanguard, Fidelity and other mutual fund groups should keep an eye out for the important shareholder proposals about genocide on the ballot. These proposals don’t mentions Sudan because they are broader in scope. They ask but the funds to refrain from investing in companies that “substantially contribute to genocide or crimes against humanity.”
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Perhaps surprisingly, Vanguard and Fidelity both recommend a “no” vote on the proposals.

“They don’t want to have limits on where they invest,” says Eric Cohen, the co-founder of Investors Against Genocide, a volunteer organization that got both proposals on the ballot.

Cohen, a retired tech executive, is a soft-spoken and usually understated guy but he says this of Vanguard and Fidelity: “Their lack of due diligence connects their customers to the very worst companies in the world.”

The Investors Against Genocide website puts it this way:

Looking back, who would support the idea of investing in firms that sought to make a profit by selling Zyklon-B gas to the Nazis or machetes for the genocide in Rwanda? Looking forward, who wants their personal savings and pension funds invested in companies that help fund genocide?

Investors Against Genocide was formed in January, 2007. (I wrote one of the first stories about the group, under the headline Fidelity’s Sudan Problem, for CNNmoney.com.) By then, campus activists had persuaded the endowment managers at Harvard, Yale and Stanford to sell stocks of companies that were doing business with the government of Sudan, which is responsible for the genocide that has now taken the lives of an estimated 300,000 people in the Darfur region. (Another 2.7 million have been forced out of their homes.) Pension funds in half a dozen states, including California, had also agreed to divest.
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Investing in Genocide?

April 3, 2009

There was modestly good news about the crisis in Darfur last week, and I’ve been meaning to write about it. Unfortunately, I’ve been busy with other projects so the people at CSR Wire, a corporate responsibility newswire, and Bill Baue have kindly given me permission to post Bill’s CSR Wire story about developments at TIAA-CREF and Vanguard.

I’ve covered this story on and off for more than two years, sadly. Here’s a 2007 CNNMoney column and a  2007 blog posting about Fidelity’s ties to Sudan, and here’s a 2008 column that ran on  Huffington Post. The people at the Darfur divestment campaign deserve enormous credit for keeping the pressure on U.S. mutual funds that invest in companies that do business in Sudan.

Bill Baue has done a great job covering CSR issues for years. He’s also a host of a podcast and Internet radio program called Sea Change Radio, well worth checking out. I’m hoping to find time to work with Sea Change in the months ahead. In any event, here is Bill’s story:

Nothing could be more boring than proxy statements; on the other end of the spectrum, nothing could be more grim than the systematic murder of a population — genocide. These two worlds are colliding as the issue of genocide increasingly appears on proxies, awakening shareholders to the hidden link between their investments and serial rape, displacement, and killing in places such as Sudan. Now, two huge investment firms — TIAA-CREF and Vanguard — say they are severing this link through genocide-free investment policies promoted by Investors Against Genocide (IAG) shareholder resolutions.

This past week, TIAA-CREF upped the ante in its anti-genocide activism by pledging to push companies supporting the genocidal Darfur regime to reverse this complicity — or face divestment. This applies immediately if invitations to meet with TIAA-CREF go unanswered by “target” companies that provide most support to the regime: PetroChina, CNPC Hong Kong, Oil and Natural Gas Corporation, Sinopec, and PETRONAS. Seven other companies have nine months to publicly announce “significant progress” before TIAA-CREF yanks them from its portfolios.

In 2006, TIAA-CREF began engaging with 22 companies, encouraging them to steer clear of genocide — and 10 companies pulled out of Sudan, or committed to humanitarian initiatives there. A quant analyst examining “just-the-numbers” would see some of this behind-the-scenes engagement reflected in TIAA-CREF’s holdings, as it almost halved its PetroChina stake from 38.5 million shares at year-end 2006 to 21.2 million shares at year-end 2008. However, TIAA-CREF more than doubled its Sinopec holdings over the same period, from 7.7 to 16.9 million shares, according to IAG data. All the more reason for bright-line commitments.

Congress members applauded TIAA-CREF’s move. “I am hopeful that TIAA-CREF’s decision to divest from companies that do business with the government of Sudan will inspire other companies to follow suit,” said Representative Melvin Watt (D-NC) of the House Financial Services Committee. IAG also welcomes the “me-too” phenomenon.

In fact, TIAA-CREF piggybacked Vanguard’s genocide-free commitment. Earlier this month, Vanguard’s proxy boldly stated that its existing procedures are “substantially identical” with an IAG shareholder resolution seeking “procedures to prevent holding investments in companies that…substantially contribute to genocide or crimes against humanity.” While IAG filed the resolution with 30 funds, Vanguard asserts its procedure applies to all of its 157 funds.

IAG withdrew its resolution with TIAA-CREF, and promises to do the same at Vanguard if the Emerging Markets Stock Index Fund “shows a significant reduction in its holdings of PetroChina,” according to IAG Chair Eric Cohen. However, Vanguard just disclosed in its first quarter SEC filings an increase of its holdings of PetroChina in its Emerging Markets Stock Index Fund from 149.6 million shares worth $112.5 million at year-end 2008 to 155.7 million shares worth $114.9 million now. So much for “substantially identical”!

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