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March 09, 2006
Sudan Presents Investment Risk as Genocidal Regime and State Sponsor of Terrorism
    by Bill Baue

Socially responsible investing research provider IdealsWork Financial now offers data from Conflict Securities Advisory Group on corporate exposure to human rights abuses in Sudan.


Last month, Brown University and Amherst College followed in the footsteps of Harvard, Stanford, and Dartmouth in authorizing divestment of endowment holdings in companies doing business with the genocidal regime in Darfur, Sudan. Joining these schools are state legislatures (for example in Illinois and New Jersey) mandating similar action. These moves demonstrate institutional investors' growing concern about the moral status of their holdings--a concern shared by many individual investors.

To meet demand for information on the concern, IdealsWork Financial (IWF) recently added research on companies doing business in Sudan to its Workstation platform. The platform is a software system that compiles socially responsible investing (SRI) research for investors. IWF sources the Sudan-related research from Conflict Securities Advisory Group (CSAG), which tracks corporate exposure to state sponsors of terrorism as defined by the US State Department through its Global Security Risk Monitor and more specifically its Sudan Corporate Monitor.

"We feel that more and more Americans--not just pension systems and university endowments--are choosing to exclude companies that do business in Sudan due to the humanitarian crisis in that country and terrorist-sponsoring states more broadly," said Adam Pener, chief operating officer of CSAG. "In the case of the latter, many investors are simply saying 'I don't want to invest in a company whose activities benefit a government that sponsors terrorism.'"

"Our challenge--indeed our obligation--is to find cost-effective ways to make our data available to companies that want to offer retail 'Sudan-Free' or 'Terror-Free' mutual funds, separate accounts, indexes, and similar investment vehicles for individual investors," Mr. Pener told SocialFunds.com. "In part, that is why we chose to partner with IWF, who had a shared view of the retail capabilities of Sudan- and Terror-Free products for individual investors."

The IWF Workstation platform will take incremental steps in utilizing the CSAG Sudan research. Initially, it allows money managers to identify and exclude companies doing business in Sudan. Later, it will allow a more comprehensive analysis of corporate exposure to human rights abuses in Sudan and elsewhere.

"One distinguishing feature of our offering the Sudan data is our ability to incorporate it into our platform's ratings engine," said Mark Bateman, IWF's director of research, who helped CSAG develop its research methodology while at the Investor Responsibility Research Center (IRRC). "Certainly there are pension systems interested in the list of companies to comply with recent legislation, and we will support this type of subscriber, but we will also offer the information to managers servicing high net-worth individuals and other investors who we're hearing are concerned about Sudan and care about other issues we cover."

While ethical considerations are largely driving demand for research on corporate exposure to Sudan, what originally steered CSAG to cover Sudan was its status as a state sponsor of terrorism. CSAG was founded after the US Securities and Exchange Commission (SEC) determined in May 2001 (before the September 11 terrorist attacks) that corporate ties to officially designated state sponsors of terrorism could represent a material risk to investors. The SEC established the Office of Global Security Risk within the Division of Corporate Finance to provide guidance on this new risk category.

"For the first three years, our research on Sudan was not values-based--it was always a question of global security risk," explained Mr. Pener. "If Sudan were not a terrorist-sponsoring state, we would not research companies that have business ties to the country."

"In other words, if the genocide happened elsewhere besides a state sponsor of terrorism, CSAG would not have that data--it just so happens that the confluence of events was such that we did have data on Sudan," he continued.

CSAG is experiencing such a volume of demand for its Sudan research from "values-based" investors that it now references humanitarian risk issues in its Global Security Risk Monitor product under a section called "Points of Interest."

"For example, when Comptroller Thompson of New York City Employees Retirement System filed shareholder resolutions against a number of US companies due to their ties to Iran, we thought that was newsworthy," said Mr. Pener, extending to another state sponsor of terrorism.

Mr. Pener said he foresees a continuing increase in the demand for research on companies with links to states that sponsor terrorism and commit gross human rights abuses such as genocide.


Editor's Note:
To the Editor:

I would like to commend Bill Baue and SocialFunds.com for their
continued coverage of Sudan divestment, a growing nationwide movement that now encompasses dozens of states and universities. As a co-chair of the University of California Sudan Divestment Taskforce, I would like to offer what we feel is the most centralized and up-to-date source for the status of the divestment movement across the country. Specifically, our State of Divestment Report and Updates to that report are based on extensive research and numerous contacts across the country. Our website also has several reports on financial/legal implications for divestment and how institutions interested in divestment may start to tackle the issue.

It should be noted that not all institutions are approaching Sudan divestment the same way. Institutions vary widely on the type of companies they are targeting and the type of investments to be divested; some have targeted all companies, banks, or institutions with any non-humanitarian tie to Sudan while others have only divested from certain oil companies operating in the country. Likewise, some fiduciaries have divested from any and all investment links to offending companies, including private equity, debt instruments, and all equity holdings (including passive and commingled funds). Other fiduciaries have only banned or divested direct holdigns (actively managed public equity holdings in separately managed accounts). Our report makes an attempt to distinguish among these myriad nuances.

Jason Miller
Medical Scientist Training Program (MD/PhD)
University of California-San Francisco

 

 
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