June 28, 2006
Missouri Treasurer Implements Anti-Terrorism Screen on State Fund
by Bill Baue
The screen excludes Sudan as a state sponsor of terrorism, not necessarily as a genocidal regime,
distinguishing this strategy from other Sudan-related state divestment strategies.
While many states are divesting from companies doing business with the genocidal regime in Sudan,
others are adopting anti-terrorism screens that exclude companies doing business with Sudan and
five other state sponsors of terrorism identified by the US State Department. For example, last
week Missouri Treasurer Sarah Steelman
announced that State Street Global Advisors (SSgA) will manage an enhanced index portfolio for the Missouri
Investment Trust (MIT) with an anti-terrorism screen developed by Conflict Securities Advisory
Board of the MIT, which Treasurer Steelman chairs, voted in September 2005 to adopt an
anti-terrorism screen and release a Request for Proposal (RFP) for a large cap international fund
with such a screen. Four firms responded: Julius Baer, Morgan Stanley, SSgA, and UMB Bank. The
MIT Board selected SSgA for its International Alpha Select Fund, an enhanced index portfolio
holding about 125 stocks, with CSAG as subcontractor to provide a list of stocks with "global
security risk," the term coined by the SEC for terrorism-related risks. A preliminary study found
that approximately 15 percent of the 125-odd stocks would not pass the anti-terrorism screen.
One of the first priorities of the treasurer upon entering office in January 2005 as the first
Republican woman treasurer in the state, was to scrutinize investments in the Missouri State
Employees Retirement System (MOSERS) as a
member of its board. She discovered both France-based BNP Paribas, which was embroiled in the
Iraqi oil-for-food scandal and was attempting to raise $60 billion for loans for developments in
Iran, and Arab Bank, which raised global
security risk concerns.
MOSERS had an anti-terrorism policy in place for several years
that failed to exclude these holdings, so Treasurer Steelman advocated for strengthening this
policy into a formal screening process that was implemented in July 2005. This served as a model
for the screen adopted by MIT, which taxes income on entertainers and athletes and directs returns
from these funds to state cultural organizations.
Treasurer Steelman distinguishes between
screening for socially responsible investing (SRI) criteria and screening for global security risk
linked to terrorist groups and activities.
"Sometimes, those two overlap--Sudan is such
a case, as it is one of five nations the US government has sanctioned as a state sponsor of
terror," Treasurer Steelman told SocialFunds.com. "The human rights atrocities occurring in Sudan
However, Treasurer Steelman notes that the MIT screen for Sudan is
based on the fiduciary obligation of averting global security risk, not SRI human rights criteria.
To illustrate the distinction, she cites the example of South Africa, where the SRI community and
other activists advocated for economic sanctions and divestments to exert pressure on the South
African apartheid regime to make social change.
"We are not focused on this type of
change, per se," Treasurer Steelman said. "Our goal is to try and cut off support for companies
that support terrorism--public dollars should not be used to invest in companies that sponsor or
support terrorism or in companies with a direct financial relationship with countries that are
sanctioned by the United States."
"The goal of responsible stewardship of those
investments is complementary, regardless of which perspective you approach this with," she
continued. "The fact is, investing in a company or a country that supports terrorist activities is
unconscionable and inhumane, and it's also not a very smart investment--you don't have to invest in
companies involved in countries that sanction terror to maximize returns."
study rebalanced the SSgA MIT portfolio after applying the CSAG terrorism screens, which resulted
in "a slightly better return" according to Mark Hughes, director of policy and communications for
the Treasurer's Office. This performance will enhance MIT's strategy serving as a model for
anti-terrorism screening, as other investors with similar concerns can adapt the framework to their
own criteria. Mr. Hughes considers this precedent a major benefit for public institutional