May 22, 2007
Fidelity Divests Large Chunk of Sudan-Related Holdings
by Bill Baue
Despite similar pressure from Sudan divestment activists, Warren Buffett and Berkshire Hathaway
retain holdings in PetroChina, which is linked to genocide in Darfur.
"It's one of the most effective ads I've ever seen," said Simon Billenness, a veteran shareowner
activist formerly with Oxfam America and Trillium Asset Management, referring to a commercial produced by
the Save Darfur Coalition targeting Fidelity Investments. "It simply shows a woman from Darfur
reading one of Fidelity's mealy-mouthed letters trying to justify its Sudan-related holdings."
Fidelity Investments is one of the largest investors in PetroChina--a "highest
offending" company in helping to fund the genocide in Darfur, according to the targeted divestment
model developed by the Sudan Divestment Task Force (SDTF). PetroChina's parent company, China
National Petroleum Corporation (CNPC), is Sudan's largest partner in the oil industry. More than
70 percent of Sudan's oil revenue is channeled to the military, which arms and trains the Janjaweed
militia that is conducting a campaign of murder, torture, and rape in Darfur, according to the Save
Darfur Coalition, which sent Fidelity four letters outlining this connection last fall.
"I watched it with my jaw wide open," Billenness told SocialFunds.com earlier this month.
"Afterwards I turned to my wife and said: 'Fidelity is toast.'"
In fact, Fidelity
Investments announced in an SEC filing last week that it had divested 91 percent of its American
depositary receipt (ADR) holdings in PetroChina. As one might expect, Fidelity denied the
divestment was in response to activist pressure, while activists cautiously approved of the
divestment from this company with ties to genocide in Sudan.
"While we applaud Fidelity
for taking what seems to be a positive step toward divestment from such companies, we have an
incomplete picture because Fidelity has provided no information about its holdings of H shares on
the Hong Kong exchange which represented the majority of its holdings in PetroChina," said Eric
Cohen, chairperson of Fidelity
Out of Sudan. "Investors should understand that Fidelity may be continuing to be a massive
shareholder in PetroChina."
If Fidelity did not divest any of its H shares, the company
would have divested only 38 percent from PetroChina, instead of the much more significant 91
percent. This leaves Fidelity investors in the dark until it files its 13G report with the SEC
listing global holdings later this year.
In addition to the legion of individual mutual
fund investors, many corporate pension funds invest heavily in Fidelity, exposing them to
Sudan-related investments. For example, there are 29 companies that each have over $2 billion in
retirement funds invested in Fidelity, totaling over $228 billion, according to research conducted by Social(k), a
socially responsible investing (SRI) retirement platform, and Fidelity Out of Sudan. The list
included companies with strong corporate social responsibility (CSR) performance, such as Alcoa,
Ford, Johnson Controls, and Shell, as well as an academic institution--the Massachusetts Institute
of Technology (MIT), with $2.3 billion. The school recently vowed to divest its endowment
assets from companies doing business with the regime in Sudan that supports genocide, though it has
not similarly pledged to divest its retirement investments from Fidelity if the company turns out
to still have significant holdings in Sudan-related investments.
stonewalling of appeals to divest from PetroChina echo its stance on calls from investors to vote
in favor of shareowner resolutions on climate change at companies in its portfolios. According to
FundVotes.com, a site with data on mutual fund
proxy voting maintained by The Corporate Library (TCL) Senior Research Associate Jackie Cook,
Fidelity did not
support any global warming resolutions in the 2006 proxy season.
One of the other
biggest investors in PetroChina, Berkshire Hathaway, faced a shareowner resolution this proxy season
asking the company to divest its 1.3 percent stake in PetroChina (CNPC owns a 90 percent stake.)
As with Fidelity, the Save Darfur Coalition corresponded with
Berkshire Hathaway Chairman Warren Buffett, who opposed the move, arguing that divestment will not
bring about an end to the genocide.
Divestment is indeed a blunt tool, with no guarantee
that it will be effective. Some institutional investors who practice SRI, such as the California
Public Employees Retirement System (CalPERS) and the New York City Employees Retirement System
(NYCERS) argue that
engagement is a better tool for effecting change. Other SRI institutions, such as Calvert,
argue that divestment is necessary in extreme instances such as Sudan.
institutions such as CalPERS and NYCERS have a long history of effective shareholder action,
neither Fidelity nor Berkshire Hathaway are known for engaging with portfolio companies to address
social or environmental issues. When asked about using his influence as a major investor to
promote change at PetroChina at a press conference the day after Berkshire Hathaway's annual
meeting, Buffett reportedly said that moral suasion was fruitless.
The Sudan resolution at
Berkshire Hathaway received only 1.8 percent support from voting shareholders (calculated after
taking into consideration the different weight of Class A and Class B shares), while 97.5 percent
of voting shareholders opposed the proposal and 0.7 percent abstained.