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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.

Fidelity's initial 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 shareowner 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.

While activist 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.

 

 
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