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January 06, 2010
TIAA-CREF Divests its Holdings in Oil Companies Operating in Sudan
    by Robert Kropp

Responding to the genocide in Darfur, TIAA-CREF follows up on its commitment of March, 2009, and divests its holdings in four Asian state-owned oil companies after engagement shows insufficient progress.

Following up on a commitment announced in March, 2009, Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF), a financial services company with over $402 billion in combined assets under management, announced that as of December 31, 2009, it had divested its holdings in four of the five major Asian state-owned oil companies with significant operations in Sudan.

Described by the US government as the first genocide of the 21st century, the government of Sudan’s actions in the Darfur region has led to the killing of hundreds of thousands, as well as long-term displacement into camps of another three million people. According to Investors Against Genocide, a non-profit organization whose goal is to convince mutual fund and other investment firms to change their investing strategy so as to avoid complicity in genocide, “The government of Sudan has continued to pursue genocide in Darfur for over six years, using as much as 70% of its oil revenue to provide arms and funding for the genocide, rather than economic development for the poor people of Sudan.”

TIAA-CREF sold its holdings in PetroChina, CNPC Hong Kong, Oil and Natural Gas Corporation, and Sinopec, after deciding that its efforts at engagement with the companies resulted in “insufficient progress to warrant continued dialogue,” according to a January 4 press release.

TIAA-CREF’s holdings in the four companies were estimated to be approximately $60 million.

Regarding TIAA-CREF’s holdings in PETRONAS, a Malaysian oil company with significant operations in Sudan, Roger W. Ferguson, Jr., TIAA-CREF's chief executive, said, “We have not divested from PETRONAS, which has acknowledged our concerns and engaged in dialogue about how it might address them.” spoke with John Wilson, Director of Corporate Governance at TIAA-CREF, about its action.

“Being actively engaged with the companies that form our portfolio is a core part of what we do, and we believe that engagement is a much better approach as investors than divestiture,” Wilson said. “But this particular issue is a rare exception. Given the severity of our concerns in Sudan, it rises to a different level and demanded a different response.”

TIAA-CREF has engaged with 22 companies with operations in Sudan over the past several years, and ten of those companies have responded to the efforts of TIAA-CREF and other investors by ceasing operations there. Companies that have done so include ABB, Baker Hughes, and Siemens. Others, such as Schlumberger and Total SA, “have committed to subsidize initiatives focused on education, health and water supplies to contribute to the rebuilding effort in Sudan,” according to TIAA-CREF.

“The strategy of engagement with many companies with operations in Sudan was successful,” Wilson said. “Some chose to divest their operations in Sudan, while others chose to conduct themselves in ways consistent with their social responsibility.”

“An enhanced engagement approach required that we focus on those companies with significant operations in that country, and those that had a history of resistance to engagement,” Wilson continued. “We ended up focusing on the major oil companies with real influence, which had contracts directly with the Sudan government. It came down to Asian state-owned companies that do not have a history of engagement with shareholders, and whose governance was a mixture of foreign policy and commercial activities.”

According to Wilson, TIAA-CREF’s efforts at engagement with the five companies had met with little success before its March announcement. Wilson said, “Sending letters hadn’t been very successful, so we ramped up our efforts by using contacts in the governments and among brokers.”

“One of the most significant things we did was join the Principles for Responsible Investment (PRI), and work with its Sudan Engagement Group in engaging with those companies,” Wilson said. “Working with the PRI helped a lot, because we were able to collaborate with other investors.”

The PRI’s Sudan Engagement Group consists of PRI signatories with $2.5 trillion total assets under management. The Group is committed to finding constructive solutions for protecting human rights and promoting strong governance, long-term stability, and economic development beneficial to ordinary citizens in Sudan.

Efforts to intensify the engagement with the companies met with only limited success in the nine months following TIAA-CREF’s March announcement.

“We were able to meet with all the companies,” Wilson said, “But progress was not substantial enough to justify continued ownership in these companies.”

In the case of PETRONAS, the one company that TIAA-CREF decided to keep in its portfolio, “We actually had a meeting of our CEO with the CEO of PETRONAS, with follow-up at the staff level.”

TIAA-CREF’s decision to divest was met with approval by Investors Against Genocide, whose Chairperson, Eric Cohen, said in a statement, “TIAA-CREF has recognized the unique importance of taking aggressive action in the face of genocide and crimes against humanity. TIAA-CREF is the first large, mainstream financial services company to take a public stand supporting the overwhelming majority of Americans who do not want their savings and pension funds connected to genocide.”

Cohen continued, “TIAA-CREF’s commitment to act sets a higher standard for the entire financial services industry.”

According to Investors Against Genocide, large mutual funds that have yet to make a similar commitment to genocide-free investing include American Funds, Fidelity, Franklin Templeton, and Vanguard.

Asked about Investors Against Genocide’s influence on TIAA-CREF’s decision, Wilson said, “Working with IAG helped make us aware and learn more about this issue. Their input helped shape our thinking and give us good ideas to consider how best to approach the issue.”

Although recent reports from Sudan suggest that the severity of the situation in Darfur may have quieted somewhat as the government there turns its attention to unrest elsewhere in the country, the conflict in Darfur remains unresolved. With current Sudanese President Omar al-Bashir under indictment by the International Criminal Court (ICC) for crimes against humanity, the situation there requires continued vigilance on the part of investors who object to giving aid to the Sudanese government through their investments.

Following a September, 2008 hearing on genocide-free investing held by the Congressional Human Rights Caucus, formal Congressional committee hearings on genocide-free investing are planned for 2010, according to Investors Against Genocide.

Asked about TIAA-CREF’s plans for future action on the issue, Wilson said, “This is not over with us. We will continue to work with the PRI group, continue to engage with PETRONAS, and monitor the situation. We hope that at some point the situation in Sudan might improve, and we might re-invest in these companies if they start to take a responsible stance there.”

“This is an ongoing process for us,” Wilson concluded.


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