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October 15, 2010
Eric Cohen Discusses Genocide-Free Investing
    by Robert Kropp

The Chairperson of Investors Against Genocide describes his efforts to engage with financial institutions on the issue, as well as the organization's new focus on financial advisors. Second of a two-part series.

As reported yesterday on, Investors Against Genocide (IAG), an organization engaged in pressuring investment firms to end their investment in companies that contribute to genocide or crimes against humanity, has published a white paper describing its work on the issue.

Citing a 2010 study by KRC Research, IAG reported that 88% of respondents want their mutual funds to be genocide-free, and 84% said they would withdraw investments from financial institutions that do business with companies that support genocide. Founded in 2007, IAG was formed address genocide in the Darfur region of Sudan, and in the first stage of its operations concentrated on engaging with financial institutions whose holdings include such companies as PetroChina, the oil company whose payments to the government of Sudan have helped bankroll the genocide that has occurred there. spoke with Eric Cohen, the co-founder and Chairperson of IAG, about his experiences with engagement thus far.

"Ordinary Americans want no connection with these terrible human rights abuses, but for the most part they have no idea that the financial institutions which they are entrusting with their family savings are the largest investors in the worst companies helping the regime," Cohen said. Although the
Sudan Accountability and Divestment Act of 2007 (SADA), which passed unanimously in both houses of Congress, "Provides a safe harbor provision for fiduciaries, who would be immune from lawsuits if they used the Act to divest from companies doing business in Sudan," according to Cohen, large mutual fund companies such as Fidelity and Vanguard chose not to do so.

The story Cohen tells of IAG's engagement with these and other financial institutions provides illuminating insights into how they choose to operate.

"With mutual funds, we're at a disadvantage, because unlike requirements that corporations have annual shareholder meetings, mutual funds are not on any sort of cycle whatsoever," he said. "When we had our shareholder meeting with Vanguard, their last meeting had been held five years before. Directors serve unlimited terms, and when they resign new directors can be replaced on an interim basis. For mutual funds, where American families invest, they have a hard time having their voices heard."

"Fidelity and Vanguard are not very forthright about these investments," Cohen observed. "They would like this discussion to not see the light of day. For several years we've been submitting shareholder proposals, but both companies vigorously opposed a modest proposal that asked them to make an effort to avoid investments in companies that are involved with genocide."

Describing his experience with Fidelity, Cohen said, "We engaged with Fidelity about six times over the course of a couple of years. They never said that investing in PetroChina was necessary for returns, but simply said that what they were doing was legal. They opposed having any policy that limited their flexibility. There was no interest in negotiating to avoid investing in the worst human rights abuses. Yet, despite the efforts of the company to put its thumbs on the scale, at Fidelity some three million shareholders of record voted against the recommendation of management."

"The case with Vanguard was a little different," Cohen said. "In private discussions they did say that they had to do what an index that included such companies said. We presented them with their own prospectus that said they were not required to slavishly follow an index, after which they surprised us by stating that they do have a human rights policy. They declared that their human rights policy was "substantially identical" to the shareholder proposal. We were heartened by that, and told them we would judge them not by vague promises but by how they moved their feet. What we discovered was that they actually increased their holdings in the worst companies. Then, as we tracked it, we found that they had almost doubled their holding in PetroChina and other problem companies."

"If Vanguard couldn't figure out that PetroChina was one of the worst companies, then they weren't making much of an effort to try. But some four million Vanguard shareholders of record voted in favor of our proposal," he continued.

Shareowner proposals were withdrawn at
Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF), and at BlackRock's iShares as well, after engagement produced positive outcomes, which led to an emphasis in IAG's white paper on what Susan Morgan, a co-founder and Director of Communications of IAG, described to as getting "the word out on companies that have taken the right steps, and inform consumers as to how to invest with them."

Cohen said, "Our expectations for financial advisors are very different from what we've learned to expect from financial institutions. Judging by our experience with Fidelity and Vanguard, financial institutions want to take care of their own interests, and invest in whomever they please. Whereas financial advisors, by their very nature, are trying to bring value to their customers. Their job is to match up investment products with the needs of the customer."

"The white paper brings to financial advisors the facts about what their customers want. There is a broad-based need for mutual funds that are genocide-free. Now, investors don't have to deal with Fidelity or Vanguard. There are other players every bit as big with broad offerings."

In addition to TIAA-CREF, American Funds also sold its holdings in PetroChina and other companies associated with genocide in Sudan. "We had a healthy engagement with American Funds at its shareholder meeting, which the Vice Chair attended," Cohen said. It turns out that American Funds had already had some experience with divesting from companies in Sudan, when it sold its shares in Talisman Energy several years ago.

Another genocide-free investment product that will soon be available to investors is an Exchange Traded Fund (ETF) offered by iShares. Cohen said about the ETF, "If people can choose between two products that are exactly the same, except that one is genocide-free, then ordinary investors are not going to have a hard time figuring out what to do."

Although many sustainable investment funds have screened out such companies as PetroChina from their portfolios for many years, IAG has focused on the largest mutual fund companies, because their investment products are used by the great majority of American investors.

Going forward, IAG expects to revisit Congress, before which it has appeared in the past to argue for a genocide-free investment standard that would address not only Sudan but prevent investing in other mass atrocities as well. Cohen said, "We hope to be discussing transparency and disclosure methods. Because we now see significant differentiation in the marketplace, if there is clear disclosure and transparency, then people will go to the places they can go."

Cohen concluded by addressing the increasing membership in such initiatives as the
UN Global Compact and the Principles for Responsible Investment (PRI). PetroChina is a member of the Global Compact, and Cohen said, "That PetroChina promises to respect and protect human rights is quite an unbelievable statement. The company does have a CSR statement, but it doesn't say anything about the problems it's been involved with. I think it's shameful that the Global Compact is allowing PetroChina to get credit from its good offices."

"It's a good thing that more financial institutions are looking at the PRI, but I would challenge any one of them to match their actions with their aspirational commitments," Cohen added.


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